Lately everyone is talking about ETF’s, when they should be talking about halvings.
Do you understand the true value proposition of Bitcoin and why it’s so important?
Here in the midst of the doldrums of summer, it would be easy to assume that crypto is slowly bleeding to its death. But markets are irrational and crypto is exceptionally irrational. If you got into crypto because you thought it would let you retire in 3 months, you are here for the wrong reasons. You need to be willing to learn and you need to be patient. So grab a chair and get busy learning.
Most of the insane growth in late 2017 was irrational and most of the pullback has been to compensate for that irrationality. Bitcoin became overextended, not based on a massive adoption of what makes it fundamentally valuable, but based on irrational adoption of it’s perceived value. To get in before the former and to avoid the latter, you need to have a strong understanding of Bitcoin’s primary value proposition and why I’m so interested in it, which I discuss here quite regularly.
Historically the price of Bitcoin tracks two things, the 200 SMA (simple moving average) and roughly the cost it takes to produce 1 bitcoin. On a daily, weekly, or even monthly basis, sure the price of bitcoin can fluctuate wildly. It might go well below the 200 day SMA it might go well above the cost of production. This can be due to any number of factors including but not limited to market sentiment, news developments, and technical factors of the market. But I don’t care so much about the day to day price of Bitcoin, I am a long term thinker and I am very patient.
To understand why bitcoin moves the way it does and why it has moved so meteorically in the past, we must understand a concept called halvings. Halvings are an event that take place ever 4 years since Bitcoin’s creation, in which the block reward for discovering a block which is paid out to miners is halved. The next halving is going to be sometime in the year 2020. I want to establish a long, strong, heavy position well before the mania of the next bull run takes off. This could very well take 2-3 years, perhaps it will not, but I am prepared to wait for the next 2 or 3 halvings (6-10 years) to really let the deflationary aspects of the protocol work in my favor.
Major price movements historically follow halvings. The previous halving took place on the 9th of July 2016 (labelled as 2 below). The one before that took place on the 28th of November 2012(labelled as 1 below). The following is a logarithmic chart of BTC/USD prices on Bitstamp since 2012.
Forget everything you know about FUD and FOMO. Forget everything about futures contracts and ETF’s and exchanges and trading pairs and altcoins and lightning network. Forget all the stupid youtube videos you watched. Forget that stupid microeconomics course you took in college.
Say it with me. “Supply and demand”. You need to look at the bigger, long term picture here. This is a deflationary asset. Most of the bitcoins that will ever be mined have already been mined. There is still a slow drip of new bitcoin into the market. What happens when the supply drip is tightened?
Don’t get distracted by the talk of ETF’s coming into the market potentially massively moving the needle for investors. It’s largely irrelevant. Is it good for us? Probably. But it could also very well have no direct impact on short term market price.
Gold ETF’s took nearly 10 years to significantly impact the gold market cap (what would effectively double the current market cap of Bitcoin). If you really understand that bitcoin is here to stay and the monetary economics are in our favor, what difference does the day to day price action make?
Store of value is bitcoins fundamental value proposition. The other cryptos will not be able to replicate that value proposition unless they can do what bitcoin does several orders of magnitude better.
When the wheel was invented, what would’ve been more productive, to try and invent a better wheel or to try and build application layers on top of the wheel?
Most technology changes only in very small iterations over the years following a major innovation. Nuclear propulsion aircraft carriers still use the same type of turbine shaft propulsion developed for steam engine ships. It’s been iterated and improved, layers of application have been built on top of the turbine shaft system. We no longer use steam to power the turbines, but the turbines are the same none the less.
Bitcoin is the wheel. You can either spend your time and money following projects trying to reinvent it, or spend your time and money following projects that will iterate it and build on top of it.
Bitcoin is not going away. Bitcoin cannot be uninvented. Bitcoin cannot be put back in the box.
For future reference, the price of bitcoin as of writing this post 6,987.53 as per coinpuffs.com (5 August 2018)