Miscellaneous | Bitcoin: A Letter To Investors - Part 3

15th Dec '23 by shauniekent

73 comments 2183 reads

It's been two years since my last article here for Stockopedia subscribers. A lot has happened in that period so i'd like to recap, review Bitcoin's performance and pick out some of the key developments - including a huge about turn by the world’s largest asset manager, BlackRock. To finish i'll share some personal oberservations. But first, I recommend you read letter 1 and letter 2 if you haven’t already.

	Date	Price on publication	% Appreciation since
Article 1 https://www.stockopedia.com/co...	15th Apr 2020	£5,433	515%
Article 2 https://www.stockopedia.com/co...	2nd Jan 2021	£21,467	56%
Article 3	15th Dec 2023	£30,150

Price Action since 2020

Unless you've been completely ignoring Bitcoin it will have been hard to miss the bull and subsequent bear markets we've seen since 2020. In typical fashion we saw explosive price action with price racing to highs of £55,000 in 2021 befrore plunging to lows of £13,500 late in 2022 . Subsequently, Bitcoin holders have seen 2 years of grinding downwards prices. Each time it looked like the price can't possibly fall further, another round of capitulation in the market sinks the price to new (recent) lows.

As recessions in the fiat economy are supposed to, Bitcoin bear markets clean out the deadwood with merciless effectiveness. The bear market revealed a number of large ‘crypto’ firms behaving scandalously with customer funds - ranging from rampant leveraged speculation on 'crypto-tokens' to unsecured lending of customer assets to downright Fraud (in the case of FTX & Sam Bankman-Fried).

With each of these blow ups, a crescendo of forced selling took the market another leg down. These 'crypto' firms, whilst speculating wildly on crypto currencies and tokens, also custodied Bitcoin. There is no central authority in Bitcoin to step in and 'support' the price. There is ‘no limit’ down market breaker in Bitcoin. As these firms sold everything they had to try to survive, Bitcoin was sold off indiscriminately.

Summer 2022: Celsius Collapses ($25bn AUM at peak)

Summer 2022: 3 Arrows capital collapses ($18bn AUM at peak)

November 2022:…

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shauniekent

2nd Feb

Well it takes two to make a market. Bitcoiners for 15 years now have been told it isnt money, it's too volatile.

2 questions for you:

1. What kind of volatility would you expect to see from a newly type of money that went from 0 to global adoption - would you expect it to be a smooth strsight line?

2. What is your solution for people whose'money' is losing value and purchasing power every year, whether that be 100% or 10%? If you are to be logically consistent hope the answer isn't to invest and speculate on risk assets.

dmjram

Market making is irrelevant to the issue at hand. Just maybe if its been said for 15 years and your own link says its isn't money it might be true.

1. You are assuming that bitcoin can actually function as money in the first instance to allow for some future global adoption. It doesn't and can't for the reasons given.

2. That would depend on an individuals preferences and tolerances. Index linked bonds are available for those whose primary fear is inflation.

1. Answer the question though - what would it look like. I think you;d see extreme volatility that reduces over time.

2. Index linked bonds is a term heard of by perhaps 0.1% of the worlds population. And im willing to bet for most of the worlds population - where they even exist for their national currency, theyve lost money on a real basis. Is the average Nigerian going to buy Nigerian index linked bonds? Do they even exist? Any other suggestions?

1. The question is void - bitcoin can't be money so it never will be globally adopted. Grasp the facts - its way too volatile to be a store of value, the basic requirement of money.

2. Whatever floats your boat i.e. what fits with your preferences and beliefs. You believe a volatile digital instrument will serve that purpose. Others do not.

Alphaflight

Here is my take:

1. I don't agree with the notion that BTC is a new type of money.

2. Gold.

Note that Bitcoin is often visualized as a golden coin with a capital letter “B”. This visualization has perhaps enforced the idea or narrative that Bitcoin is similar to gold. Why the need to conflate Bitcoin with a solid gold coin?

It is important to understand that gold cannot be replicated while all the features of Bitcoin can be replicated by issuing a similar coin with a similar or different name.

Central banks hoard gold and not Bitcoin because as Mr JP Morgan once said "gold is money, everything else is credit". We aren't going to see Central Banks dumping their gold in favor of Bitcoin because Bitcoin isn't real money, gold is. Up until fairly recently, the BIS (the central banker's bank) used to do all of their accounting in grams and troy ounces, they didn't even bother with the charade of fiat currencies - look it up.

10 years from now we might be forced to use a username and password in order to gain access to the internet ("for our own safety of course"), I really wouldn't be surprised. Governments have total control over Bitcoin if they really want to exert it.

I can however see Bitcoin continuing to be a terrific speculative play, it will probably go orders of magnitude higher from its current spot price. Equally it could go to zero next week.

Try doing a search for "what does a bitcoin look like". The results are as follows, I'm seeing a lot of Gold Coins and not a lot of alphanumerical codes - funny that:

Alphaflight - you are so very nearly there! It would be great to have a proper discussion in person so we could expand on all the topics we've touched on more than is possible on reply threads. But alas i'll leave you with a Satoshi line from 2009

“It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy.”

- Satoshi Nakamoto"

I know - its cringe isnt it.

3rd Feb

Bitcoin etfs amongst the top10 of ALL etfs in January. Another wake up call.

https://twitter.com/NateGeraci...

Harry Hindsight

4th Feb

As well as bitcoin the ETF's diversify over the 'industry' Amplify Transformational Data Sharing ETF (PCQ:BLOK) etc - have looked at VanEck, Global X, iShares, Hanetf, Fidelity and they have many common holdings. Advantage with ETFs is exposure to Japan, South Korea etc.

But yes cannot buy them lol so look at their holdings which you can buy.

Coins aside the blockchain technology is being utilised with the generic term 'AI' for management of data. Datadog (NSQ:DDOG) and applications being invented daily presumably.

Then there is the infrastructure providers, chip makers and marketeers PayPal Holdings (NSQ:PYPL) Coinbase Global (NSQ:COIN) NVIDIA (NSQ:NVDA) Advanced Micro Devices (NSQ:AMD.

Not sure about the 'miners' Riot Platforms (NAQ:RIOT) Marathon Digital Holdings (NAQ:MARA.

An interesting space, only for money you can afford to lose, follow the herd but be the first one out and many thanks for the non-personal, interesting conversation.

16th Feb

#Bitcoin    explained simply:

You work hard to make money.

You trade a huge percentage of your one and only life for a paycheck.

Meanwhile the government can double the money supply with a mouse-click.

Here's the harsh reality: If you hold cash in a bank, you're having your time stolen as the government destroys your purchasing power.

So your only choice is to invest in assets to avoid getting debased by the government.

If you invest well, you can outpace inflation and live a better life.

But what's the best way to invest that money for a better future?

People use homes, stocks, bonds, and even art to save money.

But they all have downsides.

None of them were meant to be a vehicle for "savings" so they are all imperfect in their own way.

- A house is stuck in one place, has maintenance and insurance costs, and usually requires taking out debt to "own".

- There's an unlimited supply of government debt (bonds) and they lose purchasing power over time as government spending spirals out of control.

- Businesses have limited life spans and tons of operational risk. They can also create equity from thin air.

- Art isn't fungible. To sell it you need to find a buyer who wants your particular artwork AND is willing to pay your price.

#Bitcoin    is a new form of savings technology that solves the problem of how to store your wealth.

It was engineered to be an ideal form of property to hold long term and increase your purchasing power over time.

It's finite.
It's backed by energy.
It doesn't decay like a building.
It can be bought and sold in tiny amounts.
You can hold it for decades without any fees.
It can be taken with you anywhere in the world.
It isn't tied to the fate of any one country or industry.

And it has been the best performing asset over the past decade+

Quite simply: People who have chosen #Bitcoin    as their primary savings vehicle have experienced large gains in purchasing power consistently over time.

And now it's at the very beginning stage of adoption by the largest asset managers in the world.

Which means the risk-reward has never been better.

The risk has been significantly reduced now that it has SEC approval and is being pushed into retirement portfolios of BlackRock and Fidelity clients.

The reward of buying at the beginning of the new wave of capital that is just starting to arrive is obvious.

In short, it's still early.

And because Bitcoin is the best savings technology known to man, it will always be a great place to store profits from hard work.

Bottom line: Life gets continually cheaper for Bitcoin holders, and more expensive for people who choose to store value in other assets.

So choose your store your value wisely

https://twitter.com/stackhodle...

4th Mar

Bitcoin has just passed it's All Time High in £GBP.

"It's backed by energy."

That's a new one! Good job the trade descriptions act doesn't apply to crypto...

DYOR

rmillaree

strange wording - what are they trying to mean by that phrase ? does seem like a con as the reality is it consumes energy like an 1973 Lincoln Continental

6th Mar

No - the reality is that it's our best technology for curbing methane emissions - one of the greatest contributors to 'climate change' and is actively reducing methane emissions right now around the world. Uneducated takes don't help anyone rmillaree.

Describing Bitcoin as backed by energy is a way of trying to describe why and how 'proof of work' is important. Essentially to update the ledger of which transactions have occurred and who owns what, you must exert energy. This energy has a real world cost. So to change or even attack Bitcoin you must incur a cost. As opposed to monies not secured by energy intensive computation - which are ruled by politics than real world effot. End result of proof of work is that it costs far more to attach Bitcoin, then to contribute to it and profit from it.

That does not make bitcoin backed by energy in any way, sense of form.

Anymore than the huge energy costs involved in getting gold from its ore to shiny bars and coins means that gives any energy backing.

You have to expend real economy resources to produce both. That is the sum total of it. Nothing else.

I think that's exactly it though - both have a real world 'cost' that you must incur to obtain it. This is part of why both are scarce. You can't easily or for low effort produce more of either. But i can see that some people including yourself find the phrase 'backed by energy' to be misleading.

Right now the mining of Bitcoin is energy intensive due to the limitations with "classical" computer processing power. That is to say, it takes a lot of processing power and therefore energy to run the code and crunch the numbers. It's a dam waste of precious energy in my opinion.

Classical computational power is of course still increasing and roughly following Moore's law. Usable quantum processors on the other hand will probably become viable at some point in the not so distant future. If this occurs, and I believe it will, then eventually every single Bitcoin could be mined near instantaneously at a very low energy cost.

For example , if we assume quantum computers become stable/viable, someone will presumably demonstrate the above by merely downloading the Bitcoin source code, giving it a new name and then compiling it. A mining program will then be run on a quantum machine to see how long it takes to mine every permutation of coin. Of course these coins wouldn't be Bitcoins but they would be identical to Bitcoins from a mathematical perspective. In other words to mine every coin will likely take a fraction of a second.

As I said before, most people buying cryptos have a poor understanding of maths and technology. I don't need to read someone else making these "bold" predictions as I understand how things work sufficiently well enough myself. If you disagree with me then that because you don't understand what you own. Bitcoin is merely a mathematical construct and a function of computational power.

Gold mining on the other hand is becoming more expensive. The ore we dig out of the ground is yielding less and less gold over time and diesel fuel is becoming more expensive etc. Same argument applies to all hard commodities (copper, silver, etc)

12th Mar

And Bitcoin has now broken it's all time high in US dollars after passing its all time high in GBP a fee weeks ago - currently at near $72,000 or $1.4 trillion capitilsation . https://www.independent.co.uk/...

Bitcoin: A Letter to Investors - part 3

Price Action since 2020

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Shauniekent

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