I suppose I’d be remiss not to mention Bitcoin coming off a Christmas rally that saw the digital token hit $28,300 by the end of the holiday weekend.
If that makes you chuckle, you’re not alone. Anyone engaged on the long side is probably giggling like a schoolgirl after watching the value of their make-believe holdings skyrocket — laughing straight to the bank, as it were.
Meanwhile, traditional investors and traders unwilling to dabble in what, at the end of the day, is just an amorphous derivative of netizens’ collective imagination, are amused too. After all, the figure (below) is nothing if not amusing.
It’s worth noting that the Bitcoin/gold ratio hasn’t yet touched the highs seen three years ago.
While crypto adherents are fond of lampooning non-believers, I think it’s safe to say that’s akin to tilting at windmills at this juncture. That is: I doubt there are too many fence-sitters left. The universe of people who are perturbed about “missing out” is likely much smaller than it was during the last surge, in late 2017.
By now, you’ve either decided to allocate to Bitcoin (accepting the possibility that it might one day collapse and never recover) or you’ve sworn it off forever (accepting the possibility that it could conceivably rally into the hundreds of thousands at some point).
Either way, this is funny. Consider that Bitcoin is on track for a second consecutive 40% monthly gain.
As ever, I think it’s important to emphasize that this isn’t real. It’s just not.
As much as that perturbs some readers, anyone who’s frequented these pages for any length of time knows I endeavor to tell the audience the truth at every possible turn. This is no exception. Bitcoin isn’t “real” in any sense. There are any number of angles you can take in the course of making that case, one of which is detailed here.
I also think it’s incumbent upon folks to consider whether they’re projecting their own psychological perturbation vis-à-vis Bitcoin onto other people. This happens unconsciously when a subset of the population either believes, or wants to believe, in something their rational side knows isn’t plausible.
In situations like that, people have a tendency to suggest that largely impartial observers aren’t impartial, but rather “emotional,” “biased,” or involved in some kind of conspiracy. In fact, though, it’s usually those people’s own emotional discomfort that prompts the allegations — they just don’t realize it.
While it’s true that complete impartiality is rare, especially as it relates to controversial topics, this phenomenon is readily observable both with regard to Bitcoin and Donald Trump. The simple act of writing about cryptocurrencies or Trump is guaranteed to generate allegations of clouded judgement, no matter how neutral one’s cadence and no matter how infrequently one weighs in.
Last month, for example, one reader suggested that Bitcoin is “an emotional topic” for me, while another said the purported “frequency” with which I write about it is proof.
Reality tells a different story.
Over a 60-day period, there have been just seven articles (including this one) published on Heisenberg Report that even mention Bitcoin. Only five of those were specifically about Bitcoin. Over that same 60-day period, we have published a total of 403 articles. So, Bitcoin-specific posts have comprised ~1% of the total since the latest exponential rally in the coin began.
Additionally, I’d note that two of those five articles were prompted by comments from Ray Dalio and Guggenheim’s Scott Minerd. In other words: The articles weren’t really about Bitcoin — they were about Dalio and Minerd.
The point here is the same as it ever is when it comes to Bitcoin. If you truly understand both the nature of the thing itself and also the psychology driving the price action, then you may well be able to reap huge gains without risking too much in the way of severe mental stress in the event something goes wrong. Alternatively, if you simply have so much AUM that dedicating a fraction of it to Bitcoin is conceptually similar to burning premium on lottery ticket options, then that fractional allocation makes complete sense. If you don’t like the options analogy, then consider it no different from allocating a tiny fraction of a large portfolio to a speculative biotech.
Outside of those two cases, market participants should be wary. They should also be conscious of their own psychological state. Regulatory scrutiny of Ripple should have been an uncomfortable reminder of the dangers lurking in crypto land.
Even smart people who understand all of the above are prone to saying things that either don’t make sense or, worse, simply aren’t true because they can’t be. For example, a Bloomberg article published Christmas Eve carried this headline: “Bitcoin Crushes Doubters as 224% Rally Proves It’s Here to Stay.”
That headline can never be definitively true. Not about Bitcoin and not about anything else. There is no case in which a rally “proves” an asset is “here to stay.” That goes for something as stodgy as Kimberly-Clark or Walmart just like it goes for Bitcoin.
A spectacular rally may properly be said to have “silenced critics,” but no matter how large, a rally can never rule out the possibility that the underlying may one day effectively disappear. Just ask Research In Motion.