Bitcoin: It’s About to Get Loud

Well it’s official, three years after the last one, Bitcoin has set an all time high and broken through the massive $20,000 resistance point . As I write now, it’s actually trading at around $21,500. However, somehow it feels different this time around. Something is missing. It’s very, very quiet… Nobody outside the world of finance or crypto itself seems to be paying much attention.

I remember the previous all time high very clearly. Late 2017, having risen from under $1,000 earlier in the year, Bitcoin surged past $10k and just kept on marching. New highs were marked every week. Here in Japan there were crypto exchange ads on TV constantly. (remember Tetsuro Degawa and the ill-fated Coincheck?) Mr. and Mrs. Watanabe were buying feverishly as the FOMO (Fear Of Missing Out) took hold. I remember watching a news report about Kabukicho hostesses trading crypto on their smartphones. The 2017 bull run was driven by individual investors caught up in a get-rich-quick buying frenzy. And when the bubble burst they all got burned…

Fast forward three years and the landscape looks quite different. Since the halving in May 2020, Bitcoin has gradually fought its way through heavy resistance at $10k, $12k, $13k, $14k and now $20k. Mainstream news, dominated by Covid-19, economic stimulus and a soaring stock market, makes little mention of it.

Meanwhile, big things are happening: You can now buy crypto through Paypal. MicroStrategy, a business intelligence software company, has invested $475 million of its cash reserve in Bitcoin and is in the process of issuing $650 million in convertible notes, the proceeds of which will be used to buy more BTC. Square, the payments company run by Twitter’s Jack Dorsey has invested $50 million in Bitcoin. One River Asset Management, a hedge fund specialising in volatility bets, has just emerged as another huge investor in Bitcoin, with some $600 million already allocated. And also this week, MassMutual has become the first insurance company to invest in Bitcoin, dipping its toe in with a $100 million investment.

Are you feeling bullish yet?

Guggenhiem Partners, who manage over $230 billion in assets, started investing in Bitcoin when it was around $10,000. Their CIO, Scott Minerd, just shocked Bloomberg TV hosts by telling them that his firm’s analysis shows it should be worth $400,000. (Video here – tellingly Bloomberg delayed coverage of a Federal Reserve press conference to get this comment!)

Following the massive success of Grayscale Investments, Bitwise have just launched the Bitwise 10 Crypto Index Fund, which invests in the 10 biggest cryptocurrencies. The fund is available to purchase the same way you would purchase a stock or an ETF on US brokerages, and is already seeing huge demand. (not to mention a dizzying jump in price)

What is interesting here is that the reason for this underlying demand from companies and financial institutions is due largely to a change in the perception of Bitcoin, from payment system to store of value.

The original Bitcoin white paper talked of a peer to peer electronic cash system: i.e. a means of exchange, something you would use to buy your coffee, but with no intermediary / bank in the middle of the process. While Bitcoin is certainly capable of such transactions it is still somewhat clunky and there are other cashless payment methods, and even other cryptocurrency solutions, that can get the job done more efficiently.

What the likes of Michael Saylor at MicroStrategy see, is that Bitcoin acts far better as a store of value, an alternative to the “melting ice cube” that is Fiat currency. This is the role that has typically been played by gold for generations. The unprecedented expansion of Central Bank balance sheets, pumped ever higher by Covid-19 stimulus, has institutions eyeing an asset which, despite being easy to transport and store, cannot be manipulated to increase supply. You can’t just print endless Bitcoin. Understanding this shift in reasoning is essential for individual investors wondering why they should care about digital assets. (Saylor has been the guest on a number of podcasts where he talks at length about his reasoning on Bitcoin – here’s one if you are interested in listening)

Institutions and Bitcoin “whales” are certainly trading the BTC price action to some degree, but their main goal is accumulation. And compared to individual investors they have the capacity to accumulate in bulk. When dips in price scare off smaller investors and day traders, these big guys are hoovering up supply and locking it away for the long term. This level of demand combined with Bitcoin’s built in scarcity could lead to some serious price moves in the next 12 months.

So how should regular investors be adjusting to this new dynamic? If you don’t own any crypto but think you should, how do you get involved without getting burned? What follows is my two cents, for what it’s worth, in a market that changes fast. Please note that I am not a trader and do not use leverage. The purpose here is to share my thoughts on how to accumulate BTC. All the usual disclaimers apply: I don’t know your financial situation or risk profile, this is not investment advice, don’t invest money you can’t afford to lose etc etc:

  • Breaking $20k is a big deal. We could be off to the races, but new resistance levels will form and volatility is the norm in crypto.
  • Expect retraces down into the 17,000s and below, and be ready to buy these dips. It’s going to take courage as every financial news site will be screaming about the “crash” in the Bitcoin price.
  • Any kind of major macro shock, eg. a severe stock market correction, will send BTC tumbling down with it. This will be even scarier as the panic will lead investors to sell every asset they have to raise cash, as they did in March this year. Mainstream news will now be proclaiming a full-blown financial crisis. Bitcoin will be pronounced dead for failing to act as a hedge against other assets. Hold onto your hat and buy as much as you can.
  • Hold, hold, hold.
  • Assuming however, there is no such macro shock. Things are about to get interesting. Just as big dips are possible, so are big moves up.
  • Accumulation is best done little by little over time, and the same goes for selling a rising asset. If the trend is up, don’t fight it. Sell a little at a time unless you are already looking at life-changing values. (when kabukicho hostesses start trading again and Degawa pops up, it’s probably time to think about getting out!)
  • I’m not going to guess how high it’s going to go. If you are looking for price models, charts and research here are some people worth following: @100trillionusd / @woonomic / @PrestonPysh / @raoulGMI
  • When BTC takes off, altcoins generally follow. Personally I would stick to the top 10 in the Bitwise fund. I have no idea where Dogecoin will land in all this!

By the time you read this, prices could already have changed significantly. This is a fast-moving space. Whatever happens, I don’t think it will stay this quiet for much longer. Things are about to get loud!

With that I’ll sign off. Wishing you a safe and enjoyable holiday season and an exciting 2021!

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.