Thanks for a great read - and a useful one too. I’ve no doubt of the value of bitcoin and will buy week in week out for the rest of my life. Not for me, but for my children and their children. When they’re adults they will thank me that I had the foresight to reject the current ‘money’ and exchange it for something of real, eternal value.
Hi Jesse, really happy that you've "come out", although I do somewhat miss the mysteriousness of Croesus! I was listening to some of your old Citadel Dispatch calls with Matt Odell, just wondering if you've gotten closer to his staunch anti-KYC stance since then... hope to hear more from you soon!
Great write up thank you. Small quibble with charting (Actual, Actual Log, Conceptual Log) 20k high after 2016 halving appears visually LOWER than 15K low of 2022.
Apart from store value and its halving cycles is there any reliable use cases to be made for Bitcoin and its impact on it value? when time permits if you can write on this, would much appreciate it.
This is all well and good but in my opinion that real mind blowing fact is that through mining, BTC has monetized energy itself, regardless of physical location. This will incentivize investment in renewable sources as they are cheaper as well as make the network carbon negative via methane capture with remote mining containers. The PoW consensus was a breakthrough on many levels.
Are renewables actually cheaper or is the price being manipulated in that way due to subsidies. When those go away will they still be worthwhile? especially since they are are intermittent and unpredictable.
I agree that bitcoin has monetized energy though but I think this will incentivize businesses to build nuclear, hydro and expand nat gas production. bitcoin miners set an energy price floor and make large projects such as these worthwhile (since they cost so much upfront). It'll help lead fix many of the problems we currently face regarding energy production, especially in developing countries. Finally the incentives make sense.
I'm never entirely sure about the gold comparison: a reasonable percentage of all the gold ever mined seems to have been lost, simply unregistered or stolen.
For instance, the Japanese army reputedly hoovered up (and never repatriated) reserves throughout occupied China & SE Asia during the 1930s & WW2 to a value of about $1T - that's an estimate put on it in the early 2000s. Much of that gold allegedly went into private coffers post-WW2.
In that case, gold's market capitalization should either be higher than $11T, if unaccounted amounts were to achieve current prices - or, more likely, lower because declaration would undermine the price of what is supposed to be highly limited supply. So undeclared reserves - and the value of market capitalization - currently benefit from the price put on only those reserves which are publicly-declared. There's a sleight of hand at work within gold's valuation.
There is talk of tokenizing all gold currently held in declared reserves. If that were to happen, we'd end up with a more explicit two-tiered holding situation - do you own tokenized gold or untokenized gold? Tokenizing would presumably impact banks and brokers: tokenizing could become a requirement for access to the public market, which in turn would impact the valuation of all holdings, declared or undeclared. An untokenized holding would be worth less than a tokenized holding, I imagine. If you can't account for it with a token, how can you lay claim to the public price in its valuation?
But with BTC, supply is ultimately fixed and ideally the price will ultimately reflect bounded supply, a chain of title and the security of holding.
Anyway, I think gold has a lot of dark corners to it which undermine the comparison, but which may ultimately be to the benefit of the BTC thesis. It may even be that in order to compete with BTC, and maintain its valuation as a reserve, gold must be tokenized.
Just because an asset is "scarce" does not guarantee number go up (NGU). Just because a halving happens, does not guarantee NGU. Bitcoin has never been tested in a proper long global downturn like we are having now.. its acting just like a tech stock.
Also, with the halving happening in 2024 and energy costs rising, miners will have their lights put out i they are not profitable, NGU will be much harder then. Hash rate will fall. Yes there is the difficulty adjustment, but so what?
It should be noted that "Bitcoin" has a much more searched term in 2017, just look at google trends. The vast majority of the world is simply not interested in Bitcoin. yes, maybe more time to "stack sats", but that does not mean NGU.
When the Fed is draining liquidity out of the market, everything crashes. That's what's happened this year. You want to kill Bitcoin? Enact sound monetary and fiscal policy. The value proposition for Bitcoin vanishes in such an environment.
But Bitcoin is an insurance policy against the likelihood that governments and central banks will always debase their fiat currencies because their only other choice would be outright default . At some point, the Fed will be forced to bring liquidity back to the markets. And when they do, Bitcoin will take off again.
I agree and share the opinion that bitcoin is hugely misunderstood by the broader public which seem to focus only on price action instead of judging from fundamentals.
I think we indeed need more good education and this serious and your twitter content is really really helpful.
Ever since the beginning of bitcoin, ‘monetary conditions’ in the broadest sense have not stood in the way of (and perhaps even pushed) the price of something still considered to be a risky asset. Only time (this cycle) will tell if it can withstand tight monetary conditions. Until then, we’re only guessing what the price will do as conditions like these have never happened before.
The Fed began reducing its balance sheet and raised rates 9 times ending in Dec 2018. So you’re wrong, bitcoin has definitely experienced contracting monetary liquidity. All assets are falling. It makes sense if everything is just considered to be somewhere on the risk spectrum. You’re overthinking it.
I think you're both right! This is undoubtedly the toughest macro climate that Bitcoin has ever dealt with (dollar wrecking ball in full swing, unclear how stable the UST market is/what carnage may come if/when it deteriorates).
But it is also true that in 2018 the Fed hiked rates and unwound 14% of their balance sheet. Of course, this coincided with the natural Bitcoin bear market ~12-24 months post-halving, so Bitcoin performed poorly but hard to say what of that was natural Bitcoin cycles vs. QT environment.
Either way, current macro tightening cannot last for long, and we all know what will outperform when QE is back on.
Agreed. since bitcoin is still in it's infancy it will overreact to monetary policy changes and tightening. That being said the ones who understand bitcoin set the price floor every cycle and as long as its monetary qualities remain intact that price floor will continue to climb up and to the right.
This idea that bitcoin should immediately act as a hedge is nonsense, it's not liquid enough yet compared to the overall global economy and is therefore very volatile. Especially for those who buy at the top of the cycle and expect it to retain it's value at the high. For anyone who has consistently bought at the bottom of these cycles they have done tremendously well and bitcoin has been a great hedge against inflation and economic uncertainty.
You can see it by comparing the price of most goods vs bitcoin's price over the last 10 years.
Thanks for a great read - and a useful one too. I’ve no doubt of the value of bitcoin and will buy week in week out for the rest of my life. Not for me, but for my children and their children. When they’re adults they will thank me that I had the foresight to reject the current ‘money’ and exchange it for something of real, eternal value.
Hi Jesse, really happy that you've "come out", although I do somewhat miss the mysteriousness of Croesus! I was listening to some of your old Citadel Dispatch calls with Matt Odell, just wondering if you've gotten closer to his staunch anti-KYC stance since then... hope to hear more from you soon!
Great write up thank you. Small quibble with charting (Actual, Actual Log, Conceptual Log) 20k high after 2016 halving appears visually LOWER than 15K low of 2022.
this is well written, really enjoyed.
Apart from store value and its halving cycles is there any reliable use cases to be made for Bitcoin and its impact on it value? when time permits if you can write on this, would much appreciate it.
Thank you.
This is all well and good but in my opinion that real mind blowing fact is that through mining, BTC has monetized energy itself, regardless of physical location. This will incentivize investment in renewable sources as they are cheaper as well as make the network carbon negative via methane capture with remote mining containers. The PoW consensus was a breakthrough on many levels.
Are renewables actually cheaper or is the price being manipulated in that way due to subsidies. When those go away will they still be worthwhile? especially since they are are intermittent and unpredictable.
I agree that bitcoin has monetized energy though but I think this will incentivize businesses to build nuclear, hydro and expand nat gas production. bitcoin miners set an energy price floor and make large projects such as these worthwhile (since they cost so much upfront). It'll help lead fix many of the problems we currently face regarding energy production, especially in developing countries. Finally the incentives make sense.
Bitcoin eclipsing gold market cap feels inevitable to this pleb.
I'm never entirely sure about the gold comparison: a reasonable percentage of all the gold ever mined seems to have been lost, simply unregistered or stolen.
For instance, the Japanese army reputedly hoovered up (and never repatriated) reserves throughout occupied China & SE Asia during the 1930s & WW2 to a value of about $1T - that's an estimate put on it in the early 2000s. Much of that gold allegedly went into private coffers post-WW2.
In that case, gold's market capitalization should either be higher than $11T, if unaccounted amounts were to achieve current prices - or, more likely, lower because declaration would undermine the price of what is supposed to be highly limited supply. So undeclared reserves - and the value of market capitalization - currently benefit from the price put on only those reserves which are publicly-declared. There's a sleight of hand at work within gold's valuation.
There is talk of tokenizing all gold currently held in declared reserves. If that were to happen, we'd end up with a more explicit two-tiered holding situation - do you own tokenized gold or untokenized gold? Tokenizing would presumably impact banks and brokers: tokenizing could become a requirement for access to the public market, which in turn would impact the valuation of all holdings, declared or undeclared. An untokenized holding would be worth less than a tokenized holding, I imagine. If you can't account for it with a token, how can you lay claim to the public price in its valuation?
But with BTC, supply is ultimately fixed and ideally the price will ultimately reflect bounded supply, a chain of title and the security of holding.
Anyway, I think gold has a lot of dark corners to it which undermine the comparison, but which may ultimately be to the benefit of the BTC thesis. It may even be that in order to compete with BTC, and maintain its valuation as a reserve, gold must be tokenized.
Just because an asset is "scarce" does not guarantee number go up (NGU). Just because a halving happens, does not guarantee NGU. Bitcoin has never been tested in a proper long global downturn like we are having now.. its acting just like a tech stock.
Also, with the halving happening in 2024 and energy costs rising, miners will have their lights put out i they are not profitable, NGU will be much harder then. Hash rate will fall. Yes there is the difficulty adjustment, but so what?
It should be noted that "Bitcoin" has a much more searched term in 2017, just look at google trends. The vast majority of the world is simply not interested in Bitcoin. yes, maybe more time to "stack sats", but that does not mean NGU.
No mass adoption = no NGU.
When the Fed is draining liquidity out of the market, everything crashes. That's what's happened this year. You want to kill Bitcoin? Enact sound monetary and fiscal policy. The value proposition for Bitcoin vanishes in such an environment.
But Bitcoin is an insurance policy against the likelihood that governments and central banks will always debase their fiat currencies because their only other choice would be outright default . At some point, the Fed will be forced to bring liquidity back to the markets. And when they do, Bitcoin will take off again.
Interesting read. Thanks for putting it together.
I agree and share the opinion that bitcoin is hugely misunderstood by the broader public which seem to focus only on price action instead of judging from fundamentals.
I think we indeed need more good education and this serious and your twitter content is really really helpful.
Ever since the beginning of bitcoin, ‘monetary conditions’ in the broadest sense have not stood in the way of (and perhaps even pushed) the price of something still considered to be a risky asset. Only time (this cycle) will tell if it can withstand tight monetary conditions. Until then, we’re only guessing what the price will do as conditions like these have never happened before.
The Fed began reducing its balance sheet and raised rates 9 times ending in Dec 2018. So you’re wrong, bitcoin has definitely experienced contracting monetary liquidity. All assets are falling. It makes sense if everything is just considered to be somewhere on the risk spectrum. You’re overthinking it.
I think you're both right! This is undoubtedly the toughest macro climate that Bitcoin has ever dealt with (dollar wrecking ball in full swing, unclear how stable the UST market is/what carnage may come if/when it deteriorates).
But it is also true that in 2018 the Fed hiked rates and unwound 14% of their balance sheet. Of course, this coincided with the natural Bitcoin bear market ~12-24 months post-halving, so Bitcoin performed poorly but hard to say what of that was natural Bitcoin cycles vs. QT environment.
Either way, current macro tightening cannot last for long, and we all know what will outperform when QE is back on.
Agreed. since bitcoin is still in it's infancy it will overreact to monetary policy changes and tightening. That being said the ones who understand bitcoin set the price floor every cycle and as long as its monetary qualities remain intact that price floor will continue to climb up and to the right.
This idea that bitcoin should immediately act as a hedge is nonsense, it's not liquid enough yet compared to the overall global economy and is therefore very volatile. Especially for those who buy at the top of the cycle and expect it to retain it's value at the high. For anyone who has consistently bought at the bottom of these cycles they have done tremendously well and bitcoin has been a great hedge against inflation and economic uncertainty.
You can see it by comparing the price of most goods vs bitcoin's price over the last 10 years.