Market volatility, FUD, discussions about regulations and always more interest from institutions… that’s a typical week for Bitcoin.
So let’s dive in and see what happened.
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Bitcoin vs US Real Estate
This week we continue our series comparing Bitcoin to other asset classes with a look at real estate.
Let me be a little more precise here.
In the past we have looked at Bitcoin versus the SP500 and gold. These are pretty well defined financial assets that are traded on global exchanges.
By contrast real estate as a financial asset is less well defined. The problem is that it can mean a lot of different things.
Buying a house to live in is a real estate investment. Buying an apartment to run an Airbnb is a different kind of real estate investment. Buying an office building is yet another kind of real estate investment.
And buying real estate in Austin, Texas, is not the same as buying condos in Hong Kong. Location, location, location…
So what I’m saying is that you can’t summarize real estate investment in one number.
That means we have to be specific regarding what we are looking at.
Today Bitcoin vs real estate is really Bitcoin vs the Dow Jones US Real Estate index.
The DJUSRE index tracks real estate investment trusts and other investment companies whose business is real estate investment in the US.
This is the closest thing you get for a pure financial exposure to the real estate sector without owning any actual real estate asset.
Ok, that was a pretty long winded introduction so let’s get to the numbers:
8 years ago at the time of the 1st halving the DJUSRE was trading at 20 BTC.
4 years later at the time of the 2nd halving the DJUSRE was priced at 0.510 BTC.
This year at the time of the 3rd halving the DJUSRE was worth 0.034 BTC.
As of last week the DJUSRE was down to 0.017 BTC.
See for yourself.
That’s a pretty familiar pattern isn’t it?
Moral of the story?
At the exception of some hyper growth tech stocks and other crypto assets it is extremely hard to keep up with Bitcoin.
Guess who’s back
Fed Chair Janet Yellen… except this time her role is US Treasury secretary…
There is an interesting theory about why the US Federal government cannot print his way out of debt.
It goes like that.
To get cash to spend the Federal government needs to sell debt. It does so with the US Treasury selling Treasury bonds.
How much money they get depends on much the market is willing to pay.
So in theory the amount of money the Federal government can raise through this channel is constrained by the market.
Money has to come from someone else’s pocket.
Then enters the Federal Reserve.
The Fed can create money out of thin air. If they decide to purchase US Treasury bonds they can buy as many as they wish.
In theory the Fed is acting independently of the Federal government.
That means there is no guarantee that if the US Treasury sells bonds the Fed will buy them.
That’s all theory though...
In practice the US Treasury sells the bonds and the Fed spits the cash.
This is plain and simple debt monetization that we have seen play out in the recent months.
So with the new administration getting into office what is going to happen?
Well if we go by what Janet Yellen has done in the past the most likely scenario is more of the same.
The message in the media has been pretty clear in the past few days. All the portraits of Janet Yellen from the New York Times to the Financial Times emphasize two things:
She is an economist with a heart.
She wants to help workers.
All things she is unlikely to achieve without creating more debt financed by the Fed.
Needless to say, this is good for Bitcoin.
KYC or CYA
If we have to attribute the Thanksgiving Bitcoin dip to something then we can probably trace it back to that:
What is this thread all about?
Here is what I understand so far.
Some ideas for new regulations are floating around in the US.
Those new rules would require businesses that transact in Bitcoin to run KYC on all parties involved in the transactions.
Example.
I run a full node. If someone decides to send me some BTC from their Coinbase wallet then this kind of regulation would require Coinbase to collect KYC information on myself before allowing the transaction to take place.
Honestly that feels very impractical to say the least…
And I’m not even sure what the point is.
If someone wants to go around the measure they would only need to add one more step to the process. It would go something like:
A Coinbase customer wants to send some BTC to the non-KYCed wallet running on my full node.
They could run a full node themselves and KYC it with Coinbase. After all they are already clients of Coinbase so it should be very easy.
They move whatever amount of BTC they need to send me from Coinbase to their full node.
After that they can just use the Bitcoin network as it was designed and send me BTC in a trustless fashion.
So all that really does is adding some friction to the system...
If you have had to deal extensively with KYC in the course of running your business or simply making some investments you’ll know that very fast Know Your Customer becomes a box ticking exercise more akin to Cover Your Ass for the banks rather than being an actually efficient tool to monitor shaddy activities.
This feels to me like one more example of that.
These regulations will add friction at the on-ramp and off-ramp levels. It will mostly be inconvenient for ordinary people and small investors.
But this should cause hardly any issues for large investors and institutions.
Business as usual in the world of finance.
Institutions are buying Bitcoin
Seems like we are getting those news every week now. Another relatively large investment manager is expressing interest in Bitcoin.
This time it is Guggenheim Partners with $270 billion of assets under management which plans to get some exposure.
One of their funds will buy some GBTC to the tune of $500 million which is about 10% allocation.
These days that would give you the equivalent of 28k BTC. Not huge but better than nothing.
The most important step is to get off zero.
Scarcity and sovereignty
Here is a great take by Niall Ferguson on Bitcoin in the current global economic and political context.
I’ll leave you with two quotes, you must go read the rest:
“The advantages of scarcity are obvious at a time when the supply of fiat money is exploding.”
“The advantages of sovereignty are less obvious but may be more important. ”
That’s it for today. If you have learned something please subscribe and share to help the newsletter grow.
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:
Click on the subscribe button right below.
Follow Ecoinometrics on Twitter at https://twitter.com/ecoinometrics.
Done? That’s great! Thank you and enjoy.