Q2 2020
You wont forget Q2 2020 for the rest of your life. For many businesses it was hard, for some it was the end.
For others, like Square in the US, it will be remembered as a break out quarter. Their bitcoin sales increased to $875m in Q2, up 185%.
Bitcoin miners mined $1bn in bitcoin value during the same period. As we predicted earlier in the year, between Squares CashApp and the Grayscale Bitcoin Trust more than 170% of bitcoin mined in the quarter is being consumed by two businesses. To satisfy demand in this environment we need more than miners selling or price has to go up.
Demand is rising, supply is falling and the chart shows you how profound that swing is, particularly given the halving of supply that occurred in May.
Ask yourself, do wish you had more bitcoin? When the 2024 halving comes around will you wish you had done something different now? I can’t give you an answer, I’m just going to draw the charts and leave it with you.
The levels
I know, you want to talk about price, hear about price, please – tell me about the price. I urge our investors not to track the price too closely and view the investment for the long term. The problem with hanging on price is that it can become all consuming. The fact of the matter is that supply and demand have been taking care of the bitcoin price for 11 years and will likely continue to. I believe the key assessment investors need to make is about allocation rather than worry too much about short term price movements.
With that very dull health warning in place, let’s turn to price (all USD).
There are some very important resistance levels which bitcoin faces on its journey. The first was $100 in 2013, there was great excitement on the Reddit boards of the internet but not too much mainstream news.
The next level was $1,000. Bitcoin briefly flirted with that level in late 2013, then Mount Gox got hacked. Bitcoin was declared officially dead in the media and everyone moved on. It took over three years to finally break through the $1,000 level in early 2017. Indeed it was three years of solid bitcoin obituaries and naysayers.
So here we are, with our trench dug around US$10,000 having had three more years of obituaries and naysayers. What will it take to move forward?
USD $10,000
A huge psychological level for bitcoin. Enormous trade takes place both long and short at this level and sustaining a price above $10,000 has been hard. Despite the heights of 2017, bitcoin has only ever been over USD10,000 for 180 days in its 11 year life.
A clear break from $10,000 requires some distance in my view. A level of $15,000 would give me greater confidence we don’t dip back below $10k and we are not there yet.
USD $13,800
Again, based on long and short selling their is a great deal of potential activity at $13,800. This is roughly the 90 day average price around the last top in late 2017. A good number of smaller players will hand over their bitcoin at these prices and move on to Kodak stock.
Indeed, as we saw at the weekend, there was a wall of selling at USD12,000. The price dropped by $1000 on Sunday afternoon as those limit orders clicked.
USD $19,497
The official 16 December 2017 high price. There is far less activity here than at the $13,800 level. Bitcoin has only been over $15,000 for 20 days. Almost nobody has engaged with it at these prices, even so it will be a very noisy period. The press will seize this moment for “is the bitcoin bubble back”. “Retail investors warned about the tulip bubble” etc. etc.
Higher
Then the next level discussed will be USD$100,000 which everyone will claim is totally ridiculous. But at that level Bitcoin would have a market capitlisation of $1.8 trillion which would be exactly 20% of the gold market cap. Not exactly earth shattering.
What is more at $100,000, the sub unit of bitcoin known as the satoshi, would be valued at exactly 0.01 USD or 1 cent. That might really be when the story begins. The re-denomination from bitcoins to satoshis is like a giant share split that would massively increase liquidity. I think that will be the point we get mass adoption because the perception will be “I can participate for 1 cent”, even though it’s true today.
So, you forced me to do it and I wrote about price. If you take anything away from this analysis it should be that the naysayers and obituary writers we will be with us all the way however well the asset class performs. Just embrace them, while they aren’t it means more bitcoin for you.
That’s absolutely right.
Three cheers for brave Fitch, amazing stuff.
So, what’s the credit rating Fitch?
Hmmm. That’s the highest possible rating. It’s the same as Germany where the debt to GDP ratio is 60%, which is half that of the USA. It’s the same rating as Luxembourg 22% debt to GDP, the USA is 6 times higher.
Incidentally, the country with one of the lowest debt to GDP ratios in the world is Russia, less than 20%. The Russians have been quietly buying gold since 2008. Now I know they have had their issues and nobody likes them, enemy of the state etc. etc. but Fitch is totally impartial, so none of that matters.
The Russian rating, BBB.
We’ve changed, it’s different now. New procedures, more regulation, our staff are better trained and more diverse, we even have some analysts from planet Mars.
No. Just another member of the Wall Street meal deal I’m afraid. Do your own research, these guys are charlatans.
What does it actually mean when the real yield on a 10 year US bond is -1%?
1. Investors think asset prices are going to crash and getting 90% back in 10 years on bonds will look like a good deal compared to equities or housing for example.
2. Investors think general price deflation is coming, so the price level falls, inflation keeps falling and bond prices keep rising.
3. Investors are hiding in bonds during this crisis, when it ends they will move out of them on the basis they cannot dwell too long in negatively yielding assets.
4. Global pension funds are forced to buy bonds because their mandates require a higher bond allocation for their ageing clientele.
I was presented with this opinion over the weekend:
It was forwarded to me under header “check out this nutter”. We won’t be around to find out but I must confess I share the opinion that in the currency wars there is almost no chance that government issued fiat currency can prevail, it never has. It is failing right before our eyes, the rush for gold, bitcoin and even silver is on.
Below is the US money supply, it is now in a frenzied rise and will shortly jump again when Congress agrees the next round of stimulus.
The bonfire of fiat is just beginning.
