Discover more from The Fiat Cave
2024 Bull Fuel: Bitcoin's Next Cycle
Five reasons why I am tremendously bullish on bitcoin
Good morning - MacroJack checking in for the first time in a while… It’s been a busy summer and I’ve not dedicated enough time to writing. But I’m back. Thank you for being here. Hope you enjoy today’s article. If so, consider sharing the publication with friends, family, or your network or pledging a paid subscription.
The Fiat Cave is a reader-supported publication. If you get value from my content, consider sending some value back in the way of a paid subscription.
So you thought bitcoin was dead? At the time of this writing, one bitcoin is down -62% from its all-time high of $69,044. We’re at the point in the bitcoin cycle when you bring it up to someone, and their reaction is, “That bitcoin thing is still around?” or “That’s a scam,” or “I thought that SBF guy blew up bitcoin.”
But I have bad news for the bears. I’ve got some bull fuel today for my readers.
Bitcoin is far from dead. It’s more alive than it’s ever been.
Now is an excellent time to consider making an initial bitcoin allocation or increasing your position. The only wrong allocation to bitcoin is 0%.
Now let’s get into five reasons why I’m bullish.
#1 The Halving is Coming
Bitcoin derives its value from its scarcity. I’m not the first person to tell you that bitcoin’s supply is hard-capped at 21 million, and I won’t be the last.
A scarce digital currency outside the control of any government, central bank, or individual stands in stark contrast to fiat currencies, which are manipulated to benefit their issuers and are infinite in supply. Bitcoin’s absolute scarcity is the primary reason it is being globally adopted as a store of value. Bitcoin’s predecessor, gold, has been used for thousands of years as a premier store of value due to its scarcity.
But 21 million is not the only consideration regarding bitcoin’s scarcity.
Bitcoin exhibits increasing scarcity due to a phenomenon called the “halving.”
If you’ve been following bitcoin for a while, this is old news, but it’s a critical component of the bitcoin protocol to understand for the newer entrants to the space.
The halving is an event that takes place every four years. The reward for bitcoin miners is cut in half, or put another way, the inflation rate of bitcoin is halved.
At this time, approximately 19.5 million of the 21 million bitcoin have been mined (issued) already. Every 10 minutes, when a new block is mined, the miner who wins the block is awarded a 6.25 bitcoin block subsidy. The next halving is anticipated in April 2024 - the block subsidy will be halved from 6.25 bitcoin to 3.125 bitcoin.
The halving increases the scarcity of bitcoin through a decrease in the inflation rate.
I’d recommend Jesse Myers’ excellent article “Increasing Scarcity: Bitcoin’s Value Appreciation Engine” for a deep dive into the subject. Since bitcoin’s inception in 2009, there have been three halving events: 2012, 2016, and 2020. A halving on the horizon in 2024 is bullish for the price of bitcoin. It’s been one of the primary, if not the primary, driver of price appreciation, and the reason why bitcoin’s price follows four-year cycles.
Bitcoin’s scarcity is set to increase next year, coinciding with an anticipated increase in demand for the asset for several reasons (keep reading to find out why).
Prices for bitcoin or any good are set at the margin, where supply meets demand, and if we know supply is decreasing, and demand is increasing, the price increases.
#2 The Digital Gold Rush
It’s been almost 200 years since the California Gold Rush. In this monumental event, people traveled from across the United States and even from overseas in search of the shiny yellow metal. It was a rare opportunity to create generational wealth.
Unless you were alive in the 1840s (I personally don’t know anyone who was), you missed that opportunity for life-changing wealth - tough luck.
But do not fret! The good news is that the Digital Gold Rush is here.
In July, I published one of my better pieces to date, “The International Digital Gold (Bitcoin) Rush,” highlighting parallels between the CA Gold Rush and events currently transpiring in the bitcoin industry. I’d encourage you to read the full article.
But I understand if you don’t, I won’t take it personally. We are all busy people…
To summarize, the Digital Gold Rush is the institutional adoption led by Wall Street that’s coming for bitcoin very soon.
Wall Street sentiment shifted dramatically this summer, notably as BlackRock, the world's largest asset manager, filed for a spot bitcoin ETF. Several Wall Street institutions followed suit (the suits are coming!) with their own filings.
It was only in 2017 that Larry Fink said, "Bitcoin just shows you how much demand for money laundering there is in the world."
Fink really missed the mark at that time, and his mistake resulted in BlackRock clients missing the opportunity to get into bitcoin at prices much lower than today's.
2017 was when I was introduced to bitcoin, and it began to captivate my attention. And I can assure you, my readers, that I was not laundering money (or was I? No, I wasn't).
Now in 2023, Fink is all over mainstream finance media outlets such as Fox Business and CNBC, praising the merits of bitcoin as an international store of value to protect wealth against onerous government decisions and currency debasement.
While it's clear that Fink doesn't entirely understand bitcoin (he stumbles his way through interviews when talking about bitcoin), does that really matter?
The signal here is that BlackRock has pressure from clients to roll out a bitcoin product, and if they fail to deliver said product, then others will, meaning BlackRock loses out on that AUM. It's important to note that BlackRock doesn't file an ETF if they don't have a high degree of confidence in its approval. BlackRock has received 575 of 576 ETF approvals in their firm's history.
Since I published the original piece, a federal court ruled that the Securities Exchange Commission (SEC) must review its rejection of Grayscale's attempt to convert the Grayscale Bitcoin Trust (GBTC) into an ETF. The court ruled the SEC had treated Grayscale's application differently from other similar products without providing a proper explanation, making the denial "arbitrary and capricious."
The court did not direct immediate approval but required the SEC to review the application again, reports Coin Desk.
It's clear that we're getting closer to the Digital Gold Rush, and similar to the CA Gold Rush, which was initially met with skepticism, the shift in Wall Street sentiment and the coming adoption of bitcoin is the social proof needed to push the asset class into the traditional finance ecosystem.
That’s all for today folks. Be sure to subscribe to The Fiat Cave and share with your friends and family as I’ll be releasing the follow-on piece to round out my five reasons why the next bitcoin cycle will be tremendously bullish.