Interesting Times
Daily Ramble
I got lost this morning reading an article by Arthur Hayes that has my head spinning. Arthur is the finance prodigy that ran Bitmex, the first Bitcoin-only derivative exchange. He’s currently negotiating a surrender deal with the US Government after being accused of allowing money laundering activity on Bitmex by not following Know Your Customer regulations. Nevermind the fact that the company is based outside the US and never interacts with dollars… Let’s just say it is a precedent-setting case.
Arthur lays out the weird world we find ourselves in where stocks are divorced of reality, pokemon cards are lottery tickets, and digital art is making millionaires by the minute. He suggests that, at the moment, there are only two places to invest for outsized returns: Bitcoin and interest rate volatility. The reasoning is simple, the markets have become utterly distorted because the pricing mechanism is lost. Printing insane amounts of money has caused us to lose the plot on how to value money itself. Including the current stimulus proposal, the US will have printed 40% of all the money supply in circulation last year. Holding Bitcoin is the escape from the insanity since it has a fixed and unchangeable monetary policy.
The reasoning to bet on interest rate volatility is what has my head spinning, though.
As I mentioned earlier, the end game of rampant inflation is always war and/or revolution. Show me a regime change, and I will show you inflation. When you work your ass off only to stand still or get poorer, any “ism” that promises affordable food and shelter for the unwashed masses will reign supreme. If you are starving to death, nothing else matters except feeding your family. The symptoms of inflation are populism, social strife, food riots, high and rising financial asset prices, and income inequality.
The bold text is all me — it hit me in the cortex. At some point, the Fed will be forced to reign in the inflation, which means increasing interest rates and collapsing the market. That’s where the interest rate volatility investment comes into play. When that moment arrives, the hopium driving today’s markets will be shattered. But we will hopefully avoid bloodshed.
As the Chinese curse says, “may you live in interesting times”…
Favorite Thing on the Interwebs Today
I’ve been running into Radigan’s content on the internet more frequently of late. His work is incredible. Read some of his recent blog posts to understand why.
Bitcoin Price Prediction
Yesterday: $47.3k - $51.8k
Today: $45.5k - $54k
Weekend: $38.9k - $55.8k
The consolidation continues. Since yesterday, the price has dropped as low as $46.3k. At the moment, it appears to be stabilizing and looking to push up again. All in all, we see price coiling in an increasingly tight range between $46k and $53k. That doesn’t mean too much in the scheme of things until one side, or the other, of this range is broken. A breakdown below $46k would see us slowed at $45.3k and then $43k before opening the door to $38k. Those low side targets become progressively less likely now but more likely as each support zone is broken. Realistically, I don’t see $45.3k being lost. Bitcoin continues to leave exchanges — another 12k just disappeared from Coinbase today — and the market is already in a fearful state on this small pullback. All is in order for a price rise here, fundamentally.
Over the weekend, I am giving a fairly wide range as the price is likely to move quickly once either side of the range is broken. The weekends have fewer traders and can see moves escalate quickly, so I’m keeping both directions open. The upper side is more likely than the lower side of the range, though.
Bitcoin Ed Bite
Q: Why is security on the Bitcoin network important?
A: Security keeps the Bitcoin network from being hacked, keeping it trustworthy.
Security comes from Bitcoin miners consuming the energy necessary to create and broadcast the next block in the Bitcoin blockchain. Block rewards and transaction fees are earned for the effort. The energy spent to mine a new block keeps Bitcoin from being double-spent, i.e., spent more than once.
Double spending creates more money than is permitted to exist. To double spend, an attacker would have to spend more energy than at least 51% of the network to take over the blockchain. The more energy the network uses, the more difficult this is to accomplish. This assurance, given in a decentralized manner, allows us to trust the network for sending and receiving value.
Thanks for reading,
Kent
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