Ecoinometrics - February 01, 2021

In retrospect, it was inevitable...

Well that was a busy week… I mean even if you ignore the GameStop saga. Seems like more and more people are coming around to Bitcoin: Elon Musk, Ray Dalio, Mark Cuban…

I guess in retrospect, it was inevitable.


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Now let’s dive in.


In retrospect, it was inevitable

Three headlines.

Elon Musk, Bitcoin status:

Ray Dalio, further look into Bitcoin:

https://www.linkedin.com/pulse/what-i-really-think-bitcoin-ray-dalio/

Mark Cuban, what is value:

https://blogmaverick.com/2021/01/31/the-store-of-value-generation-is-kicking-your-ass-and-you-dont-even-know-it/

What do Elon Musk, Ray Dalio and Mark Cuban have in common? 

Among other things, they all started by dismissing Bitcoin. 

It is pretty clear that they did so without thinking too much about it though.  

But as any open minded person would do they gave it another try. They examined what Bitcoin is and what it could be in more details. 

The result is that they found there is value in the network and a vast potential for growth. 

Bitcoin means different things to different people but one thing it isn’t is worthless.

The potential upside in Bitcoin is extremely large. That means even if you give Bitcoin a low probability of succeeding, it is still worth to make a bet on it. Such is the nature of asymmetric bets.

So what if you don’t know what to do? What if you aren’t convinced yet?

I’d say defer to Ray Dalio’s conclusion, the reward is worth the small risk:

“Bitcoin looks like a long-duration option on a highly unknown future that I could put an amount of money in that I wouldn’t mind losing about 80% of.”


Bitcoin treasuries

Michael Saylor is organizing a conference to share his Bitcoin treasury strategy for businesses later this week.

That’s not a bad time for a quick update on what’s going on in the world of Bitcoin treasury hodlers.  

So who owns what?

Bitcoin Treasuries tracks the companies who own Bitcoin as part of their treasury reserves and on Sunday night we had:

  • BTC 1,227,615 held in companies treasuries.

  • That’s 5.85% of the Bitcoin supply.

The elephant in the room is the massive size of the Grayscale Bitcoin Trust. Alone it captures almost 3% of the Bitcoin supply. It is 9 times larger than MicroStrategy.

Of course GBTC and MicroStrategy are quite different:

- Grayscale is the closest thing to a Bitcoin ETF that you can get.

- MicroStrategy is a pure company treasury play.

That’s technically true even though most of the price action of the MSTR shares can be attributed to the value of their Bitcoin hodlings.

That being said MicroStrategy largely dominates the public companies with 70,784 BTC  in their treasury. And by far Michael Saylor is one of the most vocal personalities in the Bitcoin world these days.

A recent addition to the public companies hodling Bitcoin is the Marathon Patent Group. Their position is interesting:

  • They are listed on the NASDAQ.

  • They are originally a software patent holding company.

  • They are ramping up to be a US based Bitcoin miner.

  • They are hodling Bitcoin.

Looks like a transition for holding patents to hodling Bitcoin. Nice move.

It remains to be seen if their share price will follow the same dynamic as MicroStrategy. On one hand you’d think that they probably won’t because they only hold about 5,000 BTC (so far at least). On the other hand they are becoming a miner so it would make sense for their share value to be highly correlated to the value of Bitcoin.

They have only announced this move a week ago so it is too early to tell. But as we get more data we’ll start tracking their performance like we do for MSTR.

But regardless of what their share price is doing, something that will probably do well is their return on Bitcoin hodlings.

As of now all the public companies with Bitcoin treasury programs are in the green:

  • All of those who invested before the start of the growth phase of the 3rd halving have doubled their money.

  • OGs like Coin Citadel have 90x their investment…

So yes, converting cash reserves you have no use for into BTC and holding on to it for a long time is the way to go.

We are still waiting for more public companies to get in the game but things aren’t looking bad.


India bans Bitcoin

I mean it isn’t done yet. But from what I’ve read it is likely to happen. 

To be more precise this isn’t a ban on Bitcoin specifically. The proposed law would ban any “private” cryptocurrency which I guess should be understood as anything that isn’t a Central Bank Digital Currency.

Obviously India is developing their own CBDC. 

People are taking the news as one of those “it is bad for Bitcoin”. I’m going to say, yes it is bad for Bitcoin but only in the short term. A “sell the news” effect if you want.

In the long term this is just another test for Bitcoin. 

As noted in the article the biggest concern people tend to have regarding the future of Bitcoin is that governments might decide to ban it. 

So what happens if India bans Bitcoin but it becomes obvious they can’t enforce the ban efficiently?

What happens if India bans Bitcoin but it later becomes clear that they have shot themselves in the foot making the country lag in the global competition?

What happens if India bans Bitcoin but has to roll back the measure when they realise it was a mistake?

All these scenarios would serve to demonstrate to other countries that an outright ban is not the way to go.

Bitcoin is resilient. India banning it won’t kill the network. 

It might have a negative impact on the price in the short term but it is more likely to have a negative impact on Indians in the long term.

Read the article.


That’s it for today. If you have learned something please subscribe and share to help the newsletter grow.

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Cheers,

Nick


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:

  1. Click on the subscribe button right below.

  2. Follow Ecoinometrics on Twitter

Done? That’s great!