Legacy financial media always want to point to a proximate cause for moves in the markets. They’ll say it’s due to the hot weather, or cold weather, or vacation season, or families returning to work and school, that the stock market went down, or up, or sideways, or followed traditional patterns, or broke traditional patterns.
I wonder if that’s why Fundamental and Technical Analysis were developed in the first place – just to get past all the meaningless narrative noise to find some signal.
So here, with their “explanation” of bitcoin’s pump to mid-55K region. Even acknowledging that btc broke through 50k the day before, CNN explains (I’m certain not alone) that the additional 10% rise “followed” the Soros Family Fund announcing that they own some coin.
Correlation is not causation, but the headline “analysis” sure makes it sound as though the one caused the other. Financial media want us to think that the Fund’s endorsement-by-announced-adoption resulted in the second day’s rise of a commodity that was already moving. Balderdash, of course. Especially considering the Soros Fund endorsement was so incredibly tepid: “We own some…not much.” Sounds like they made a rational and conservative hedge play. Given the strong upside asymmetry that bitcoin offers, smart money managers take a small stake; something akin to Fidelity Investments’ recommended 1-5%. If the asset dumps, little harm is done; if it rockets to the moon, it contributes an outsized boost to the portfolio. The Soros Family Fund recognizes the probability, not certainty, that bitcoin will more likely moon than die over the coming years. No doubt they’re in it for the long haul, and are not planning to panic sell due to short term volatility – which is the difference between professional investors and retail-level gamblers.
Meanwhile: it is the fact that investment funds and the financial offices of a growing number of corporations have been buying bitcoin since early summer and moving it off the exchanges – thus taking it out of play – that is responsible for a maturing shortage of available bitcoin for purchase on the exchanges. As more institutional entities recognize what Michael Saylor (of MicroStrategy) called the “melting ice cube” effect of keeping retained earnings in USD, more of them want some exposure to the hardest money, bitcoin. Then add in the Federal Reserve’s constant multi-billion dollar weekly Repo Market buy-backs, and the new Congressional calls for multi-trillion dollar spending packages. Money-smart people realize with increasing urgency that the dollar is racing toward zero.
And it’s not limited to the US. Big money across the globe has access to the same information, and the same quality of investment advisors and money managers. They’re all looking at the same data and trends, and they’re all worried about the future of USD, because (as we know) over 70% of global debt is denominated in dollars – which makes the dollar’s future every individual’s concern, whether they know it or not. Nations and big money’s money managers do know it. USD is developing a crisis. Therefore, the world is developing a crisis.
So what to do? Precious metals, for one. Productive land, built real estate, and art for another. Scarce and in-demand commodities like oil and copper, of course. And bitcoin. Bitcoin because it is capped at 21 million coins, of which almost 19 million are already in existence. The mining rate is 6.25 coins mined at an average rate of every 10 minutes, according to a protocol-based schedule that adjusts every two weeks to keep the average right around 10 minutes no matter how much or little mining power is thrown at the task. That’s anti-inflationary – a rather unique commodity, currently under-appreciated, which makes it a value investor’s dream.
Now we learn that the miners are retaining most of the bitcoin they produce. Until this last year or so, they regularly sold coin to fund their operations; however, investor interest in mining companies has opened new avenues to operating cash, and a new incentive to not divest of their appreciating asset. In short, it makes much more sense to take in and spend depreciating investment dollars and hold onto the bitcoin because it promises an asymmetrical upside growth in value in those same dollars, which in turn increases the value of miner shares to investors; so, more investors want in at higher share prices.
With the vast majority of bitcoin owners putting their coins into cold storage, and miners holding onto the majority of their mined coins, at the same time that institutions and big money financial advisers are trying to secure bitcoin for themselves and their clients, a short squeeze has been developing for months. Today there are less than 2.5 million bitcoin on the globe’s exchanges; that’s more or less all the bitcoin that’s available for trade. As is to be expected, this confluence of events is now producing bitcoin price appreciation greater than is accounted for by the declining purchasing power of fiat currencies.
Over a year ago, in an online conversation with now-departed JAG (an amateur stock and commodities trader who kept moving in and out of btc, often to his loss) who I tried to encourage to buy and hold, I predicted a 2021 year-end bitcoin price of at least 100k (the price was then around 10k) and a follow-on retracement that might drop as low as the 60k region, to be followed by a new base around 85k before the 2024 halving. I am far more confident of the 100k expectation now. It’s likely too conservative because the vast majority of the current buying is professional, and they buy to hold long term. It’s not until retail gamblers start buying that markets see the frothy action that results in blow-off tops and subsequent plunges. So, it might be reasonable to anticipate that the new floor price – the bottom of the follow-on retracement – is yet to be identified, and that it will be approximately that price point where the retail weak-hand buyers start piling in.
Until the retail FOMO action starts, bitcoin’s price will remain a bargain (in my completely non-professional opinion) no matter how high it goes until then. Because it ain’t George Soros’ fund, it’s the broad fundamental bitcoin market trend, in the context of the macro market dynamics dominated by doomed US money policy, that’s driving this Q4 (likely into Q1) price action.