Let’s talk about financial cycles in the context of the Bitcoin price. In other words, I am referring specifically to the external elements that influence the demand for BTC. Specifically, this debate typically revolves around two expectations: Growth by adoption or growth by liquidity. Is it possible to have one without the other?
The question: Why is Bitcoin going to go up in price in the future? The militant bitcoiner usually answers this question automatically without much hesitation. It is the declamation of an old script. Why? Due to the lack of code. By the power of the computer network. And because no one can confiscate your coins. It seems that in the future, there is going to be a great awakening among the masses who are going to recognize these virtues of Bitcoin. And that will bring demand. Let’s say this is adoption growth in the style of a religious movement.
Sounds familiar? Of course. This is, practically, a -copy and paste- of the speech of the gold beetles. On the one hand, we have a world on the brink of collapse due to the bad influence of the state on the economy. On the other hand, we have the savior messiah (a hard currency and free market system). This, of course, is an older debate than cupping. Classical liberalism, on the one hand. Keynesian progressivism, on the other. The right against the left.
“Bitcoin doesn’t need anything to grow,” an angry tweeter wrote to me one fine day. “Bitcoin is not an investment.” “Bitcoin is the solution against a system that prints money out of nothing.” He paraphrased from memory, but the matter was that way. What did I say that offended this tweeter so much? Well I suggested that the price of Bitcoin needs a prosperous and optimistic economy to rise. In other words, Bitcoin benefits quite a lot from booms speculative and high risk tolerance so characteristic during a bullish cycle. Here is my hypothesis.
The idea of growth by liquidity is in stark contrast to the idea of growth by adoption of crypto libetarians. And this is a contrast mainly of attitudes. The former are based on optimism. And the latter, as in the case of gold beetles, are based on pessimism. The first appeal to greed. The seconds appeal to fear. Or, in other words, some are betting on a positive correlation with the other markets. And others bet on a negative correlation.
A a conservative libertarian, proponent and militant of Bitcoin, for ideological reasons, has a hard time admitting that the price of Bitcoin increases thanks to the United States Federal Reserve. That’s a lot to ask. Obviously there is a short circuit in the mind and heart. The approach not only generates denial. It also produces anger. Because it contradicts the doctrine. It is much easier to present Bitcoin as an inflation hedge, a safe haven, and an ark of salvation. Because, in this way, in honor of the libertarian tradition, the hero remains the hard currency and the enemy remains the State.
The narrative of Bitcoin as a risky asset that thrives on par with Big Tech, Nasdaq and the S&P 500 produces a great rejection in the militants. It must be remembered that anti-statism occupies a central role in all of this. Y I’m afraid that, for the stock markets, Papa Estado is more of a Fairy Godmother than a mortal enemy. Here is the origin of the short circuit.
The problem is the following. It’s not easy to get adoption without liquidity. And it’s relatively easy to gain adoption in a highly liquid environment. During a boom bullish, people want to invest to earn more money. So they take more risks. During a losing streak, by contrast, people become more conservative, because the fear of losing money is greater than the greed of winning. In practice, investors do not seek scarcity, computing power, or non-confidence. What they seek most is stability and predictability. And Bitcoin, due to its high volatility, loses much of its appeal during these periods.
The economy grows and contracts cyclically. And this, like it or not, has an impact on the price of Bitcoin. Suppose a militant bitcoiner is convinced that Bitcoin doesn’t need anything to grow. The hypothesis fits very well on Twitter. Because, on Twitter, all utopias are possible. However, in the real world, the situation is much more complicated.
First of all, during the bearish period, your portfolio is no longer the same. Because the price of Bitcoin has gone down a lot. So, now he has to think twice to buy that bike that he wants so much. Unfortunately, he is forced to fasten his seatbelt. The price has dropped. But you can’t take advantage of the dip to buy much, because you don’t have enough cash. And why will he have fiat? After all, fiat is “money out of thin air”. Everything is in crypto. Because, according to him, he is safe in crypto. So, his price rises and falls with the vagaries of volatility. But, curiously, his daily expenses are fixed in dollars.
The rent? The debts? Health insurance? Transport? Food? The education of children? Christmas dinner? Your income? All that is fixed in dollars. Your employment is highly dependent on the economy. And the costs of credit depend to a large extent on the decisions of the Federal Reserve. It is certainly not an island. External factors have an impact on it.
During a recession, for example, consumption falls. That means incomes fall and unemployment rises. In other words, Life gets tough for the militant bitcoiner, too. Despite what was declared on Twitter, these are very difficult times for him too. In fact, for him, these are even more difficult times, because his portfolio has fallen more strongly than the portfolio of the others. Surely, he wants to buy BTC, but he doesn’t have the ability. By way of consolation, he writes on Twitter about the Bitcoin utopia, but the matter remains in words, because, in practice, the volume of purchases does not reflect the passion of the rhetoric.
He who has eyes to see. He who has ears, let him hear. When in doubt, turn to the evidence. One thing is what is said in the networks and another very different is the price action. One thing is the aspiration and another very different is the fact. One thing is the narrative and another very different is reality. What is Bitcoin’s behavior telling us during this bear market? Ladies and gentlemen, I have nothing more to say. I finish my case.
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