Taking flight

In today’s Exponential Investor…

  • Which asset has surpassed all others this year?
  • Where we stand in bitcoin’s four-year cycle…
  • What happens next?

A few months ago, you might’ve spotted (because I plugged it relentlessly for a fortnight) that I hosted an online investor summit about bitcoin and other cryptocurrencies.

We were very lucky to hear from some of the biggest names in cryptocurrency and sound money finance – from Saifedean Ammous to John Butler.

Quite a bit has changed since then though, and I think it’s probably a good time for an update, as this week has seen an explosion in interest.

I’m suddenly seeing it across news sources, social media and email threads again.

Take this from Bloomberg, for example:

Source: Bloomberg

So what’s going on?

Well firstly, bitcoin is once again within striking distance of its all-time highs. Which means that a bunch of poor souls who bought in December 2017 are finally near getting into positive territory once more!

Throughout this year, the intriguing thing for me is that it has been rising – but much more steadily. It’s less volatile, more consistent, and it’s reaching these heights without any great fanfare in the public domain.

That’s interesting.

The size of the network in terms of the size and volume of transactions has grown a lot since 2017, and as we saw in the summit, bitcoin benefits from the network effect like a social media or telecom stock: the more people use it, the more valuable it becomes.

Source: Charlie Bilello, on Twitter

You can see that the price of bitcoin, which is shown in a logarithmic chart below, is highly cyclical, almost predictably so.

This is because of the halvening cycle, in which the bitcoin rewards given for verifying data in the blockchain half every four years. Previous “halvenings” have seen huge price surges in their wake (the first two were in 2012 and 2016).

And it’s starting to look like it might be happening again, after the recent halvening earlier this year.

Source: Koyfin

Charlie Morris, veteran multi-asset fund manager and editor of The Fleet Street Letter Wealth Builder, shared this chart recently. It shows how even though it looks like bitcoin is off on another wild ride, that’s not true relative to its own history.

In terms of its deviation from its long-term (30-day and 200-day) moving averages, this move is miniscule compared to its predecessors.

This chart tells us there is plenty more race left to run:

Source: Charlie Morris on Twitter

But this move has generated some new fans and new interest, showing that bitcoin has by no means convinced everyone yet.

Take Ray Dalio, who’s still learning:

Source: Ray Dalio responding to Dr. Mario on Twitter

And Lyn Alden, formidable macro analyst:

Source: Lyn Alden on Twitter

And people are slowly starting to catch up with what Nassim Taleb said years ago:

Source: Real Vision on Twitter

One crucial theme is the way bitcoin interacts with major financial markets.

Many are keen to label it merely an extension of tech or equities – “just another spot further down the risk curve”.

But its relationship to stocks has been volatile in the past, and after ranging for a while, Charlie Morris has spotted an interesting breakout.

Source: Charlie Morris on Twitter

Looking back to our crypto summit in August, if you got involved then well done!

I am incredibly pleased by the timing of the event. Back then, it still felt like the “crypto winter” to most people, and bitcoin was generating very little interest.

I wonder if there’s any irony to the fact that it was summer’s end which saw the beginning of the latest episode of crypto-bullishness.

But based on the things we’ve seen today, bitcoin’s historical cyclicality and the lack of mainstream discussion about it, it’s reasonable to think that there is plenty to go yet.

All the best,

Kit Winder
Editor, Southbank Investment Research

Category: Cryptocurrency

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