2020 has been an unbelievable year. Apart from cementing the importance of relationships and community, bitcoin is the most positive component of a challenging year. 300%+ investment returns are spectacular, but bitcoin is far more important than price appreciation. In this note, I touch on numerous positive aspects of bitcoin, including protecting value in the face of uncertainty, pushing back against govt abuse, investing in sound principles and building community. Plus, I provide an outlook for 2021. I expect the year ahead will be a wilder ride than 2020. I’m preparing myself and trying to remain as level-headed as possible. Hold on to your hats and let’s make the most of this incredible journey together.
2021 Outlook highlights
- Speculation and FOMO as Bitcoin price surpasses $100K
- Institutional interest continues
- Bitcoin ETF approval
- Elevated bitcoin transaction fees, layer 2 solutions and interest in alternative cryptos
- finCEN’s KYC proposal may not pass before Mnuchin leave office
- 2021 will surpass price expectations but will be followed by another bear market in 2022
- DCEP to grab headlines in 2021 as central banks grasp for relevance
Protecting wealth in the face of uncertainty
Investors flocked towards the store of value for the digital age during the most uncertain year for the global economy in decades. Gold did its thing in 2020, protecting wealth during the volatility and outperforming during the year, but bitcoin completely shot the lights out. A wise man once said, “the proof is in the pudding”.
Yes, bitcoin remains volatile, but 1) volatility is declining & 2) bitcoin is storing value. Remember, bitcoin is positive over almost all 3-year rolling periods. Rule #1 in bitcoin investing; have a long time frame!
Investors have been able to shield themselves and preserve their wealth in a digital network. And with traditional asset classes at expensive valuations and interest rates at record lows, the outlook for store of value assets remains very positive. Because, where else can you store your value? Michael Saylor has made this argument powerfully in 2020. If you haven’t watched any videos of his yet, what are you waiting for?
How do you respond to government abuse?
Bitcoin emerged during the 2009 financial crisis in direct response to government decisions to abuse their monopoly on money creation and bailout banks. During the next financial crisis in 2020 the Federal Reserve increased M1 money supply by $2.7tn in 10 months. A 67% increase in base money! What. The…
Just like 2009, authorities have morally justifiable reasons for their actions, but the truth of the matter is that most of this money has gone to government, large financial players, big businesses and those with ready access to government programmes. The man on the street is under severe pressure and inequality has ballooned through 2020. This dynamic is the same whether you’re in America, the UK or South Africa and its completely unsustainable. Politicians will follow up their 2020 policy justifications with wealth programmes to try and alleviate inequality but their inability to diagnose the problem implies that their responses will be patchwork solutions at best. More likely, their responses will exacerbate the problems that we’ve been speaking about in our monthly newsletter. How are you going to respond to this abuse? Bitcoin presents you with an opportunity.
Extreme fiat currency creation vs. Bitcoin Halving supply growth
While governments have created new currency hand over fist to try and paper over the cracks in the global economy, bitcoin supply growth is falling. We experienced the 3rd bitcoin halving in May 2020 (where supply growth is cut in half) without fanfare. The halving highlights bitcoin’s constrained supply value proposition (67% growth in US M1 money supply vs. 1.1% growth in bitcoin supply in 2020). No one implements this change. There’s no central bank, which could be manipulated. The change is pre-programmed into the protocol. Bitcoin’s supply algorithm is executed smoothly and efficiently without political intervention. Where do you want to place your trust? Digital scarcity or government intervention?
Bitcoin is hope and positivity
Before you start telling me that bitcoin is all about greedy investors making money, here’s a great twitter thread which highlights a few positive real-world use-cases, including banking for the unbanked, a funding channel for those without access in Nigeria and Belarus, helping Afghanistani women learn to code and remittances to Venezuela, amongst others:
And while there’s definitely more to bitcoin than making money, there’s nothing wrong with making money either. I deserve to be able to save for my future, and so do you! The world needs a savings technology which allows individuals to store their wealth in a place that won’t be negatively impacted by government decisions. Bitcoin provides that opportunity, to everyone. Seize it!
Investing in principles and community
Those who have been exposed to bitcoin have been able to protect themselves. They’ve bolstered their purchasing power through holding a constrained supply asset. They’ve invested in alternative financial system, which looks increasingly necessary after the unsustainable largesse of 2020. They’ve invested in sound principles of truth, integrity and positive incentives. And they’re been able to build community with other likeminded people across the globe, despite the social challenges presented by covid19. I’ve been incredibly fortunate to connect with a passionate group of bitcoiners in Santa Monica LA. I’m very grateful for these people.
And while I caution against watching the price alone, bitcoin’s price is a confirmation of the growing global community. Bitcoin’s network has grown above $0.6tn this year. That’s a large amount of capital allocated to a decentralised digital network that isn’t controlled by any individual or organisation.
After such an incredible 2020, what can we expect from 2021?
- The price gains in Q4 2020, back above previous all-time highs, will encourage greater speculation in 2021 and will likely see the price surpass $100K. I think we need to shift in our approach to the word “speculation” to properly assess bitcoin cycles.
- Institutional interest is an increasing driver of the market. Bitcoin futures on the CME have surpassed the rest of the global exchanges (chart below). The Chicago Mercantile Exchange (CME) is the centre of traditional finance so large volumes on the CME confirm that traditional finance is taking a long hard look at bitcoin, and they like what they’re seeing. This will continue in 2020 and we may see the first bitcoin ETF finally passed by US regulators.
- Despite bitcoiner’s best education efforts, FOMO remains bitcoin’s number 1 marketing strategy. There’s going to be a lot more FOMO in 2021. We need to understand it and be less susceptible to it.
- Strong price gains will likely result in elevated bitcoin transaction fees in 2021. We’ll see renewed interest in layer 2 solutions, like lightening, and sidechains, like liquid, which try to solve for cheaper and higher frequency transactions. Enthusiasm, elevated bitcoin prices and high transaction fees will push many into alternative cryptocurrencies. I’m not a complete bitcoin maximalist, but I caution newcomers against alternatives.
- Steve Mnuchin, the outgoing Treasury Secretary, is trying to put a spanner in the works by tightening up on certain KYC regulations. These regulations aren’t desirable, but 1) regulations are inevitable at some stage and 2) regulations won’t stop bitcoin’s trajectory. We need to encourage positive regulations, prepare ourselves and not be scared be regulators. I wrote a response to finCEN’s proposed regulation and I will draft a response to the South African regulators in Jan 2021. Re finCEN specifically, I don’t expect Mnuchin’s proposal will pass before he leaves office and I don’t think incoming regulators will be as keen to pick it up as he was.
- Watch the language used with respect to bitcoin, gold and the US dollar in 2021 as bitcoin continues along its monetisation path. I sense that there’s still a couple more adoption cycles after 2021. This year will probably surpass expectations and 2022 could very well be another painful bear market.
- China’s Digital Currency Electronic Payment (DCEP) will grab headlines in 2021 as China tries to compete against the US in digital payments. Other central banks will follow but they’re behind China on the development. The interaction between the DCEP, traditional currencies, stablecoins and bitcoin is certainly something to watch out for in 2021 and a topic for a future post.
Wishing all of you a great year ahead. I hope you’ve a restful holiday and valuable time with family. I believe that 2021 will be a very prosperous time if we stick to our principles, prioritise what’s truly important, search for the truth, care for others, stay humble and have fun! Regarding bitcoin specifically, hold onto your hats because a wild ride is in store this year.
Thanks to everyone who attended the bitcoin webinar in December. Wonderful to get all the questions and witness the engagement. We’ll organise a few more of these through 2021.
For those who’d like to share the value of sound money to their friends, family and network, I’m holding a complimentary intro presentation on Thursday 14 January 2021. Please share the love.
- FOMO is bitcoin’s number 1 marketing strategy
- Embracing speculation: high-probability potential in a speculative world
- Learning bitcoin’s golden language: adoption cycles will persist post 2021
- Don’t “believe” in bitcoin; understand store of value and stock-to-flow and network effects
- Sound Money Monthly: (ed. 5) Central banking is an environmental disaster
- Tech disruption framework: bitcoin undervalued at $20K
- Bitcoin Bulletin: (Nov 2020) Shifting from accumulation to aggressive price appreciation phase
- Sound Money Monthly: (ed. 4) Where can we place our trust?
- BTC vs. ETH part 3: Investment thesis
- Preparation for bitcoin all time highs