Batten Down the Hatches
Sunday Ramble
Life has a funny way of doing what you least expect. Having weathered more than a few of these downturns in the market, you’d think it would get easier, but it doesn’t. But, of course, with such a tremendous amount of the US populace speculating on the markets, the pain these pullbacks cause is no longer relegated to the upper crust of society. But why are ordinary people jumping into the markets to speculate their paychecks on gains?
Most are chasing a pot of gold, without realizing the insidious force of inflation driving their behavior. As dollars sit in bank accounts, losing purchasing value, gathering paltry tenths of a percentage point, individuals throw their lot into the markets in hopes of quick gains. The desire is especially acute for those that haven’t purchased homes and other hard assets. There is real desperation in their behavior — a biological imperative even. Why? Because our biology seeks to propagate. Natural meaning erodes without access to the savings necessary to own a home, pay for a marriage, and raise children. All because of inflation.
But what is inflation? In monetary terms, it’s the expansion of the money supply. Expanding the money supply has the knock-on effect of raising prices for goods and services since each dollar is worth less. So while it might seem like a blessing to have money dropped in your mailbox, it’s a shortcut to higher prices. And it’s a normal response for the political class to print more money — constituents elect them. Throwing money at their voters in pain is the easiest way to get elected and stay in office. So of course they’ll lean on the printing press to access more money. Why shouldn’t they? It’s counterintuitive to most that printing money will only increase their daily expenses, making it harder to live paycheck to paycheck, not easier.
It’s not just the paycheck to paycheck crowd that gets sucked into inflation sideways. Homeowners watch their property prices soar thinking they’re winning the lottery when the dollar’s value decreases. It was no different 100 years ago in the Weimar Republic of the 1920s. Just as I’ve yet to hear one of my home-owning friends connect their rising property prices to the declining dollar, it didn’t happen in the Weimar Republic either. The typical salary at the end of the hyperinflationary period of the Weimar Republic, if priced today, would be in the trillions of dollars. Does that sound insane to you? If the answer is yes, it’s because you’re a human being. We don’t think exponentially. When things double in price every six months for three years, very few will recognize that to be a 64x increase in prices. A dozen eggs cost $1, then three years later, they’re $64. Who can see that coming?
As opposed to the citizens of the Weimar Republic, there are now plenty of other areas to put value instead of local currency. My favorite is Bitcoin because it’s independent and outside of confiscation by the system. Those who have arrived at Bitcoin got here by an alchemical blend of speculative self-interest and curiosity. But at 140M adopters, that’s still not many on the financial lifeboat. As much as I’d like to see the rest of society “get it” sooner than later for their well-being, it will likely take some element of loss before it occurs. Pain is a quicker change agent than pleasure, as much as none of us like to admit. “We’re all just nine missed meals from joining a revolution after all,” paraphrasing a quote from another Bitcoiner (whose name I’m not recollecting).
Mike Tyson famously quipped, “Everyone has a plan until they get punched in the mouth.” I want to think that I’ve side-stepped that incoming blow, but no one truly knows where to be and what will be needed when it lands. Stocking your pantry, managing your own Bitcoin private keys, and building a great community seem like great bets to make in life, but right now in particular. Your friends and family might appreciate it as well. The inflationary-caused storm is starting to rock the boat — the time to batten down the hatches is closing in.
Rad Things on the Interwebs
Bitcoin Price Prediction
Weekly Range: $28k - $38.5k
Borefest no more — Bitcoin has chosen a direction: down. Last week it closed at $34k, just below our prior range low. There are more than a few support areas we could see price try to hold this week: $33k, $29k, $25k, and $22k. Unfortunately, to make matters worse, the volume has been increasing. Added up, it appears we’re staging for a capitulation event which could bring the lowest target into view at $22k. At this point, a capitulation, which is a broad, sharp sell-off, would be the best way to resolve the downtrend and begin the bottoming process. It is not good news for the bulls, but if it occurs, it will likely mark one of the best opportunities to buy Bitcoin — historically that has been the case. On the bull side, a weekly close over $38.5k would possibly buy some breathing room for the bulls to make a price advance.
Bitcoin Q & A
Q: Is Bitcoin a digital organism?
A: It depends on the definition of life.
Biologically, living beings harness energy and reverse entropy. Entropy describes the degree of disorder or uncertainty in a system. For example, our bodies harness energy through food and reverse entropy in our surroundings — a simple example would be keeping our rooms clean. Applying this concept to Bitcoin, it harnesses energy through Bitcoin mining and reverses entropy by storing the value of our labor as an asset on the Bitcoin network. As a result, it is arguably the first digital organism.
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