I was not expecting to write about Crypto twice in one month. I actually was about to talk about a stock I love – Unity – but when news after news bulletin came out of authorities worldwide pounding on crypto I couldn’t help myself.
I did predict Crypto winter in an earlier blog. Having watched the Crypto market since 2013 I know how to spot some signs.
I need to state that I am not anti – crypto, but I am not pro – crypto either. I have a really tiny amount of crypto, but I am not convinced enough to invest big into crypto either. Ever heard the saying if everyone is digging for gold its good to be in the shovel business? That’s why I do have some Coinbase shares. If gold ends up being found somewhere Coinbase will be the one to profit.
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Is Bitcoin a currency or a store of value?
The original intention of Bitcoin was to use it as a currency. Actually there was a time when Bitcoin was bellow 1000 dollars that this idea was being heavily promoted. There was more and more shops that were willing to accept payments in Bitcoin. Because Bitcoin was cheaper then a few of the other solutions like Credit cards, shops were actually willing to consider this.
I would almost claim that in 2014 we were actually much closer to a general adoption of Bitcoin as a global payment system then we are today. Once Bitcoin passed a certain price point, the transaction costs simply became to high to keep Bitcoin as a currency. Stores removed the Bitcoin payment option and adoption lowered.
Bitcoin became a victim of its own success. It lost its status as currency. The final dead blow was given by Elon Musk when he stated Tesla would no longer accept payments in Bitcoin.
Bitcoin defenders saw it long coming and have since then tried to rebrand Bitcoin as a store of value. They have even argued that it would replace gold in the long run.
I personally never believed this hypotheses. Gold is a store of value because it can winter trough all circumstances. If there is a war with China for example its highly likely that Crypto will be the biggest victim. I also noticed that Cryptocurrencies tend to follow the stock market, but with a bit delay. In 2020 the Crypto recovery came a few months after the general stock market recovered.
But the best argument I heard for the fact that Bitcoin will not become the store of gold is the fact that the central banks own massive amounts of gold. The idea that they would allow Crypto become more important then gold always was difficult to believe for me.
Have a look also at this discussion between Michael Saylor (Bitcoin) and Frank Giustra (Gold). This was recorded about a month ago and is now more relevant then ever.
I still think Bitcoin is the most stable of all the cryptocurrencies out there, but it has come under siege from both externally and internally in the Cryptocurrency world. If you believe that Bitcoin should be the worlds currency because the tech is so great then you also need to accept that Bitcoin needs to make room once a better tech becomes available.
China has declared war on Crypto
In my blog about Crypto winter I mentioned before Crypto was crashing. I showed the Bitcoin graph at the time, but it gets much worse if you look at Graphs of altcoins.
Take Ethereum for example, the Coin’s value was cut in half in a matter of days. The next week will be crucial, if Ethereum does not stop dropping very soon it risks to go all the way back to the pre-January levels, just like the tech stocks did.
Now a few days after Musk announcing that Tesla would stop accepting payments in Bitcoin, China makes things worse by announcing it will start a crack down on mining companies.
How serious should we take this tread? Well China is an authorian state. That means the Communist party can basically do whatever they want, and will do so if they feel it is something negative for the country. The recent discovery that Bitcoin miners were heavily fueled by Coal gives China extra firepower to crack down on the miners as they try to become more environment friendly.
Unlike what some people believe Bitcoin is actually very centralized. 75% of the miners is located in China. The way Bitcoin works is that miners have voting rights. That means the Chinese miners basically decide what happens with the code of Bitcoin.
This is also the reason why Bitcoin will never become environmental friendly. The more recent, more environmental validation method called staking that newer coins like Cardano use, will not come to Bitcoin. Why? Because the voting rights in staking are based on coin ownership, not on mining power. Moving to staking would instantly take away the income of miners and make them obsolete.
In that sense Bitcoin is again a victim of its own success. The more it rises in value and the more it is adopted, the higher the power consumption will be. In this way it is attacked internally in the Crypto world by the more modern coins. Since miners will not be changing the code to fix this, the only thing that can really save Bitcoin is a revolution in energy.
China actually declared war on Crypto a long time ago. The first time was in 2013.
So perhaps we shouldn’t worry afterall? China has been chasing Bitcoin forever and nothing has happened so far right? Perhaps yes, but banning Bitcoin as a currency in 2013 did cause the price to drop with 80% so its hard to say that this will not be affecting the short term price, even if it can recover later.
US preparing for war
While the US policy has been far more liberal then the Chinese policy, making US citizens the main investors in Crypto, a recent attack on the US might have shifted the tables.
This attack on the pipeline is really a direct attack on the United States, and even the most pro-bitcoin Senators in the US must realize by now that it has become much to easy to anonymously transfer cash to an external party.
The US fears tax evasion and is now calling for transfers above 10000$ to be reported!
This all sounds a bit like they are kicking a man while he is down, and while its unclear what the long term effects will be, for the short term its clear by now that there are large drops coming and I have not seen a rebound in the market yet.
The bulls are not giving up!
More then ever now Bitcoin defenders are speaking out. Cathie Woods who has shown a lot of vision in the past is speaking out and confirming her 500000 price target for Bitcoin.
Lets hope for the Bitcoin adopters that they are right!
For now I will not be trying to catch this falling knife, but for sure these are interesting times for Cryptocurrencies and I feel we have not seen the last of Crypto and this interesting blockchain technology yet. If you are in Crypto right now, now it might be a good time to move out of altcoins and lower conviction crypto and move it into coins that are classically more stable such as Bitcoin.
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