Tag: bitcoin

Diversify into what?

David wrote this essay in early 2021, at the height of Bitcoin’s last bull market, and I think the insights are even more valuable now as we enter the early innings of Bitcoin’s current bull market:

The second unfortunate realization I have come to is that Bitcoin is (or soon will be) just about the only investable asset on the planet for the foreseeable future. This may sound like a preposterous statement, but it isn’t. Believe me, I have looked high and low for viable alternatives in order to diversify my portfolio and there simply aren’t any at the moment

And he shares this chart:

Screenshot 2023 12 04 At 09.22.24

Fiat currencies — pretty clear that global inflation will continue to be a problem for the next 5-10 years (and I can’t help you if you believe the mind-virus that is “2% inflation is good for the economy”)

Of the above, other than Bitcoin, I tend to think stocks will do ok, and probably real estate because civilization would collapse if peoples’ home values fell in half. People start marching and burning things when that happens. So that, and bank collapses, are what governments will do anything to prevent (witness China now, and US after 2008).

Bitcoin will see 2 mini bull runs, and BTC > $100K may become the new normal

My starting assumption as we enter this bitcoin bull market is that we’ll see 2 mini bull runs.

The first one started a few months ago, driven by the improving global liquidity conditions and the optimism over a US Bitcoin spot ETF. This run-up will probably grind steadily upward until the ETF is approved (likely by January 2024). It’s possible that the approval itself won’t be “sell the news” and, as up to $1B of newly injected buying pressure enters, will send Bitcoin even higher. Temporarily. This run-up alone could see Bitcoin pass its $69K previous all-time high (made in November 2021).

Then there will be a sell-off, a pressure release valve, driven in part by underwhelming ETF demand (which will come, only more steadily and incrementally than people think), and by excess leverage justified by the unsustainable excitement. Bitcoin will fall below the $69K mark, say to $50K or so.

By mid-2024, as the ETF inflows steadily build, as macro liquidity conditions steadily improve, as halving supply shock starts to actually affect the market by May, June, and beyond — that’s when the second and “real” bull-run happens, and BTC soars past $100K and could touch $200K or more. This is where the real institutional and maybe even nation-state fomo begins to kick in.

Cycles are inevitable and at some point, the bear will be back. But I think BTC > $100K could become the new normal.

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I could be very wrong about the above. Bitcoin could see 1 massive quick bull run followed by a multi-year slow grind down. What Bob Loukas calls a left translated cycle. But I think there’s too many positive shoes to drop for this to be the more likely outcome. Whereas most of the negative shoes have dropped (driven in part by political and institutional pressure to clear the bad actors out of the system before the big tradfi money men step in, they don’t wanna get their shoes dirty after all).

The crypto bull is back: What are the unexpected catalysts waiting for us?

Most people who follow crypto would probably agree that we are either entering or already in the early innings of the next crypto bull cycle. Just as prior cycles took prices to all time highs over the span of 1-2 years — though with plenty of volatility — I expect much the same behavior this cycle, too.

Like prior cycles, this one seems to sync with Bitcoin’s 4-year halving. Like prior cycles, it also comes after a prolonged and painful bear market full of implosions, bankruptcies, scammers, government regs, and plenty of Twitter fights.

If you’re on Twitter, the dominant explanation for why the worm has turned is the anticipated approval of America’s first Bitcoin spot ETF, specifically Blackrock’s application.

There are other catalysts too such as:

-the anticipated Bitcoin halving cutting new bitcoin issuance from 6.25 per block to 3.125 per block in April next year

-A pause and potential reversal of the Fed’s rate hiking cycle (and stealth QE or as Michael Howell puts it, “quantitative support” 🙄)

-The conclusion of SBF’s (first) criminal trial and the steady forgetting of the FTX debacle (and the Luna debacle and the Celsius debacle and on)

-High and sustained global inflation causing fiat currency holders around the world to look for alternative stores of value

-The crash of US Treasury prices and the prospect of “higher for longer” interest rates causing fixed income investors to seek alternatives

I consider the above as “immediate” catalysts in the sense that if any of them were to occur in a sustained and significant way, it would probably lead to a significant and broad pump in crypto prices. Some of the above are already “priced in” to varying degrees. But not completely, and not to the degree that I anticipate they will materialize in 2024 and 2025.

In addition to the imminent catalysts, I find it interesting to speculate about potential knock on effects, the “unexpected catalysts” per the title, the second order effects that follow on from the first wave.

Just as the rise of Uber (initial catalyst) led to the downstream effects of (a) the decline of the regulated yellow cab industry, (b) the crash in NYC taxi medallion prices, and (c) the rise of on-demand apps for everything from scooters to house cleaners.

These unexpected catalyst and downstream effects are far less likely to happen, but when they do, they can generate enormous volatility in outcomes because they are almost by definition SURPRISES and thus NOT PRICED IN.

I believe the immediate catalysts — and more that I missed — will by themselves propel Bitcoin past its former all time high ($69K USD). You can expect the rest of crypto to catch up as well (just not your shitcoin).

But it’s those unexpected catalysts / un-priced-in effects that could push cryptocurrencies to significant new highs in 2024 and 2025. Though I don’t put much stock in price predictions, my starting assumption for price peak in this fast approaching cycle is $150K Bitcoin and $10K Ethereum, with Ethereum flippening Bitcoin (as I wrote about before) briefly, and that itself also being a second order effect.

So below are some very speculative potentially surprising ideas that could catalyze the late and crazy parts of the bull market:

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Microstrategy causes corporations and corporate titans to fomo in
As Microstrategy’s Bitcoin bags explode in value (even at $36K Bitcoin, MSTR is already $1B in profit), leading to record corporate profits, a soaring stock price, and new levels of media notoriety for Michael Saylor, other small and medium tier companies — particularly those in adjacent industries from energy to tech to finance — will adopt a crypto reserve strategy. You could see billionaire tech titans like Masayoshi Son fomo in. Bitcoin will benefit most. Ethereum may surprise too

El Salvador causes nation states to fomo in
The same effect could happen to El Salvador, which becomes celebrated as a new beacon of financial sovereignty and emerging market wealth. President Bukele is feted by innovative politicians (I hope this is not an oxymoron) and small sovereign states, particularly in the Global South, and a race begins for nation states and central banks to buy Bitcoin and other blue chip cryptos. Investing heavily in bitcoin mining is also an indirect approach (eg, Oman, UAE, Bhutan). It’s possible G7 / developed states could also FOMO in, but I think this more likely in the next cycle (circa 2027-2028)

Bitcoin ETF’s success leads to a laundry list of other token ETFs
The Bitcoin spot ETF, after a slow launch, will steadily become Wall Street’s new darling, causing financial advisors and institutions to fomo in, leading to a slew of applications for other crypto ETFs starting with Ethereum. Though most applications could be rejected or at least delayed, this solidifies crypto’s position within tradfi, and tradfi is coming with their big accounts and clever financialization.

Ethereum becomes known as the deflationary currency and the Internet bond
As crypto usage rises (always correlated with bull markets), Ethereum becomes significantly deflationary (it already is, just more so), and along with its anticipated spot ETF approval, this is the cycle where Ethereum will birth its new reputation as (1) the “Internet bond” (first bearer digital asset with meaningful yield) and (2) the first deflationary asset to go alongside Bitcoin’s positioning as the first fixed-supply asset

Bitcoin beating gold becomes the next Schelling point
As Bitcoin easily passes $100K, everyone will turn their attention to what’s next, and what’s next is beating gold. Depending on the estimate you use, that easily puts Bitcoin around $400-500K, which I don’t expect to happen in this cycle… but it could. And it’s what people will talk about in the late bull. People need rallying points and gold has always been a big bullseye

Ethereum will flippen Bitcoin — just briefly
Just as Bitcoin’s main competitor is gold, Ethereum’s main competitor is Bitcoin. I support both and believe a rising tide lifts all boats. In the last bull, Ethereum peaked around 50% of Bitcoin’s value (market cap), and I expect that 50% will be far surpassed this cycle. As this happens, everyone will begin talking about Ethereum “flippening” Bitcoin, and the possibility is not priced in. Though I expect any market cap flippening to be short lived this cycle, but possibly a permanent fixture by the next. I wrote more about that prospect here.

Memecoin mania will return with a vengeance, and MSM will go crazy
I expect memecoin mania to return, despite less global liquidity and a high rates environment. And it will be larger and more degenerate, and no one will expect it. The first $100B memecoin. Maybe even a memecoin billionaire. The mainstream media’s shock and disgust will ironically pour fuel on flame. Elon’s never one to miss a press party, and he will finally launch his own token, somehow justifying the move by claiming synergy with Twitter/X and Grok AI.

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That’s it for now. It’s a very incomplete list, but if even a couple of the above surprises were to happen, we could be in for a wild(er) ride. I’ll add more as I think of them or you can yell at me on Twitter.

You could argue there will be plenty of negative surprises and unforeseen headwinds, too, but that’s the thing about bull markets — no one really cares, and everyone just wants to greed while greeding is good. The bad news and the corruption and the new wave of scams will accumulate and build and then push us into the next bear in 2025-2026 :)

How Bitcoin is the first digital religion: from rituals to saints to schisms

In some important ways, Bitcoin can be understood as an emerging religious movement. A newly-created, digital-native organized-religion for the 21st century.

Whether you like Bitcoin or hate it, you can probably agree that people in the space have an almost evangelic level of passion and fervor. Sometimes annoyingly so, as the existence of r/buttcoin proves.

The study of religious wisdom and religious traditions is an occasional hobby of mine, and though I’m not the first to suggest such a comparison (see for example David Phelps from 2021), I will try to extend the metaphor because there are useful insights to be gained by thinking about how the rise of Bitcoin resembles the rise of the world’s great organized religions.

Below, I enumerate some common properties of organized religions (borrowed from academic and pop culture sources – it’s neither thorough or exacting, and just a layman’s understanding). Then I provide some examples of how these properties apply to Bitcoin. For the sake of simplicity, I excluded other cryptocurrencies, though much of the below could apply to Ethereum and other projects too.

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A worshipped founder / god-like head

Satoshi. Nuff said

Founding myths

The genesis block inscription: The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.
(Note too how the very first block is called the GENESIS block)

Rituals and observances

Examples include:

Bitcoin halving’s date (widely celebrated by most in the space)

Bitcoin pizza day

Twitter “laser eyes” as a form of ritual

The practice of self custody – “not your keys not your coins”, “get your coins off exchanges”

DCA and “just buy bitcoin” — you could argue that the act of buying bitcoin and regularly checking its price is like a form of prayer. There’s even the meme / hope of a “God candle”

Pilgrimage

This one isn’t so obvious to me — perhaps visiting Bitcoin Beach in El Salvador is a form of bitcoin pilgrimage? Bitcoin conferences and meetups?

Catechisms / prayers

The many memes:

“Just buy bitcoin”

“Bitcoin fixes this”

HODL

WAGMI

HFSP

“Buy the dip”

Worship spaces

Traditional religions congregate offline; the digital religion that is Bitcoin congregates online over X/Twitter, Discord, Telegram, and so forth

Evangelism

Bitcoin has an almost unparalleled ability to turn hodlers into outspoken promoters. For many, it’s purely the profit motive speaking, but for some, there is a sincere belief that the old fiat system is broken (“hell”) and Bitcoin is the promised land (“heaven”). Bitcoin fixes this, where this = everything.

A book / writings

Satoshi’s original Bitcoin Whitepaper

All of Satoshi’s other writings, from forum posts to now public emails; there’s even a cottage industry of people analyzing and interpreting Satoshi’s words, kinda like crypto exegesis

Saints / heroes

Core devs

Plenty of hero-villain dynamics including Roger Ver, Gavin Newsom, Mike Hearn

Michael Saylor

Any famous figure who says something positive, especially if they converted from a prior negative stance, like Larry Fink

Institutions

This one is quite obvious and one of the strongest aspects of the entire movement, from miners to exchanges to wallets to developers to investment funds etc

There is another interesting angle which is corporate and nation state adoption, a la El Salvador’s Bitcoin standard, an echo of something like Constantine’s conversion to and adoption of Christianity

Extremism (and the culture of schisms / forks)

Bitcoin Maxi culture

Only using bitcoin to live, or putting all your savings into bitcoin

I explored the topic of forks almost 4 years ago: https://kevinhabits.com/before-bitcoin-forks-there-were-many-many-religion-forks/ and some of it holds up

A devil / an enemy

Could include everything from Ethereum & altcoins (maxi culture), to tradfi institutions (Wall Street and the banks), to governments and regulatory bodies (SEC), to specific individuals (Agustin Carstens, Jpow), to simple nonbelievers (“have fun staying poor” targets)

Salvation / the promised land / heaven

God candles

WAGMI vibes

Bitcoin surpassing its competitors (its enemies), from gold’s market cap, to the market cap of individual fiat currencies (especially the USD)

A world denominated in sats

Bitcoin Citadels

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The above is a stub of sorts in the sense that I’ll be adding to and fiddling with it as I learn new things and think more deeply on this topic.

In a future essay, I’ll try to apply stories and learnings from organized religions to help us predict Bitcoin’s future and how Bitcoin may evolve from here.

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…