Is Bitcoin the only game in town?
From the unreasonably long Bitcoin Raoul Pal to Paul Tudor Jones betting on the fastest horse and my uncle asking me if it is time to buy, it seems that everybody loves Bitcoin these days.
For good reasons...
The Ecoinometrics newsletter decrypts Bitcoin’s place in the global financial system. If you want to get an edge in understanding the future of finance you only have to do two things:
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The stock market is crashing
Yep, it is crashing when priced in hard money.
If you ask a random investor about what’s going on in the market you might hear something like: stonks always go up.
That’s half-meme half-truth.
If you look at the stock market priced in US$ then yes. Thanks to the Fed the SP500 pretty much always goes up.
I mean sure, it is flat for the year. But the Fed put is working. You wouldn’t be able to tell that the real economy continues to struggle just by looking at stock prices.
But the real picture becomes obvious when you look at valuations in terms of hard money. Just compare the year to date performance of the stock market versus gold and Bitcoin.
When, despite the best effort of the Federal Open Market Committee, the SP500 futures are up 2% for the year you have:
Gold up 35%.
Bitcoin up 70%.
Another way to phrase that is the SP500 is down 40% year to date when priced in Bitcoin.
Some might say that if you pick the right time frame of course you can say that the stock market is crashing when priced in hard money. So how about we take a step back.
Let’s go from the short timeframe of half a year to a multiyear view on the relationship between the SP500 and Bitcoin.
Check it out.
The SP500 went from being worth 300 BTC in 2012 to 0.3 BTC currently. That’s 1,000 times smaller in 8 years...
What is that telling us? In my opinion, if anything it is telling us that the intervention of central banks in the financial markets is propping up all assets: stocks, gold and Bitcoin.
But if you have to make a bet then bet on the fastest horse. And here the fastest horse is clearly Bitcoin.
The only asset you need
So what I’m saying is that if you look at the long term trends everything points towards Bitcoin being the real winner if your time horizon is big enough.
Here are the bullet points:
The trend since 2008 has been more money printing by central banks. This is pushing hard assets always higher when denominated in fiat.
We are entering the era of the great wealth transfer that will make Millennials an estimated 5 times richer than now by 2030. Millennials are overwhelmingly positive on Bitcoin.
Institutional money has yet to enter the market. When it comes, the pressure of institutional inflow will propel Bitcoin to a new category of asset much closer to gold in terms of market cap.
Each halving by making Bitcoin more scarce is driving exponential growth. We have just started the third halving cycle.
I repeat once more. If you have only one trade to make, be long Bitcoin.
One person articulates this better than most: Real Vision CEO Raoul Pal. Just watch the interview in last Friday’s Real Vision Daily Briefing and get enlightened.
Sizing DeFi projects
I haven’t paid much attention to what’s happening in the DeFi world. But I recently listened to an interview of Yan Liberman from Delphi Digital by Pomp and it got me thinking.
Yield farming. Layers of tokens on top of tokens. That has my decentralized financial engineering spider sense tingling.
But is it worth investigating?
On Coinmarketcap I see that there are more than 50 tokens listed under the DeFi category. But most of those projects are still very small:
37 projects have a market cap above 1,000 BTC.
Most of those projects are very small in size.
The clear winner in the space at the moment is Chainlink. Its market cap is about 2% the size of Bitcoin.
Who knows if it is going to be a lasting trend. For now wait and see.
Missing the point
Here is an article from the Harvard Business Review about how central banks issued digital currencies will save poor people…
There is one concept this article gets right. Cryptocurrencies allow you to disintermediate finance. In essence you are your own bank.
Bitcoin allows you to be your own bank. Don’t be fooled into thinking that digital currencies issued by central banks will allow that.
Ultimately the digital dollar might allow you to skip the banks as financial intermediaries. But at the end of the day it only gives more control to the central banks and I’m not sure we’ll be better for it.
Just buy Bitcoin and opt out of the system.
51%
Reading about 51% attacks on smaller cryptocurrencies makes you really appreciate the power of the network effect giving Bitcoin a special status.
The Bitcoin network hashrate is trending always higher. There is no doubt about which network is the most secure out there, by a good margin!
The Ecoinometrics newsletter decrypts Bitcoin’s place in the global financial system. If you want to get an edge in understanding the future of finance you only have to do two things:
Click on the subscribe button right below.
Follow Ecoinometrics on Twitter at https://twitter.com/ecoinometrics.
Done? That’s great! Thank you and enjoy.