The African Lungfish is a miracle of evolutionary adaptation. Equipped with both lungs and gills, the fish can survive out of water. African Lungfish are known for their ability to survive dry seasons by burrowing into the mud and encasing themselves in a mucus cocoon. This state, known as estivation, can last for months or even years until water returns.
Bitcoin bulls are a bit like African Lungfish. For the past eighteen months, they have burrowed down deep, holding their breath as bitcoin has dropped in price. Fortune magazine recently carried this headline, “The future of American crypto looks bleak as Gary Gensler declares war—and it could mean the end of Coinbase in the U.S.” June 7, 2023.
Those cheering the demise of bitcoin intent on dancing on its grave are doing more head scratching than dancing. More puzzling still is the fact that the largest asset manager on earth, Blackrock (and others) has applied to bring to market a true bitcoin spot exchange-traded fund, even as Gensler is on the war path. This will make it much easier for institutions and individuals to buy bitcoin and could increase demand. https://www.theglobeandmail.com/investing/investment-ideas/article-bitcoin-bounces-on-blackrock-buzz/
Bitcoin, (and to a lesser degree Ethereum and Coinbase) has confounded the critics by spiking to over $30,000 on the news and is now up over 80% year to date. What’s going on?
source: YChart.com
Clarity is coming to the crypto market in America. For better or worse, the frustrating lack of clear rules is finally giving way to proper litigation and the result will be regulatory certainty for investors. The SEC has so far indicated that bitcoin is the only digital asset that passes their test as being a commodity not a security (and therefore cannot be regulated by the SEC). That may provide a greenlight for institutional investors to own it.
Recall that the real claim to fame for bitcoin is its limited supply – distribution is capped at 21 million bitcoin. That makes it a unique and rare thing – a currency that cannot be debased like fiat currencies routinely are. It provides digital scarcity. Blackrock could be instrumental in democratizing access to the asset.
Bitcoin bulls, the Lungfish of the crypto ocean, also know that they are nearing the bottom of the four year cycle that has characterized the space since its creation. Bitcoin is famous for a boom/bust cycle that seems to be explained by the four year “halving” of the mining reward. Every four years, the reward for processing a block of the blockchain is cut in half. This scheduled halving of the reward drives out unprofitable bitcoin miners and contributes to a bust cycle that then gives way to the next boom. If that cycle continues to hold, the bulls believe that bitcoin may already have bottomed and the next boom is underway even as the SEC sharpens its sword.
Will the SEC win the war and push crypto out of America? Other nations hope so. Here’s a recent headline from the Japan Times, “When it comes to crypto, turmoil in the U.S. could be a boon for Japan June 26, 2023”. The article is a sober reminder that the technology that powers crypto is continuing with or without the US. I suppose the same is true for investors.
There’s been a nineteen month drought in crypto. Like Lungfish, the bitcoin bulls are beginning to stir – is that water?
Glen
