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 [1] 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 [2] 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:
[3]
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 [4] 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% [5] – of the outstanding stock. (Or at least all the stock that’s available that hasn’t been lost to Welsh landfill [6] and the like.)
Indeed it’s not clear to me what diehard HODL [7]-ers like Michael Saylor of MicroStrategy see as the endgame for their remorseless [8] 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 [9] 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 [10].
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 [11] 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 [12]-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 [13] 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 [11] 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 [14]
Which investment platform does Finumus use and why? – Monevator [15]
From the archive-ator: Three steps to making new year resolutions work – Monevator [16]
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 [17]
House prices rise again, but Halifax forecasts 4% drop in 2024 – Guardian [18]
Rail fares to rise in England by 4.9% – Which [19]
Higher interest rates have boosted UK household income by £16bn – Resolution Foundation [20]
Airbnb, eBay, Vinted, and other side-hustle apps will share more data with HMRC – BBC [21]
Luxury Battersea Power Station penthouse goes on sale for £31m – This Is Money [22]
Oops! Natwest boss says it’s ‘not that difficult’ to buy a house – Sky News [23]
[24]
UK homeowners face £19bn rise in mortgage costs as fixed-rate deals expire – Guardian [25]
Products and services
Sub-4% deal leads HSBC’s cheaper mortgage rate offers… – This Is Money [26]
…with fellow giant Natwest quick to join the party – Mortgage Solutions [27]
How far will UK mortgage rates fall? [Search result] – FT [28]
Top credit cards for 2024 – Be Clever With Your Cash [29]
Get between £100 and £1,500 cashback when you open an ISA with Interactive Investor [30] before 31 Jan. New customers only. Minimum £2,000 deposit. Terms apply. Capital at risk. – Interactive Investor [30]
Are the perks offered by life insurers worth it? – Which [31]
EV breakdowns due to low battery levels the lowest on record, says AA – This Is Money [32]
Registration is now open to claim 15 hours of free childcare a week – Which [33]
Open an account with low-cost platform InvestEngine via our link [34] and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine [34]
Why home insurers say you must never put up a ‘Beware of the Dog’ sign – This Is Money [35]
Vintage champagne: market bubbles may have popped [Search result] – FT [36]
Remote homes for sale in Great Britain, in pictures – Guardian [37]
Comment and opinion
Learning to like beer in a world of champagne propaganda – Money With Katie [38]
Investing lessons recapped – Humble Dollar [39]
How to design a UK wealth fund is baffling both Labour and Tories [Search result] – FT [40]
What comes after a good year in the stock market – A.W.O.C.S. [41]
UK homeowners fear 2024 mortgage time bomb [Bit late [42] for that?] – Guardian [43]
Will HMRC really come after you for selling your old clothes? – This Is Money [44]
Stock market history illuminated: 2023 edition – Albert Bridge Capital [45]
Health is wealth mini-special
Make them good years – Humble Dollar [46]
Your money or your life – Of Dollars and Data [47]
Naughty corner: Active antics
A deep dive into investing risk – Alpha Architect [48]
Investing in investment firms [Podcast] – Invest Like The Best [49]
Veteran UK small-cap stock picker reviews his 2023 returns… – Maynard Paton [50]
…and an annual review from an investment trust fancier – IT Investor [51]
Why growth, why now? [Promotional but interesting] – Baillie Gifford [52]
The decline and fall of US Steel – Construction Physics [53] [h/t Abnormal Returns [54]]
Kindle book bargains
What They Don’t Teach You About Money by Claer Barrett – £1.99 on Kindle [55]
Kleptopia: How Dirty Money is Conquering the World by Tom Burgis – £0.99 on Kindle [56]
Fooled by Randomness by Nassim Taleb – £1.99 on Kindle [57]
Make Your Bed by William McRaven – £0.99 on Kindle [58]
Environmental factors
Will hotter heat pumps win over homeowners? – BBC [59]
UK turns to floating turbines to tap ‘remarkable’ wind speeds [Search result] – FT [60]
Deforestation effect of UK consumption unsustainable, say MPs – Guardian [61]
Beaver ponds may exacerbate warming in the arctic – Guardian [62]
Robot overlord roundup
Young people turning to AI therapist bots – BBC [63]
New York Times sues OpenAI and Microsoft – Semafor [64]
Why everyone needs to care which way AI research goes – Our World In Data [65]
Bollocks to Brexit mini-special
[66]
Brexit has completely failed the UK, say a clear majority of Britons – Guardian [67]
New UK border checks are ‘disaster waiting to happen’ warns flower industry [Search result] – FT [68]
Off our beat
Manchester’s skyscrapers: towers of homebuilding ambition or ‘high-rise mania’? [Search result] – FT [69]
Active versus passive learning – Morgan Housel [70]
“I own the world’s oldest living cat” – Guardian [71]
Roche designs antibiotic to fight deadly A. baumannii infections – Fierce Biotech [72]
New Saltburn trend shows ‘rich people missed entire point’ of the film – Joe [73]
Tim Spector and the cult of Zoe [no paywall] – FT [74]
13-year old hailed as the first person to ever ‘beat’ Tetris – Guardian [75]
Nobody has Seasonal Affective Disorder – Raptitude [76]
2023: The year in cheer – Reasons to be Cheerful [77]
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 [78]
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