Don’t sell what you’re about to need…
The price of Bitcoin is currently trading at US$31,000, this is is down 54% from its all time high reached just six months ago. Bitcoin has a history of 3,000% rallies followed by 80-90% drawdowns…we’ve been here before.
The current sell-off is echoed across all other markets as there are significant drawdowns in global indices, sovereign bonds, commodities and a US dollar gaining against all other major currencies.
Speculation and rumours as to the spark that set the precipitous sell-off include: a large fund is liquidating all its positions; this the end-result of infinite Quantitative Easing which led to a an unprecedented rally in global markets, even through Covid-19; a whiplash from interest rates now rising in a world awash in historical debt.
The once considered safe haven assets, gold, bonds and silver are being hit as well. Gold, which is deemed a low volatility hedge against inflation and risk-on assets is down over 10% since past March and silver is down nearly 30% since February. This year may mark the end of the US treasury bonds rally that started in 1981.
Russia, which at last estimates was the eleventh largest economy in the world (by nominal DGP) is in threat of defaulting on its sovereign debt. To avoid such a calamity a state has the option of printing more of its national currency, thus ‘inflating away’ the debt. However this has the dual externality of depreciating their currency against the US dollar, the currency their debt is denominated in, so forcing them to continue to issue more and more roubles. The continued supply of their national currency would also precipitously decrease their citizens purchasing power. This, as we saw during the Arab Spring, culminates in civil unrest and anything up to and including a failed state.
The Bitcoin rally of 2020-2021 saw many new industries and entrants into the market. This included institutionalised hedge funds, commercial banks and including the first sovereign state to adopt Bitcoin as legal tender.
The Bitcoin eco-system is growing very rapidly. Not just measured by new wallet address but also in the services being provided. Loans collateralised against Bitcoins, the rapidly growing Lightning Network allowing micro-payments and easier and easier ways to purchase bitcoins and satoshis are just a few.
A finite supply, decentralised, peer-to-peer currency is the panacea the world needs as the petrodollar and Bretton Woods System unwind. Don’t sell your bitcoins now, you’re about to really need them.
What was that Chinese saying about crisis and opportunity?