Things move so fast these days that it is hard to remember what happened only a few months ago.
But unless you are new to the space, you certainly haven’t forgotten the FUD around the Chinese ban on Bitcoin mining.
So how did that turn out?
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FUD no more
There is an endless source of FUD (Fear, Uncertainty, Doubt) surrounding Bitcoin:
Calling it a Ponzi Scheme just because people expect to make money on their investment…
Calling it a tool for tax evasion, money laundering, and terrorist financing even though the network is totally transparent and tiny compared to the US$…
Calling it an environmental disaster in the making despite the fact that its energy consumption is independent of the usage of the network…
Calling it centralized because most of the mining happens in China…
Wait. Actually FUD spreaders are going to have to remove the last one from their list. Really. There is nothing left to talk about here. The Chinese government made it clear they don’t want miners to operate. The miners left. There is no longer any mining (at scale) happening in China. Simple. Clear. Definitive.
So while around the time of the halving last year about two third of the hashrate was controlled by mining operations in China we now have a much more balanced situation:
The share of US miners jumped to one third of the global hashrate.
A number of Chinese miners migrated to other places in Asia. Kazakhstan is the big beneficiary of this exodus.
Canada also significantly expanded its mining operations.
See for yourself.
As long as we stay in a regime where no country hosts more than a third of the global hashrate it will be trivial to disprove any claim of centralization of the mining infrastructure.
Oh, and by the way, it isn’t only that the hashrate has become more uniformly distributed across countries. It is also that most of the lost hashrate that resulted from Chinese miners unplugging their rigs has been recovered.
Check it out.
The bottom happened in July when the hashrate reached levels last seen at the beginning of 2020. Note that in January 2020, literally no one was claiming that the Bitcoin network was insecure. So even if we had stayed at those levels it wouldn’t have been a big deal.
But the Bitcoin network is designed to be resilient so the final outcome ended up being:
More geographic decentralization of mining operations.
A global hashrate moving back towards all-time highs.
That’s what I call a win-win. Thus even more than resilient, I think you could call the Bitcoin network antifragile...
Macro conditions
If we are talking at a macro strategic level, there are three reasons why you want to own Bitcoin at the moment:
Bitcoin is THE dominant player in this relatively new investment category which is digital assets. As long as we are in the adoption phase of digital assets this is all tailwind for BTC.
Bitcoin is designed as a store of value. That means it benefits from investors worrying about high inflation.
Bitcoin is a hard financial asset. That means some of the new money printed into existence by central banks automatically find its way to BTC.
The last point is particularly important if you consider that financial institutions are increasingly likely to be buying Bitcoin due to a better regulatory environment.
Why? Well this is all about the Cantillon effect.
Banks and financial institutions directly connected to them are the first one to benefit from the kind of money printing done by the Federal Reserve.
Essentially, those extra dollars created out of thin air don’t go directly in the real economy. Instead they give some extra leverage to financial institutions which, oh surprise, use that to buy financial assets.
With the US becoming more and more regulatory friendly towards Bitcoin it is then likely that the flow of money coming from institutions will increase.
Needless to say, this is good for Bitcoin.
Price predictions
At the start of last week, I asked the following question in a Twitter poll: where do you see Bitcoin one month from now?
The answer:
60% place BTC above $75k.
32% place BTC between $55k and $75k.
8% place BTC below $55k.
As you can see from the outcome of the poll, very few people think this move is a dead cat bounce or double top or whatever you want to call it.
Nope.
The price is rising and almost everyone thinks the price will continue to rise. I guess this is recency bias 101: when giving a prediction for the future people give more weight to the most recent events.
And since we have been running the price prediction poll for one month already, it is very easy to notice that on a chart.
Check it out. For each prediction date you can see the distribution of the votes and the median price.
Remember that each poll asks for a prediction one month into the future. So you can see that as the price of Bitcoin is rising, so is the median prediction:
$56k for October 27.
$60k for November 02.
$68k for November 11.
$75k for November 19.
The exact same thing happened for the ETH price predictions, as Ethereum’s value was rising so did the median prediction:
$4,000 for October 27.
$4,200 for November 03.
$4,500 for November 11.
$5,000 for November 19.
Now, the recency bias is what leads to FOMO. So if BTC can get a clean breakout above $64k we are off to the races.
As I am writing these lines on October 25, BTC is trading at $61,800 and ETH is around $4,100. That’s not very far from what you guys predicted a month ago! At least it is in the bulk of the distribution.
Let’s see if the future predictions continue to come so close. Time to vote in the link below:
https://forms.gle/BKNRMPhBTEdjGAKC7
That’s it for today. If you have learned something please subscribe and share to help the newsletter grow.
Cheers,
Nick