Bitcoin isn’t a bubble, just look at it…
Sorry sorry, pleasantries. This is England, after all.
I do hope you had a wonderful Christmas and New Year.
Mine was peaceful, full of delicious things, and the conversation was delightful and thought-provoking.
This was especially relieving as I was pinged by a corona-contact the day I was due to go home to my family, and had to scurry along and beg for a lateral flow test without an appointment.
This means that I can now say that I’m a man who has once shoved a tube up his own nose – all the way up. Cleared of any wrongdoing, I made it home safely, which delivered the best present of all – unexpected gratitude and relief.
We ate duck on the big day, which was a triumph, watched A Philadelphia Story for something a little different, and I was generously given about 1,000 pages of investment, economic, and sport-themed literature to get through. Reviews to come I’m sure…
Another theme, oddly, was bitcoin. It went off like a pudding set on fire over Christmas, following a surge of good news in December.
Here are two charts. So is bitcoin a bubble?
Or is it…
All it takes is a little perspective:
Which of these charts has committed the more serious “chart crime” (misrepresentation of data)?
They’re both showing the same thing – that bitcoin has risen from below £5,000 to above £24,000. Since March.
I believe that your feelings would have been markedly different about the most recent surge in bitcoin’s price (bar today’s mini crash!) if I had shown you the pictures in a different order.
The second one, in landscape mode showing only data since March, clearly indicates the wildest of bubbles.
If you see that first, you would, I imagine, have been anchored to that view of a line going up almost vertically, and start thinking of tulips, South Sea shares and, of course, the last bitcoin surge in 2017.
But working with a logarithmic chart, in landscape, changes things entirely.
You can think in percentage changes, rather than absolute ones.
The long-term log chart is a centrepiece of the long-term bullish thesis.
One rabid bull, Raoul Pal of Real Vision (who has previously described himself as “irresponsibly long bitcoin”), recently posted this chart as part of a long threat that is worth reading.
It shows the famed bitcoin long-term log chart, and the way in which it has surged past and fallen behind its long-term growth rate in a predictable pattern.
The “halvening” cycle does seem relevant too (how the bitcoin reward for “mining” a block is halved each year, creating supply shortage and a price surge).
I was surprised by how many were keen to jump on the halvening which occurred early last year, hoping to say that the halvening cycle was dead – because bitcoin didn’t double or triple within the next week or two. Usually it takes a year or two, as has happened again.
I don’t know what this predictability means. But Raoul reckons that it could hit $1.2 million per bitcoin by the end of the year. Let that sink in. It’s currently at $30,000 or so.
The estimates range from $136k to $430k to $1.2m. In 12 months’ time. I’m not endorsing this view, only pointing out that it’s out there, and that it’s based on the first chart I showed you, not the second.
When people talk about bitcoin, remember to check the chart two ways before making your mind up.
The same could be said of clean energy
This is another popular victim of the bubble label. And it’s fair enough I suppose – many of the companies involved have gone bananas since March. And quite right too – most of them were foolishly ignored and undervalued this time last year.
Some would say that the surge in clean energy stocks this year has been a “correction”.
But one interesting thing is that a raft of fossil fuel stocks has also done phenomenally well since March.
Take these four midstream stocks, for example. All four have thrashed ICLN (the clean energy ETF, blue line) and the lowly S&P 500 (purple):
Chart crime has been committed here too, naturally. I started the chart at the most beneficial point in time – the low for oil stocks in April shortly before the price went negative.
Those stocks were all offering comical dividends back then, by the way. I remember seeing 50%, 60%, 70% yields on offer. Even after the expected cuts and share price rises, solid double-digit yields are on offer, so hated is the oil sector.
My point though is this. Bubbles aren’t simple. And anyone who cries “bubble!” and stands back may be doing themself, and others, a disservice. I think it’s possible to do better than that.
I have been thinking about this a lot, and will share my thoughts on Wednesday, but for now, back for a final word on bitcoin.
There and back again, a digital currency’s tale
It’s been a long journey for bitcoin.
Check out this tweet, showing how the Financial Times ridiculed bitcoin’s rise from 5 cents to 138 dollars back in the mid 2010s.
Well, it was a lot friendlier this week, as bitcoin briefly topped $34,000, saying that it was now “integrated into the financial system”.
With all the positive news coming from the space in December, it’s no surprise how well it’s done.
It’s relative to fiat currencies, remember, so it is fuelled, in part, by the de-valuation of the dollar and pound by central banks’ monetary meddling.
Speaking of fiat currencies though, people like to point to bitcoin’s newness as a reason not to trust it.
It was only created in the wake of the financial crisis, remember.
And it’s had a wild decade since then.
But the dollar hasn’t been around as long as you think.
Not in its current form at least.
It was only in 1971 that the dollar took its current form, by abandoning the gold standard.
And the total inflation of the dollar against a basket of goods and services since 1971 is 545.8%.
In its 50-year history to 2021, the dollar has devalued massively. Its purchasing power has steadily crumbled.
You now need $1,000 to buy what $155 used to, back in 1971.
If you had sat on your dollars, you’d have lost 84.5% of your purchasing power.
So when people criticise bitcoin for its newness, or its volatility, remember that the dollar was here first. In fact, bitcoin has arrived precisely to challenge the fiat dictatorship.
And as my previous theory goes, bitcoin’s fiat price is a monetary reflection of the strength of the idea – ie, that the less faith people have in the fiat money system, the more likely that they will turn to bitcoin.
This applies to precious metals too, which have started the year brightly.
Gold and silver’s return to form is almost complete, after what looked briefly like the good times might have been over. Soon I believe they too will be pushing all-time highs again, threatening to break out. Gold is up very strongly today, silver too, and together, these precious metals and cryptos were the main market stories over the Christmas period.
Oh and also before I forget, sorry for the silly Christmas message and terrible jokes. I wish I could blame someone, but they were all me…
All the best,
Editor, UK Uncensored