Monday, 19th August 2019
Two reasons why I’m more Novogratz than Trump on Bitcoin….
The yield curve is inverted. In the US and in Britain….
What that means in English is that capital is pouring out of the stock markets and into the perceived safety of long-term government-backed bonds – pushing up the prices of those bonds and diminishing yields….
So much so, the yield on long-term bonds has fallen below the yield on short-term bonds. It should be the other way around….
In an orthodox climate, lending money for longer periods is considered risker than lending short-term – and the rewards are greater as a result. That makes total sense….
But we do not live in orthodox times and things have been turned on their head. Right now, it costs the Us and UK governments more to borrow from investors over the short-term than it does over the long-term….
The VIX – a guide to levels of fear and complacency in the markets – says investors are more scared than they were. The reading spiked at 24.5 a fortnight ago. Right now, it sits on 18.4. That’s a higher reading than we’ve seen for most of the year….
Investors are right to be concerned. The yield curve doesn’t invert often. When it does, recession is generally not far behind….
It might not be immediate. It has been known to take up to 18-months for one thing to follow the other. But an inverted yield curve is as clear a signal as there is that it is time to get your capital out of stocks….
- Facts trump opinion….
Meanwhile. We return to where we left off last time – Bitcoin….
You will have heard the old saying that opinions are like a**holes. Everybody has one. And never were truer words spoken. Especially where Bitcoin is concerned….
The trouble is that the more opinions you hear, the more confused you become. What you learn here conflicts with what you hear there….
Most opinions are not worth a carrot anyway. Because they are informed by motives, incentives, agendas and bias that are hard to fathom and often unknown….
Mike Novogratz (invested in Bitcoin) will tell you Bitcoin is going up. Donald Trump (invested in the US dollar) will tell you it isn’t….
Who do you believe?
Better instead to tune both voices out and to form your own opinion by sticking to facts – which is what we try to do here at Money Truths….
- Wallet activity on the increase….
Nobody knows for sure where Bitcoin is going or how this whole cryptocurrency thing is going to pan out. I certainly don’t know….
But what I can tell you for sure – fact and not opinion – is that take-up and usage are on the increase as time goes by….
Bitcoin users – and other crypto users – store their cryptocurrency in something known as a ‘wallet’….
A wallet is a software program that stores private and public encryption keys. It interacts with blockchains and enables users to monitor balances and to safely send and receive digital currency….
The Blockchain website provides wallet services. And it records the number in use….
At the start of September last year there were 28,112,529 such wallets in use. This morning there are 41,302,801. That’s a rise of 47% across a 12-month period….
Some people see Bitcoin and other cryptos as a fad – a new-fangled nonsense that will eventually disappear in a puff of smoke….
But I’m not so sure. The future takes time to put together. Blockchain and cryptos are still in their infancy. Remember this: it took three decades for the Internet to become mainstream….
What the Blockchain wallet numbers suggest to me is that interest in the sector is increasing rather than diminishing….
And that’s has to be seen as positive for blockchain technology and the universe of cryptocurrencies (Bitcoin being the first and prime mover – and the most likely coin of interest to new players) it supports….
- Here’s another fact….
A key feature of Bitcoin is the predictability of supply….
There will only ever be 21 million Bitcoin minted. That’s the cap put on supply. It’s one of the rules encompassed in the Bitcoin software – which was produced by the unknown person (or persons) who created the cryptocurrency….
New Bitcoins come into being via rewards to miners who compete to solve complex mathematical problems that validate Bitcoin transactions. The miner who wins (the miner who solves the complex mathematical problem first) gets rewarded in Bitcoin….
Right now, the reward for that Bitcoin miner stands at 12.5 Bitcoins. But in May 2020 that reward is set to be halved to 6.25 Bitcoins….
This is another rule encompassed in the Bitcoin software. It is referred to as ‘the halvening’. It happens every four years and is deigned to keep a lid on inflation….
The upshot of this is that supply of Bitcoin will be tightened post May 2020 – and the effect is obvious….
Bitcoin supply will be more limited than it is at present and that limited supply might very well serve to push the price of Bitcoin up – especially as new Bitcoin users continue to step into the cryptosphere….
Bitcoin is on a tear this year. At Monday morning’s price it is up more than 175% since the beginning of January….
Some commentators attribute that rise – or some part of it – to the approaching halvening….
That may or may not be the case. But as the halvening date approaches – and the prospect of decreased liquidity draws closer – it is certainly a feature of the cryptocurrency that could stimulate continued upward price action….
- Do your own due diligence….
Now, I want to be crystal clear about something. I am no cryptocurrency expert. I am just an enthusiastic observer of what is going on….
But I am not going to rely on what other people say or think to shape my own viewpoint….
Instead, I’m going to take the time to do my own due diligence and I am going to go to the trouble of digging out facts. That’s the only way of establishing an opinion that is informed rather than one that is casually inherited….
And I suggest you do the same….
We’ve only looked at two specific areas of interest today – increasing wallet numbers and the approaching halvening. There is more to look at, for sure….
But the time spent looking at these issues is not wasted. Looking at these details positions my current opinion closer to that of Mike Novogratz than it does to the opinion of Donald Trump….
But even that is not the point. The point is that I know why I think what I do. Because I have looked into it myself rather than rely on the secondhand sentiments of commentators and pundits whose ‘opinions’ can never be fully trusted….
If or when I decide to play Bitcoin for small stakes, it will be on the basis of my own efforts and my own thinking….
In a world where everybody has an opinion, that has to be the smart strategy. After all, it will be my skin in the game. It will be my capital at risk. Not Mike Novogratz’s or Donald Trump’s….
If you’re going to put money into something – whatever it is – you really do have to have a good reason for doing so. And somebody else’s opinion or agenda or biased conclusions is not near enough….
That’s the truth of it as we see it….
More to come on this….
All the best,