Bitcoin is an idea.
Its value grows as the idea grows.
The idea is that the existing financial system is flawed, or failing.
And bitcoin’s value is approaching all-time highs.
Here’s what I think…
I think that people need to get to grips with bitcoin now.
We’re getting to the point where not understanding it is going to be a minority view.
Since spending a large part of my summer studying the history and nature of money, in order to be able to interview some of the biggest names in blockchain, bitcoin, and cryptocurrency, I have developed a new distaste for people who simply dismiss it.
I feel the exact same about people who simply dismiss the energy transition – oh but, the world won’t stop using oil.
They dismiss it with what can only be described as an entry level understanding of what’s already happened, let alone what is likely to happen next.
Anyway, I think we are approaching the point when dismissing crypto out of hand is becoming a little backward.
There are plenty of good reasons to be sceptical, or cautious.
But at this point, it’s gained enough of a critical mass that everyone needs to have engaged with it properly.
Because it’s not just this silly thing.
It’s an idea, combined with a technology.
Together, they form a solution to the ultimate problem. Bitcoin offers an alternative to what many see as a broken financial system.
That is the framework in which the bitcoin conversation must take place.
For investors, dismissing anything that is outperforming what you yourself own is called “bitterness”.
After all, a bubble is just a bull market in which you are not invested.
It’s not what the Black Pearl is… It’s what the Black Pearl means.
I think that it’s possible to create a little rule of thumb for thinking about bitcoin.
Bitcoin’s price represents a monetary expression of the strength of the idea. How many people believe in it, and by how much.
Framed in our dichotomy from earlier, this means you can also think of it as the inverse of the strength of the idea of fiat money.
And given that something like a quarter of all dollars ever printed have been printed in 2020, it’s no wonder that the faith in that system is fading, and the price of bitcoin, the value of the idea, is rising.
Because after all, that’s just what the fiat money system is.
It’s an idea. Its strength lies in the unanimous belief of all participants.
It’s the Tinkerbell Effect in action – something which can only exist if everyone believes in it.
And the crucial thing to realise is that bitcoin is not some wishy-washy thing with no real value.
It’s another wishy-washy thing with no intrinsic value.
It’s a technological improvement of the wishy-washy thing with no intrinsic value that we already have.
The value is defined by the strength of belief.
As one falls, the other rises.
That’s why bitcoin has had its most impressive year yet – rising more slowly, less erratically, and with lower levels of frenzied speculation than ever before.
Perhaps that will come, but here’s the point.
Charlie Morris, our very own editor of The Fleet Street Letter Wealth Builder, is also the founder of an incredible platform called ByteTree.
It’s the Bloomberg of crypto.
It studies the fundamentals and underlying metrics of the actual bitcoin network – the blockchain – upon which people are transacting.
His analysis shows that the bitcoin network, from which bitcoin derives much of its value, has been growing steadily and consistently, underneath the noise of the price in pounds or dollars.
Trade is after all the exchange of goods and service through the medium of fiat money. And more and more of it is happening on the bitcoin blockchain, rather than in fiat currencies.
There is a growing but limited number of goods and services.
But currently, there is a seemingly unlimited supply of fiat money.
That’s why bitcoin is gaining strength relative to fiat currencies.
Because its supply is limited.
It’s therefore only natural that the thing with a fixed supply rises in value relative to an expanding mountain of paper money, while goods and services remained limited.
That’s how bitcoin’s price can also be thought of as a bit of a leading indicator for inflationary fears. If people are scared of fiscal irresponsibility leading to inflation, you might see it first in bitcoin.
And bitcoin has quintupled since March.
So will the idea keep growing?
I think so, yes.
How can it not?
Without wanting to criticise central banks for their efforts this year – they responded swiftly and aggressively to a crisis – they have tripled down on a two-decade trend.
The trend of expanding central bank balance sheets.
2020 has been its most extreme year, but it has not been an anomaly.
Not by any stretch.
And I’ve begun to sense something quite powerful.
A broad, subtle, shift has taken place. It’s not been said out loud, but it’s taken hold in the public eye, in the media and in the halls of power too.
It’s the idea that economic suffering is unacceptable.
That if people are unemployed we have to give them some money.
That if people don’t have a job, we have to give them more money.
That more is required. Always more, more, more. Next student debt. Then mortgage debt.
They used to say that interest rates at half a per cent were an emergency measure. That they would never last.
But like pain relief, which people quickly become dependent on, such policies are nigh on impossible to remove once they’ve been put in place.
Economies, and people, become dependent. Or at least, they come to expect it. If enough isn’t done, they demand to know why.
Why was it possible before and not now? Why don’t you care, why don’t you do something?
What I’ve sensed recently is an increasingly automatic response which assumes such things are both possible and correct.
None of which is to say it’s bad, or that I judge people for thinking that doing more to help the unemployed is a good thing. Especially when you could argue that it was political decisions that have caused most of it.
But from an investment perspective, that idea slowly taking hold on our subconscious, slowly creeping into the mainstream, is significant.
The more spending Is expected of governments by people and the media, the more traction bitcoin will get – and hell, we haven’t even mentioned gold yet.
To ground this in some serious data, I’ll finish with a customary Koyfin chart. It’s the one I’m looking at more than any other right now: the US ten-year Treasury yield.
Hot tip, it’s going up. Watch this space:
If that short-term trend continues, gold and bitcoin could be the beneficiaries.
The solution to your problem
I started this article with two points.
Firstly, that bitcoin’s value can be thought of as the monetary expression of the strength of the idea.
The other point was that it’s becoming less and less acceptable (/sustainable/profitable) to simply dismiss bitcoin, blockchain, and cryptocurrencies. That attitude isn’t going to get you anywhere any more I’m afraid, and it no longer sounds sensible and smart like it used to.
It’s growing in power, and influence, and you’d better take note.
If you feel all at sea, and don’t know where to start, you’re in luck. Read more… .
We at Southbank Investment Research have gone so far as to write a book especially for you.
If you don’t know or don’t want to know, then I offer or implore you (respectively) to read it.
Thank me later.
Editor, UK Uncensored