Why We’re on the Precipice of Another Bitcoin Mania...
A thread.
Note: it has nothing to do with Bitcoin replacing fiat money anytime soon.
1- We can quibble all day about whether BTC is “the future of money”.
Briefly, I think not, since I fundamentally believe that any money must have “non-monetary use value” in the free market before it becomes money. (Yes, this would disqualify govt-issued paper money too.)
2- But I digress, as debating Bitcoin’s status as “money” is not the aim of this thread.
Rather, the aim here is to persuade you that *institutional buying* of Bitcoin will likely propel the third big Mania at some time in the not-so-distant future.
3- In the first Bitcoin Mania, overzealous retail buying drove the price from ~$1,000 in early ‘17 to its ultimate peak of ~$20,000 in late 2017.
The second Bitcoin Mania, also fuelled by retail, drove the price from ~$3,500 in early ‘19 to a high of almost $14,000 in June ‘19.
4- These meteoric rises in Bitcoin (20x in < 1yr in 2017 and 4x in < 6mos in 2019) will not be the last in Bitcoin’s history...
An even bigger Mania is coming, and this time the fuel for the fire will come from institutions cornering the already-tiny free float.
8- As for $GBTC, this thing brings it all together. For one, it makes Bitcoin a lot more accessible to institutions, as it allows them to buy and sell Bitcoin as they would any stock.
Also, $GBTC shares outstanding are growing like mad. These guys are just devouring the float:
9- As of 9/27, $GBTC held ~450,000 BTC, meaning that “GBTC’s purse represents 2.43% out of the BTC currently in circulation”...
2- Inflation persists throughout history for a number reasons. One important reason is that the structure of democracy is conducive to it, esp. as people figure out they can ‘vote themselves money’ and the inflation tax becomes a transfer mechanism for public demands.
3- Inflation is also the political path of least resistance, especially when governments around the world are saddled with gargantuan deficits and even larger debt-piles.
Think about it. Much easier to conjure endless trillions from thin air than to default on social security...
1- We’re seeing a massive and unprecedented expansion of the money supply, and at at alarming rates. I don’t care what you think about M2, this sort of growth should not be dismissed.
Longer term, this will shape up to be ‘Project Zimbabwe’, as @hkuppy has coined it.
2- While this sort of monetary inflation first manifests in the capital markets (most noticeably as a boom in stocks), it eventually raises the prices of goods & services too (imperfectly proxied by CPI).
For this to happen, we need higher money velocity, now at an all-time low:
1- The Fed is fighting deflationary forces because nature is trying to collapse unprofitable zombie companies that specialize in capital destruction. Since our monetary system is debt-based, a collapse of zombie companies creates a collapse in the money supply, i.e. deflation.
2- Deflation can feed on itself because it causes asset prices to fall. When asset prices fall, the asset side of companies’ balance sheets fall. But the liabilities side does not. So equities are wiped out.
3- The Fed is deathly frightened of deflation, which they think are falling prices, because they associate that with the Great Depression of the 1930’s. To offset falling prices they print massive amounts of currency and use it to buy everything in sight to lift asset prices.