Ah….the naysayers
Something I deal with on a too regular basis (that I secretly enjoy) is responding to the Doubting Thomas’ of the investment community that includes the ranks of some otherwise pretty smart money managers. For example, as Bitcoin cratered near the bottom of its crypto winter cycle back in October of 2021, New York Magazine published an article entitled “Why the Big Short Guys Think Bitcoin Is a Bubble”.
In it, it has comments by such notables as:
“Hedge-fund mogul John Paulson, who was behind the “the greatest trade ever” — in 2007, he personally made $4 billion on his short of subprime mortgages — thinks cryptocurrencies are a bubble that will prove to be “worthless.””
And
“Michael Burry, the quirky hedge-fund manager made famous in The Big Short movie), …[for] months, he has been suggesting that bitcoin is on the precipice of collapse.”
And
“NYU professor Nassim Taleb, whose now-canonical book The Black Swan warned about the dangers of unpredictable events just ahead of the subprime crash, argues that bitcoin is functionally a Ponzi scheme.”
And
“[Paul] Singer, the founder of the $48 billion investment firm Elliott Management, thinks cryptocurrencies are a fraud, but is apparently tired of complaining about them. “Pulling out your hair is an option, though only if you have hair to spare,” the balding 77-year-old Singer wrote in his first-quarter letter to investors [in 2021] “We continue to press on for the day when we can say, ‘We told you so.’”
Are they wrong?
Well, now pushing two years later – apparently so. Given that Bitcoin is now 14.5 years old, that must be one BIG bubble, which just keeps getting bigger with more and more once haters – JPMorgan CEO Jamie Dimon comes to mind, who once told CNN viewers back in 2017 that “Bitcoin is a hyped-up fraud, it’s a pet rock” – who are developing their own cryptocurrencies and gearing up to offer a Blackrock sponsored Bitcoin ETF to wealthy clientele, I wonder what their sentiments are today?
I’m also often told that cryptocurrencies are manipulated by “Whales”, i.e., people who have millions of dollars’ worth of whatever crypto, and that the so-called ‘wild’ swings in prices are ALWAYS a result of these whales pumping and dumping whatever crypto they want to profit from, which often leaves the ‘average Joe’ investor holding the (empty) bag.
Sometimes, they are outright frauds. Rug pulls like the Squid Game coin. But more often the references are more in the line of meme coins like Dogecoin or the this cycle’s latest meme coin Pepe.
In reality, many of the Alt coins are indeed plagued by manipulation by whales – a good part of the reason that the SEC wants to regulate them. However, in the last decade, movements and trades (both buy and sell) by Alt whales have been more and more tightly monitored, scrutinized and called out to the degree that now, for those that pay attention at least, avoiding (or profiting from) those kinds of manipulations can be easily done.
For example, here are a couple articles that identify whale manipulation:
https://beincrypto.com/matic-rebounds-0-75-in-sight/
https://beincrypto.com/crypto-whales-buying-these-altcoins-2/
That said, the same is NOT true for Bitcoin or Ethereum.
The reason being two-fold:
a) The market for the king and queen of cryptos is now simply too big to manipulate to the extent that happens with alts.
For example, when Michael Saylor’s MicroStrategy (certainly one of the biggest Bitcoin whales of all now) purchased an additional 1,045 Bitcoin (BTC) for a total of $23.9 million, or an average price of $28,016, between March 23 and April 4, 2023, the price barely budged.
That’s because Bitcoin’s market cap is now north of $512 billion. It would likely take a single transaction in the hundreds of millions to make any significant jump happen with Bitcoin.
I will note, however, that Bitcoin did go up by $3K a week later when news of Saylor’s buy got out, but you can be sure that that was global wide retail buyers getting onto his coattails. No other Bitcoin whale movement was detected and the subsequent drop back down to $25k shortly thereafter certainly wasn’t the result of any whales selling any BTC!
Even the SEC has concluded that Bitcoin and ETH are decentralized enough that they are not easily controlled by anyone/group and are not being classified as securities. It’s highly likely though, that (in the US at least) they will eventually come under the admis of the Commodity & Futures Trading Commission (CFTC).
b) Whale movements of Bitcoin (and ETH) even simply from one wallet to another wallet owned by the same individual are highly publicized. And the vast majority of Bitcoin Whales are all HODLERs not active traders.
For example, here’s an article that points out exactly that.
https://decrypt.co/144786/Bitcoin-whale-moves-million-after-13-years
Then there’s also the continual rant that the US government simply won’t allow a non-government issued money to keep growing. Control over money is too central to the Fed’s survival for them to allow this, is the general argument, so they’ll step in somehow to make Bitcoin unattainable, useless, or illegal.
The problem with that claim is that Bitcoin’s decentralized nature makes it literally impossible for anyone, even governments, to fully kill it.
Given then that it will always exist and be legal somewhere, the dynamic becomes one of “jurisdictional arbitrage”; i.e., if one government makes owning Bitcoin fully illegal with harsh penalties, other governments will embrace the opportunity to become home to Bitcoin-related businesses, investors, etc. The implication being that if the US government were to take such a strong anti-crypto position, multiple billions of taxable dollars would flee the country making that kind of decision incredibly counterproductive.
More importantly, the idiomatic cat has been out of the bag for some time now. Being that several members of Congress already own Bitcoin, and the list of elected (and unelected) officials, including Presidential candidates, who take pro-Bitcoin stances publicly is getting longer every day.
Additionally, the false narrative that Bitcoin is most popular for illicit activity is being challenged by career US intelligence officials. Add to that in April 2021, US Speaker of the House of Representatives, Kevin McCarthy (then the US House Minority Leader) positioned Bitcoin as geo-politically important to the United States after Bitcoin miners moved en masse from China to the US.
That remains true today with the US being home to more Bitcoin miners than the next country in line (Kazakhstan) by a factor of 2x.
Additionally, adoption of Bitcoin and crypto assets continues to grow rapidly.
Statista.com finds that as of December 2022 there were 425 million unique identity-verified accounts at crypto service firms (exchanges, wallets) globally.
This is up from an estimated 5 million such accounts in 2016 when they first began keeping track and nearly double the amount of 221 million from just two years ago in June of 2021. Plus, since BTC is a bearer asset, and can be self-custodied, that means that users who exclusively hold their own Bitcoin and who don’t use services that require identity-verification will not show up on these studies, and may represent a very large portion of total Bitcoin users. The larger the portion of the electorate who has a stake in Bitcoin, the more politically difficult it becomes to attack it.
Finally, after the last Bitcoin halving and especially throughout 2021, there was a rapid broadening of Bitcoin exposure, and positive Bitcoin sentiments, coming from backers with deep-pocketed lobbying power.
These include numerous multi-billion-dollar, and even mutli-trillion-dollar, fund managers like Blackrock taking large BTC positions; corporations like MicroStrategy, Square, and Tesla putting BTC on their balance sheets, and major banks and financial services providers such as BNY Mellon, JPMorganChase, Fidelity, PayPal, Visa, and MasterCard offering Bitcoin-related services. Bitcoin is rapidly embedding itself into both the financial plumbing, as well as corporate and major funds’ balance sheets, thus making it far more politically difficult to attack too aggressively without upsetting the applecart in a big way.
And considering that Blackrock is now pushing for a Bitcoin ETF, this momentum shows no signs of slowing down any time in the foreseeable future.
The reality is that, on a long term basis, Bitcoin has far outperformed every other asset in the decade since its beginning.
While history shows that – from a percentage gain perspective – Bitcoin’s all time highs are getting lower each cycle as the market broadens, if the next cycle only has a 3x jump rather than a 10x jump are you really going to complain?
And just like Paul Singer, folks who were smart enough to jump on the Bitcoin wagon “continue to press for the day when we can say ‘We told you so.’” Only our “We told you so” will be the exact opposite of Singer’s hoped for expression of gleefully smug self-satisfaction.
Nevertheless, we know the naysayers will continue to say “time will tell”, and they’re absolutely right…but so far, time looks to be on the long term upside of Bitcoin.
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