Weekend reading: Bitcoin is still bonkers

What caught my eye this week.

I began drafting today’s post on Wednesday, observing that while 2024 had begun with a splutter for most markets after the almighty Santa Rally, Bitcoin was still going strong.

How come?

Just like the others, Bitcoin has benefited from the emerging consensus that central banks will begin to cut interest rates this year. Perhaps markedly so.

Any asset that pays no income will surely benefit when the competition from cash recedes.

But there’s been at least three other narratives driving the Bitcoin rally:

• A widely-held conviction that the SEC in the US is about to approve at least one Bitcoin ETF
• The upcoming ‘halving event’ in April, which will halve the rate of release of new Bitcoins to miners
• The fact that the latest cypto winter didn’t kill Bitcoin, despite all those bankruptcies and felonies. This must have made it stronger

It all helped Bitcoin’s price advance around 150% in 2023 – albeit after an epic crash the year before.

Things that go bump in the price

Yet no sooner had I hit ‘Save’ on my draft than this happened:

Yes, the Bitcoin price fell more than 10% in about ten minutes.

So much for the asset class growing up!

As I write, the cause of Bitcoin’s latest moment of madness appeared to be the opinion of a sole analyst.

Marcus Thielen of crypto platform Matrixport was quoted by The Block as saying:

“SEC Chair Gensler is not embracing crypto in the U.S., and it might even be a very long shot to expect that he would vote to approve bitcoin spot ETFs.

“This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January.”

Now, I can’t imagine why the SEC might be leery of green-lighting a retail-friendly ETF for an asset that dives 10% on the opinion of a single analyst in about the time it takes to Google it.

It’s not the message so much as the market that’s the problem here.

Everyone’s not a winner

Bitcoin remains a thinly-traded and illiquid asset.

A relatively small number of so-called ‘whales’ own a huge proportion – around 40% – of the outstanding stock. (Or at least all the stock that’s available that hasn’t been lost to Welsh landfill and the like.)

Indeed it’s not clear to me what diehard HODL-ers like Michael Saylor of MicroStrategy see as the endgame for their remorseless Bitcoin accumulation.

I obviously understand that scarcity can push up the price of a desired commodity.

But when that commodity’s only proven use case so far is as a (hugely volatile) store of value, surely that’s undermined if only a hundred or so entities control so much of the supply?

How will all the other stuff Saylor talks about with Bitcoin happen if it gets so closely-held that it becomes very hard to actually buy – and potentially use – it?

I suppose that the new financial order they predict (note: I don’t) could run with only tiny or even notional bits of Bitcoin changing hands. Maybe these massive holders will then act as de facto central banks?

Maybe, but I don’t remember reading about that in Satoshi’s white paper.

A stake in one future

Still, I continue to believe that brave – or crypto-enamoured – private investors can justify holding up to a few percent in Bitcoin or Bitcoin proxies such as MicroStrategy or the Bitcoin miner Riot Platforms.

For what it’s worth I do – despite some ongoing befuddlement.

Bitcoin and blockchain are among the most intriguing innovations of our time. But one has to acknowledge the vast range of potential outcomes, from Bitcoin going to zero, right up to it backing fiat currencies or being the preferred currency of powerful AI agents in a William Gibson-esque dystopia.

Hence why I’ve argued a small allocation that’s left to boom or bust is a practical response.

The trend is your friend

Of course this strategic inactivity might be severely tested if Bitcoin actually ten-bagged in a year.

And we can well imagine that a Bitcoin ETF could be very bullish for the Bitcoin price. It would make it easier for individuals and institutions to buy a small stake of the diminishing pool of free-floating Bitcoins.

As I believe a higher Bitcoin price is a self-fulfilling prophecy when it comes to the future price of Bitcoin, so higher prices should gradually de-risk the asset class by itself.  At least for a time.

But others think differently, of course.

Some even say ETF approval would be the death knell for Bitcoin, because it would curb those exotic use cases.

Others just ridicule what they see as an unusually hard-to-kill tulip-mania.

We’ll have to wait and see.

Incidentally my comments here relate only to Bitcoin. I have no conviction about the other cryptocurrencies.

It is not that I’m certain they will all fail. If Bitcoin endures and delivers anything like a decent return, then I’d bet in that particular world that a few of the other thousands of cryptos will do very well, too.

It’s more that in any outcome where any other particular crypto currency succeeds, I think Bitcoin will be at least okay – as digital gold, if nothing else – even if it’s not the standout performer.

In contrast, in all eventualities it seems obvious that the majority of Bitcoin’s thousands of rivals will amount to nothing, even if a dozen or so do thrive. There’s just so many out there.

Hence Bitcoin seems the median risk bet.

Putting 1-5% into a cryptocurrency is plenty enough risk already. So I’ll do whatever I can to reduce the uncertainty!

Have a great weekend.

From Monevator

The Slow and Steady passive portfolio update: Q4 2023 – Monevator

Which investment platform does Finumus use and why? – Monevator

From the archive-ator: Three steps to making new year resolutions work – Monevator

News

Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.

UK CEO pay already exceeds average worker’s salary for the year – CNBC

House prices rise again, but Halifax forecasts 4% drop in 2024 – Guardian

Rail fares to rise in England by 4.9% – Which

Higher interest rates have boosted UK household income by £16bn – Resolution Foundation

Airbnb, eBay, Vinted, and other side-hustle apps will share more data with HMRC – BBC

Luxury Battersea Power Station penthouse goes on sale for £31m – This Is Money

Oops! Natwest boss says it’s ‘not that difficult’ to buy a house – Sky News

UK homeowners face £19bn rise in mortgage costs as fixed-rate deals expire – Guardian

Products and services

Sub-4% deal leads HSBC’s cheaper mortgage rate offers… – This Is Money

…with fellow giant Natwest quick to join the party – Mortgage Solutions

How far will UK mortgage rates fall? [Search result] – FT

Top credit cards for 2024 – Be Clever With Your Cash

Get between £100 and £1,500 cashback when you open an ISA with Interactive Investor before 31 Jan. New customers only. Minimum £2,000 deposit. Terms apply. Capital at risk. – Interactive Investor

Are the perks offered by life insurers worth it? – Which

EV breakdowns due to low battery levels the lowest on record, says AA – This Is Money

Registration is now open to claim 15 hours of free childcare a week – Which

Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine

Why home insurers say you must never put up a ‘Beware of the Dog’ sign – This Is Money

Vintage champagne: market bubbles may have popped [Search result] – FT

Remote homes for sale in Great Britain, in pictures – Guardian

Comment and opinion

Learning to like beer in a world of champagne propaganda – Money With Katie

Investing lessons recapped – Humble Dollar

How to design a UK wealth fund is baffling both Labour and Tories [Search result] – FT

What comes after a good year in the stock market – A.W.O.C.S.

UK homeowners fear 2024 mortgage time bomb [Bit late for that?] – Guardian

Will HMRC really come after you for selling your old clothes? – This Is Money

Stock market history illuminated: 2023 edition – Albert Bridge Capital

Health is wealth mini-special

Make them good years – Humble Dollar

Your money or your life – Of Dollars and Data

Naughty corner: Active antics

A deep dive into investing risk – Alpha Architect

Investing in investment firms [Podcast] – Invest Like The Best

Veteran UK small-cap stock picker reviews his 2023 returns… – Maynard Paton

…and an annual review from an investment trust fancier – IT Investor

Why growth, why now? [Promotional but interesting] – Baillie Gifford

The decline and fall of US Steel – Construction Physics [h/t Abnormal Returns]

Kindle book bargains

What They Don’t Teach You About Money by Claer Barrett – £1.99 on Kindle

Kleptopia: How Dirty Money is Conquering the World by Tom Burgis – £0.99 on Kindle

Fooled by Randomness by Nassim Taleb – £1.99 on Kindle

Make Your Bed by William McRaven – £0.99 on Kindle

Environmental factors

Will hotter heat pumps win over homeowners? – BBC

UK turns to floating turbines to tap ‘remarkable’ wind speeds [Search result] – FT

Deforestation effect of UK consumption unsustainable, say MPs – Guardian

Beaver ponds may exacerbate warming in the arctic – Guardian

Robot overlord roundup

Young people turning to AI therapist bots – BBC

New York Times sues OpenAI and Microsoft – Semafor

Why everyone needs to care which way AI research goes – Our World In Data

Bollocks to Brexit mini-special

Brexit has completely failed the UK, say a clear majority of Britons – Guardian

New UK border checks are ‘disaster waiting to happen’ warns flower industry [Search result] – FT

Off our beat

Manchester’s skyscrapers: towers of homebuilding ambition or ‘high-rise mania’? [Search result] – FT

Active versus passive learning – Morgan Housel

“I own the world’s oldest living cat” – Guardian

Roche designs antibiotic to fight deadly A. baumannii infections – Fierce Biotech

New Saltburn trend shows ‘rich people missed entire point’ of the film – Joe

Tim Spector and the cult of Zoe [no paywall] – FT

13-year old hailed as the first person to ever ‘beat’ Tetris – Guardian

Nobody has Seasonal Affective Disorder – Raptitude

2023: The year in cheer – Reasons to be Cheerful

And finally…

“Oh how blessed the young men are who have to struggle for a foundation and a beginning in life. I shall never cease to be grateful for the three and a half years of apprenticeship and the difficulties to be overcome, all the way along.”
– John D. Rockefeller, Titan

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