Category: Cryptoes

My favorite (reasonable) Bitcoin price analysts: @BobLoukas and @DavidPBitcoin

There are two analysts that I closely follow for levelheaded analysis of Bitcoin price and potential.

The first is Bob Loukas who tweets occasionally and publishes regular YouTube videos: https://www.youtube.com/channel/UC0zGwzu0zzCImC1BwPuWyXQ

The second is David P Bitcoin who tweets regularly and publishes a monthly Substack: https://twitter.com/davidpbitcoin

I want to share a few excerpts from David’s most recent October newsletter, which is especially relevant given Bitcoin’s recent price gains.

Counter to the narrative that retail is driving the increase:

October exhibited a clear demarcation between institutional and retail investors. Both whale tiers and the Great Whites experienced address expansion while the Tiger Sharks, Fish and Minnows all experienced contractions. The same is true for coin accumulation, although the Orcas experienced a net coin loss due to the very strong accumulation by the Blue Whales (BWs). While I philosophically prefer more decentralization in terms of coin distribution, there is no denying that the price of BTC benefits when institutions are in accumulation mode as they are now.

On the anticipated US Bitcoin ETF approval:

I think total inflows might even exceed many expectations due to Capitalism 101. i.e., As many as a dozen ETFs could be approved simultaneously, and given how important “first-mover” advantage is, each of the approved issuers will be marketing their ETFs like mad, all trying to grab as much of the pie as they can in an effort to become market leader

I strongly recommend both guys. I’m always looking to learn from new sources, so please share!

*dalle-3 once again wow-ing me…

Why Ethereum will eventually flippen Bitcoin

tldr: Ethereum’s market cap will surpass Bitcoin’s by 2030

I think that over the next 2 halving cycles, Ethereum’s market cap will overtake Bitcoin’s. I own both assets and probably will for a very long time.

Below are the reasons why I think this will happen. This is a very draft-y article, but I wanted to publish it before laziness or doubt got the better of me.

1. Ethereum is “cheaper” than Bitcoin. Unit bias is real

Investors like lower prices. Lower prices look cheap. Lower prices mean you can own more units. Even if this isn’t logically correct, it’s psychologically true, and this pattern has proven itself in human investing behavior time and again. Why do publicly traded companies do stock splits? Why do meme coins like doge and pepe have such crazy low prices? Similar reasons.

Because Ethereum has ~5x more units than Bitcoin, even if Ethereum market cap equalled Bitcoin’s today, the BTC price per unit would still be more than 5x higher than ETH.

2. Ethereum has unlimited narrative upside. Bitcoin doesn’t

Mainstream media — and the average crypto noob — believes bitcoin to be the new “digital gold”. And beating gold is itself a lofty goal, a good 10-20x higher target than Bitcoin’s current price. I believe Bitcoin will reach that narrative promised land. But where does Bitcoin go after it surpasses gold’s market cap, when it’s worth $500K a coin?

Proponents believe Bitcoin will slowly absorb value from other markets like offshore banking and failing fiat currencies. USD is another $35T. Perhaps Bitcoin could even become the global reserve currency. But that path is primarily political, not technological, and is thus even harder to forecast.

Whereas Ethereum’s sticky metaphors are “digital native computer” and “the decentralized internet” and the “future of finance”. How much is the collective computer industry worth? What about the internet? What about all of finance? And how much will these industries be worth in 10-20 years? Hard to estimate, but the internet itself still has billions more people to onboard. Arguably the upside for Ethereum’s metaphors is unlimited.

*Addendum: In the early days, the common metaphors were Bitcoin = gold and Ethereum = oil. Which one is more critical to societal development and human flourishing? Today it’s clearly oil, but perhaps gold had its moments in previous eras. I’m not sure.

3. ETH pays yield. BTC doesn’t

You may notice by now that many of my points boil down to just focusing on the obvious and not overthinking it.

Ethereum is positioning itself as the Internet’s bond. An internet-native credit asset that pays a consistent and meaningful yield, and investors like yield. Currently it’s sitting at 3% per year.

Further, the global bond market is worth more than $100T, or a nice 400x over today’s Ethereum market cap. Yet another Ethereum comp that is measurably larger than Bitcoin’s digital gold comp.

4. ETH has more use cases than BTC

You can send and receive bitcoin. Those are the two main verbs you can enjoy if you hold bitcoin.

Ethereum has more: You can stake ETH for yield. You can lend, collateralize, and borrow ETH. You can spend it on NFTs and art. You can transfer it between chains and layers.

I’m sure I’m missing other verbs. The pace at which ETH is adding verbs far outpaces BTC’s efforts.

In part, this is because Bitcoin has to some extent sacrificed the potential of its “Bitcoin network” in the interests of preserving the value of its “bitcoin currency”. While Ethereum has tried to balance the needs of both its network and its native currency ETH. Rollups + L2 = needs of network. 1559 and staking = needs of currency.

5. BTC is moving to ETH, but not vice-versa

In some ways, Bitcoin is a financial black hole, sucking the traditional finance world’s monetary energy onto its blockchain. But in crypto itself, ETH is the black hole for BTC. Zoom out, and the growth in wrapped / bridged forms of BTC on Ethereum is clear and consistent.

It’s relatively straightforward to buy and own bitcoin on Ethereum. With that collateral, you can then participate in all of Ethereum’s verbs.

But you can’t do the reverse. There is no method I know of, to move ETH onto Bitcoin’s blockchain. And why would you? You’d be missing out on all of ETH’s verbs and ETH-native staking.

6. ETH has narratives that normies like

With the transition to PoS, ETH is positioned as an ESG friendly asset with a small carbon footprint (unlike BTC with its “miners use more electricity than a large country” false equivalence).

Ethereum has a publicly known and generally liked genius “founder” in Vitalik, who is both very prolific and very measured in his actions. (Unlike BTC with its anonymous founder with the Japanese pseudonym and dogged rumors of a connection with US central intelligence)

Ethereum generates significant and growing revenues, which makes it easier for tradfi to model and value. This helps to tell the Wall Street story. This also gives Ethereum a more sustainable model for blockchain security — while BTC is still reliant on new token emissions.

The ETH ETF trade: if Bitcoin’s ETF is approved, it follows that the same institutions will apply for — and probably get approved — an ETH ETF. This may take a year or more, but the expectation is there and the same pattern has played out with the ETH futures ETF and ETH’s global regulatory acceptance.

Normies understand and use stablecoins. Everyone wants more (US)dollars.  Stablecoin growth will predominantly occur in the ETH ecosystem (and TRON, but let’s not go there). So to use USD or EUR onchain, most normies will likely familiarize themselves with Ethereum and hold some ETH to conduct onchain transactions.

7. ETH actually has LESS regulatory and geopolitical risk

There was a moment there where the SEC wanted to classify ETH as a security. But I think that moment has passed, the risk is now lower in the current US political environment, and this improvement is not priced in.

On all other dimensions, and especially ex-US, Ethereum has arguably less regulatory and political risk. Reasons include, to repeat myself somewhat:

-ETH’s position as an ESG-friendly and sustainable asset

-Bitcoin’s direct competitors are fiat currencies like USD and RMB. Ethereum is more about new internet infrastructure and new financial architecture. Bitcoin competes with nation states, while Ethereum arguably competes with FAANG and banks. Which one worries the politicians more?

-Bitcoin is often called “digital gold”, and the US has banned gold ownership before

-The squeaky wheel gets the grease. Bitcoin is currently the largest and best known cryptocurrency. Bitcoin offers more political points and more at stake for politicians and regulators. For now.

8. It’s not Web3, it’s EVM3

Web3 has been memed to a timely death. But there’s a new 3-letter in town and that is EVM. In other words, Ethereum’s core technology has essentially won the L1 blockchain wars. L1s are the foundation for the decentralized web, and so Ethereum the brand, the tech, and likely the ETH blockchain and $ETH token itself are essentially the basis for whatever we want to call it: Web3, the decentralized web, the new internet, the distributed computer, the blockchain economy, etc.

Aside from Solana, no one talks seriously about competing layer 1s anymore. Every blockchain is slowly becoming a spoke to the ETH hub. Because ETH is where all the value is, where the users are, where the tech innovation is, and where you have access to the most verbs.

Bitcoin’s technology has largely ossified, quite purposefully, and as mentioned before, all the innovation bright spots (like Ordinals, Lightning, Sidechains) lag ETH development by 1-2 cycles.

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There’s a lot more that I haven’t covered, and I could probably write a passable if more stretched case for why ETH will never flippen BTC. But the above is what I think *likely* to happen. My bet is that ETH briefly flips BTC this cycle (like late 2024 / early 2025), then it falls back below BTC again during the next bear, then ETH will securely take the top spot in the 2028 halving.

*I’m setting a calendar reminder to come back and review this every 6 months (next up is April 2024)

**I used DALL-E 3 for the lead imagery and I am blown away…

Crypto is money-as-a-game

Axie Infinity Crypto As Game
Crypto amplifies the “game” aspects of modern money. In essence, crypto is an infinite 24/7 global game.

By using the lens of gaming and gamification, we can gain some insights into crypto culture and behavior outside of the standard technological or macroeconomic lens.

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For example, here are some well-known properties of games:

  • achievements and progress bars
  • branching choices
  • leaderboards
  • characters
  • multi-player and single-player modes
  • storylines

I’ll briefly review each element and provide some directions and examples of how it applies in crypto.

Achievements + progress bars

Making more money is its own achievement. Becoming a millionaire, for example, where your “net worth” is the progress bar. Or achieving accredited investor status.

In crypto, this behavior is amplified:

-X’s blue checkmark
-Becoming a crypto “whale”
-Holding specific high value NFTs (eg, a Punk)
-How many bitcoin or ethereum or doge you own (“doge millionaire”)
-The year you “joined” crypto (OG-ness)
-Wallet as progress bar – since wallets are public and trackable, you can see someone’s holdings and performance over time (in a manner)

Branching choices

Money is a limited resource. So when you own $100 of Solana, for example, that is $100 less of Ethereum that you can own. This itself is a branching choice, which leads to follow-on opportunities. For example, if you own ETH, it’s easier to invest in Ethereum L2 tokens and projects (like Optimism, Arbitrum). If you own SOL, you can buy Solana NFTs and stake your SOL.

Leaderboards

You can argue that crypto itself – due to its onchain nature – is one giant leaderboard.

There are tools like Whalestats and Bitcoin Rich List to see top holders in a typical leaderboard.

There are designations like “whale”, “orca”, “shrimp”, indicating size of holdings.

Every project is ranked by price, market cap, and a number of crypto-specific metrics via tools like Coingecko and DefiLlama.

NFT projects are measured by floor price and unique holders.

Characters

There is a strong culture of privacy in crypto despite data being onchain. Pseudonyms / anonyms are common and accepted (Hasu, PlanB, PunkXXXX) on X, Discord, Telegram, and so forth.

There is also widespread usage of NFTs as PFPs on X and other social media. People often have multiple accounts (in addition to multiple wallets) where each one is a “character” of sorts in the giant crypto game.

Multi-player and single-player modes

In crypto single player, your goal is to maximize gains (WAGMI, HFSP) and maximize influence (eg, your X following, tokens held for governance).

In crypto multi player, it’s things like (3,3), NFT PFP communities (Ape follow Ape), maxi culture, collective memes (price rollercoaster, just buy bitcoin, Agustin Carstens).

Storylines

Good storytelling in games increase emotional engagement and stories provide a superstructure for gameplay. Narrative is itself a meme in crypto culture, and a commonly accepted driver of price and engagement. Not only narratives (“POS will grow”) but meta-narrative (psy-ops).

Each token community and NFT project has its own nicknames, lore, and history. Bitcoin has Satoshi and the fork wars and Craig Wright (scammer). Eth has Vitalik and the DAO hack and Bankless. And so on.

Heroes (Michael Saylor) and villains (SBF, Gensler), rise and fall dynamics (Bitmex / Arthur, Ripple & SEC), collective storytelling and meaning-making via Discord, TG, X, and podcasts… when Michael Lewis writes a book about it, you know there is a good story to tell.

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Not sure I have a sharp point or singular conclusion. There is another framing of crypto as a new religion (or a young growing cult). Maybe I’ll explore that in a future post.

If gold were just like bitcoin…

Bitcoin Gold

Many people think of bitcoin as digital gold. And that is true, but bitcoin is also much more. This misunderstanding is part of why bitcoin is still so undervalued.

For example, bitcoin is both a bearer currency and a payment network. It’s like the USD + PayPal, if they were inseparable from each other. Admittedly a very imperfect analogy.

But I want to pose a thought experiment:

What if gold were exactly like bitcoin? What if a gold bar or a gold coin could do everything that bitcoin can currently do?

If gold were exactly like bitcoin…

You could send gold to anyone in the world, anywhere in the world, in 10 minutes, for less than $10 (as long as they had an internet connection)

You could send the tiniest fraction of gold or a suitcase full, and it would be just as fast, cheap, and easy to send

With a simple computer program and internet connection, you could instantly verify whether the gold you have is real or fake, at no extra cost

Anyone in the world could instantly verify how much gold existed in the world, and exactly how much gold was held by each owner (each wallet)

Anyone in the world could also see every time new gold was minted, old gold was destroyed, or gold was sent.

You could carry any amount of gold that you want, to anywhere in the world, just by memorizing or writing down 12 unique words. No need to worry about gold’s heavy weight, or risk of confiscation, or losing it in your checked luggage.

Right now, there are people around the world working to improve this “gold”, and everyone who holds some can enjoy the improvements. So if someone devised a way to make sending gold cheaper or faster, every gold holder would enjoy this upgrade.

People are also working to build products and services on top of “gold”, that make use of its many unique features. For example, someone could build a tool that allowed you to temporarily lend small fractions of your gold (the lightning network), and in return you would earn more gold for providing this service. And anyone who holds gold could use this tool

You would know exactly how much new gold is mined around the world, every minute, hour, and year, and by exactly which miners. Further, every 4 years, the rate of newly mined gold would drop by half, in perpetuity

Finally and perhaps most importantly, you are certain that there will only ever be a maximum of 21 million “gold” units in the world, and that is also public and independently verifiable

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If gold were bitcoin… but gold is not. It can do none of those things. And that is why, slowly and inexorably, bitcoin will win in price and mindshare and adoption.

Bitcoin is gold with wings. Or conversely, gold is like a dumb bitcoin.

There are many more differences that I have left out. But I hope it’s an interesting thought experiment.

Note: of course, there are some benefits to physical gold that bitcoin doesn’t have. For example, gold has materiality. Gold has some niche industrial uses.

Sensible view on what’s likely to happen with bitcoin next year

Fan of their writing and analysis: https://capriole.com/issue-33/

To quote:

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So, we have three incredible catalysts on the very near horizon:

1. The best inflation hedge and hardest commodity known in a macro environment with the tightest economic conditions on record which is primed to pivot.

2. Institutional regulatory status and on-ramps with imminent ETF approvals by the SECs

3. The Halving event, forecast for 16 April 2024.
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Of course everything could go the exact opposite way — such is markets. Plenty more shoes that *could* drop, but I find it unlikely we’ll see sub-$20K Bitcoin again before we see 6 figures.