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Posted February 13, 2020
Tonight I was walking along the Vancouver Sea Wall, something I do regularly these days. Just walking at a fast face (6-7 km/h) while watching the sea, the boats, the waves, and the occasional seal popping up, but mainly thinking through new ideas. I was feeling a bit anxious, which is unusual for me, so I tried to figure out why I was feeling that way. Suddenly I realized it is because of Bitcoin, not because of its recent performance (BTC is up 45% over the past 6 weeks) but because I realized we are finally at the point where Bitcoin is ready to break out. Let me explain.
Last Friday (6 days ago since I am writing this) Bitcoin broke through $10,000, an important psychological barrier for many investors. I was at a dinner party with friends while watching the Bitcoin price. During the beginning of the dinner I was more focused on the price than on the conversations (my bad…) and I actually managed to screen shot the exact moment when Bitcoin hit $10,000.
Of course the topic changed to Bitcoin right away (most of the people had some exposure to Bitcoin already) and I explained why this was an important moment for crypto. Not because Bitcoin would never go below $10K again (it actually dipped to $9850 a few days later), but because this was the first time that Bitcoin traded over $10K while I felt it was priced correctly. Breaking through $10K at the current fundamentals and at high volumes means $20K this year is suddenly very likely and my predictions of at least $100-200K per Bitcoin in a few years seem more and more likely.
During the past days I was more focused on non-crypto investments and new business ventures so I did not really take the time to put my thoughts on this together. But while walking I realized my mind had already done the work for me. So I am just going to type my thoughts into a blog post.
In 2017 BTC went up to an all time high of almost $20,000, but what people forget is that the ‘race’ from $10,000 to $20,000 lasted for just over a week and $14,000 to $20,000 happened in just 2 days. Hardly anybody bought or sold above the current price, meaning that today’s price of $10,000+ is actually quite similar to an all time high.
I remember that on December 6, 2017 we were on a Hut 8 road show on Wall Street and that we could not believe what was happening to Bitcoin when we checked our phones during investor presentations. Late afternoon after our presentations were finished, Mike Novogratz invited us to fly back to Toronto on his private jet and during the flight we mainly kept on checking our phones instead of enjoying the food and drinks. I think we hit $16,000 while in the air and I have to give it to Mike that he called the top at that point. He said it was time to start taking profits, something I was not so sure about yet at that point.
The next day I was speaking at a GMP conference in Toronto and I was literally checking the price while I was on stage (and announcing to the audience that the price had gone up a $1000 to $18,0000 while I still on stage). Looking back I should have realized it was crazy and could not continue like this. It was indeed not sustainable and not long after that the Bitcoin price started to crash hard.
Today is very different though. 2017 was mainly a retail investor market, but most of these investors have left the market since. They did not really understand what they were investing in so they either sold at a loss or totally forgot about their investment. 2020 is different, I feel the current bull market is led by institutions and family offices. Well-informed investors that invest because they see Bitcoin as a potential store of value in volatile times. They were not in the market in late 2017 because they were either not allowed to be in it yet (e.g. there were no approved custodians) or because they did not know how to invest in Bitcoin. We have come a long way since then, but it’s still not easy to buy and hold Bitoin (one reason why we are very far from a new top). The narrative has changed though and many people start to see Bitcoin as a real new asset class.
One important factor is that there is finally a model to value Bitcoin. When Sean and I did a roadshow all over Canada for the FBC Bitcoin Trust in September 2017 we always made the comparison to Gold, explaining that if Bitcoin would just become a store of value and its market cap would be just be 10% of Gold, the price would be $50,000-60,000 (this is based on today’s BTC market cap of below $200B, while Gold is worth over $8 Trillion). I also explained the value of Bitcoin as a potential currency, and the value of the Bitcoin blockchain as the most secure database on earth, that would make Bitcoin even more valuable, but most people did not understand it. They wanted to see a model.
And now there is one, the stock to flow model, developed by fellow Dutchman Plan B (who wants to remain anonymous). The model is based on scarcity of Bitcoin and it can be used to calculate future Bitcoin prices. So far it hold up very well and it predicts a Bitcoin price of at least $50,000 next year and possibly up to $100,000. From there it keeps on going up to $1 million by 2028-29. Wishful thinking? Maybe, but 7 years ago Bitcoin was a factor 100 lower than now, so it could easily go up another factor 100 in the next 7 years. Many people have been trying to falsify the model, but so far nobody has managed, which is a very strong signal for me.
The title of this post is The Perfect Storm because I believe the world is heading into the wrong direction at the same time that Bitcoin is becoming more prominent. First of all because of the Coronavirus (another topic I should write about soon). In 2017 it was not clear what BTC was going to be: a currency, a store of value or something else. Right now BTC has shown a couple of times that it seems to be mainly a store of value (it still might have other functions in the future as well). The Coronavirus might be the catalyst for a new crisis.
China has literally come to a complete stand still. People can’t leave their homes (or don’t want to, even if they can), most stores and restaurants are closed and the retail economy has come to a stand still. But even more important, factories are closed and will remain closed for the foreseeable future. This means that supply chains all over the world will be disrupted soon. Even if your product only has one small part sourced from China you won’t be able to build your product. People in North America and Europe don’t see the effects yet and it’s actually hard to believe for me that it’s still business as usual here. But I believe that will change fast and it may be the Black Swan event that will lead to a major stock market crash. When that happens it could lead people to invest in Bitcoin as a safe haven, meaning a potential huge spike in the Bitcoin price.
Even if the Coronavirus won’t be as bad as I think it is, we still have the problem that many countries have so much debt that they will never be able to repay it. Whatever you call it or whatever it is, quantitative easing, repo short-term lending or simply printing money, the effects are all the same. This is not sustainable. The powers that be want the current state to last as long as possible, because they make tons of money. But it won’t last. The corona virus could be the nail in the coffin that will lead the financial markets to collapse. But even if it is not, something else will happen soon that will push Bitcoin as a safe have investment.
In 2017 the crypto bull market was led by retail investors, but not many are still in the market. However, they are quickly coming back. I can see it on Twitter where I suddenly have a lot more Bitcoin conversations than just a few weeks ago. I can see it in the altcoin markets, where coins that in my opinion have zero value suddenly go up with double digit percentages. And the emails start coming in again from people that want to buy large amounts of BTC. Something is happening, I can feel it. And I guess that’s where my anxiousness came from. I want to be behind my laptop knowing what is happening in the markets and being part of it. But walking the Seawall is probably more healthy and a better use of my time for an hour per day.
During Bitcoin’s past 7 years I have only felt twice like this. Once in October 2013 when I was a partner in a venture capital fund and I literally had no interest in looking at new companies simply because I believed putting money into BTC would lead to much better returns (too bad I did not follow my gut feeling, this was when Bitcoin just broke through $100, two months later it hit $1000). The next time was in early 2017 when Bitcoin started its new bull run from $1000 to almost $20,000 and I felt BTC was finally more or less de-risked.
Now it’s February 2020, Bitcoin trades at just over $10,000 and it seems stronger than ever. The mining reward halving is coming up (which cuts supply by 50%, meaning a potential doubling of the BTC price), governments seem to be okay with Bitcoin and Bitcoin mining, and the Stock to Flow model predicts a 5-10X price increase before the end of 2021. The financial markets are at unsustainable all-time highs, a virus is threatening the world, and climate change is slowing but surely making the world a much worse place to live. It seems like a perfect storm to me and it may be time for Bitcoin to make its next big move.