Cryptonite?

As of Jan 11, we now have several spot Bitcoin ETFs, making ownership of Bitcoin crypto currency as simple as buying a stock. As that day approached, the thought was that when this easy avenue for investment opened up, Bitcoin would jump in price as both institutional and retail investors piled in. On that first day, bitcoin jumped, but the new ETF’s appeared to be powerless. Despite the largest of them hitting $1 billion of assets in a week, Bitcoin has generally been weakening since the start. Maybe these new ETF’s are cryptonite, like that green rock kryptonite was to Superman?

Actually, we doubt that’s the case. A price decline in the first week is more likely coincidence, but even as these new ETFs grow faster than a speeding bullet, it would appear that the growth is simply cannibalizing older crypto exchanges, which are more complex and have proven to be less secure for investors/speculators.

Several years ago, as Bitcoin spiked higher, we questioned Bitcoin and other cryptos as legitimate investments. After all, what are you buying? Nothing but thin air. Gold gets criticized because it has very few uses, other than jewelry, but at least you can look at it and see how shiny it is. (Humans, like many other animals, tend to like shiny things.) More important, gold has been used as money for thousands of years. Now we openly admit that even thousands of years of history don’t necessarily need to be repeated, but central banks, those governments, that need to protect their fiat currencies, generally do that with gold. Our consistent position has been that if central banks treat gold as money, then gold IS money.

If gold is money, then what is Bitcoin? It’s not money yet, but it is getting closer, and in reality, closer than we ever thought possible. Bitcoin answers to no government. It is an independent entity and is therefore a potential threat to fiat currencies. If governments can’t control money, government can’t control anything. For that reason, we thought that Bitcoin would ultimately be regulated right into the trash heap. At first, SEC Chair Gensler appeared to be on that path, but somewhere along the way, things changed. The more crypto products that are developed and the more money these products attract, the harder it is to push Bitcoin to the trash heap. Bitcoin is becoming more investible, or maybe we should say more speculate-able.

Like gold, bitcoin supply is scarce, and if/when investors begin to fear sharp devaluations of fiat currencies, then gold and Bitcoin may be just what the doctor ordered to protect assets from that devaluation. As U.S. deficits/debt appear on the verge of spiraling out of control, Bitcoin may become very investible. Where we thought that small Bitcoin positions in portfolios was wasteful, they now appear to be much more viable.

As for PWM portfolios, we still prefer gold over Bitcoin, but for crypto fans, we certainly won’t push back on a Bitcoin position, as we would have a few years ago.

Looking at a 5-year Bitcoin chart above, after peaking at over $60,000 in 2021, it collapsed into the high teens in late 2022, but more than doubled in 2023. That is still some $20,000 below the all time high. In Bitcoin’s short history, halvings have generally coincided with higher prices and the next halving of Bitcoin is due in April.

What is a Halving?

Bitcoin is created by ‘mining’ it, but not with picks and shovels. Bitcoin is mined by using computers to solve problems on the blockchain. When a halving occurs, it means that half the amount of Bitcoin is earned for solving those problems. A block reward today is 6.25 Bitcoin. Sometime in April, that will be cut in half to 3.25 bitcoin.

We found the chart below on www.cyrpto.ro. It is a little dated as it was produced in August of last year, but it shows the past halvings and what happened right after, rather clearly. The peaks aren’t as dramatic as in the past, but the cost of mining bitcoin is rather high, and this will halving will likely make it uneconomical for some miners, unless the price rises enough to offset the halving. The halvings that are designed into bitcoin, could theoretically serve to keep values accelerating, as long as some one see value in essentially nothing.

So the question remains, do you believe in Crypto? Or Cryptonite?

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By: thinkhouse