I have friends and family involved with bitcoin. As an investor, I have things I love to invest in – like silver and gold miners, and other things I don’t have interest in that I more or less stay away from. Anytime someone seems to write anything negative about bitcoin, the coiners call it FUD – Fear, Uncertainty, and Disinformation. In this case, this will fall into the Fear and Uncertainty for you die hards that want to feel better by labeling this and dismissing it without much thought.

I don’t wish ill on anyone with their investments. Not even you crazy coiners. I want everyone to stick it to the man and make gobs of money. But most people below 33 or so have never had a failing investment – really. The stock market has been pumped up so many times by money printing (via borrowing money into existence at rigged cheap rates) that many don’t realize there is not a cryptocurrency in existence that has ever seen a recession.

The concern here, academically, is blind spots. I constantly challenge my thesis in the gold route. And because I looked critically at what gold was, it gave me a front row seat to look at what bitcoin was, while I was there and all. Below, I want to talk about blind spots you might have in regards to your investment in bitcoin.

  1. Probabilities

I love listening to folks like Gareth Soloway when they do charts. Why? Well, they speak in probabilities. And when you are invested in something, there is ownership behavior which translates to a chart. Gareth has nailed 4 out of his last 5 bitcoin calls I believe. This next one he has going to $54,000 and then down perhaps below $20,000 – with resistance at $30,000. In this discussion, he openly admits he might NOT be right. WHICH IS PRECISELY WHY I LISTEN TO HIM. Other chart guys I follow are Patrick Karim and Kevin Wadsworth who follow the same type of probability in their presentations. The chart guys I have problems with are those who speak in absolutes, as if there’s a pattern out there that can predict 100% certainties. IF that were to be the case, each of these chartists should be billionaires. Clearly, they are not.

If you listen to these guys, they speak in PROBABILITY and NOT CERTAINTY. Think of it like a weather forecast – if the conditions are right, and rain clouds are coming in, you have HIGH PROBABILITIES of rain, not certainties. He thinks long term, BTC can go to $100,000 plus, but in the short term he sees a head and shoulder pattern forming which should at least cause some pause to consider.

The chart I have been following for months is showing me a double top – and both of us see $20,000 in sights for different reasons.

What you can say is, using probabilities, a lot of charts say it is much more likely to rain tomorrow than it is not. IF that is the case, it doesn’t mean you sell everything you own to live in a desert, it means perhaps you consider an umbrella. To me, this means hedging by buying things in a different asset class.

2. Asset class misunderstanding could cost you a lot.

I did a 1 hour talk with Jim Forsythe at Citizens for Sound Money a month or two ago, and with this – I discussed asset classes. This isn’t a sexy topic – but trying to classify things like you were in high school biology helps. What I see daily is people who invest in non-asset backed digital currencies are walking around thinking a tomato is a vegetable. While it may resemble a vegetable, and many people think it is a vegetable, it is not a vegetable. It’s only when you look much closer do you see it is a fruit. In fact, the Supreme Court once weighed in to determine it is, indeed, a fruit. Most of you think of bitcoin as “digital gold” but it in fact acts opposite of gold.

They started with marketing like this….

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And my guess is when people like me started scoring points, they moved to this…

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I wrote an article almost a year ago or so talking about how BTC is more correlated to the performance of the S&P than it is gold. In fact, all of you bitcoiners that have the 10 year performance charts out there to try and talk gold people into investing in your vehicle makes my next few points – but for now, you have clearly seen over the last 10 years gold has moved down, where bitcoin has moved up a billion percent. Your own charts show that gold and bitcoin aren’t peers. They act as opposites.

All you want to do is line up BTC to gold on a raceway to show how much better bitcoin performed. Well, this is what this looks like.

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However, this is what gold REALLY is….

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What you want to do is to take gold and line it up against you, and you speed faster than gold on that raceway. However, you have to ask yourself this – is the smooth raceway a cooked up, ginned up, pumped up bull market economy? In that case, your racecar will win all the time, because you are fueled with cheap liquidity and lots of risk-on to take the corners at 200mph. Meanwhile, I would then say that during risk off, my gold is a combine producing wheat in a field. Your race car is simply not designed to produce wheat. It would fail to do anything in a risk off economy.

When you hear of people talking about investing in gold and silver, they aren’t talking about 100% of your net worth. They are talking like 1-5% as a hedge against doom. I am stupidly in on massive amounts of gold and silver miners, and they still only make up 10-15% of my portfolio. Those that want to hate on me and think how stupid my gold investments are don’t realize that while they went down 30% in a year or so, my real estate went up like $250,000 in value. The gold was a hedge. Had the real estate I had tanked, gold would have moonshot, and my miners would have rose in massive value.

Meaning this. If you are a big Tesla owner, you don’t HEDGE that position by buying Facebook. What happens if the economy struggles and people roll out of the stock market? It would stand to reason that other asset classes might do better. This is why I’m in on a lot of commodities – as my picture sees rainy days ahead and I bought an umbrella, a slicker, and golashes to walk a few miles in the rain. IF it never rains? OK – I have them in the closet then in case they are needed.

What I see with BTC is you THINK you bought the umbrella, but you did not. If you understand that BTC is in fact speculative property and we may be facing stock market issues, you might consider banking profits into other asset classes.

The point here is your charts are errantly trying to compare gold to BTC. We have been in a bull market since 2010 or so, and in bull markets, people rotate out of gold into more speculative things with higher risk.

3. Punch bowl taken away

For a long time now, the Fed has been buying bonds and MBS. The Fed balance sheet last I checked was over $8T. For them to have any credibility, they need to draw down this balance sheet. To do this, first they need to stop buying shit. Many of you don’t understand some of the mechanics going on here, but let me tell you that the Fed has enabled two things….$1T in stimmies and deficit spending to infinity. This, along with QE back from 2009 – have all led to 40% of all money ever created into existence being created in the last year or so. This has pumped up asset classes. Meaning, you can borrow money cheap, perhaps on margin, and bid up stocks and cryptos because stonks always go up.

The problem is, for now at least, the punch bowl is supposedly being walked slowly out of the room.

The green above is BTC before COVID. Since March 2020, no one can doubt that move up is impressive. This was a RISK ON trade. You can see this also reflected in the S&P, without all of the volatility.

But let’s look at the S&P here…

You can see since they started talking about tightening and taking the punch bowl away, that it’s been kind of a sideways trading range.

What you are seeing with this is the foot coming off of the accelerator. Indecision. Insiders are selling, and bag holders are coming in. Now, does this have a final melt up like David Hunter says? IF so – you could have a rally in BTC to new highs. Or, could this be visualizing an arm wrestling down that Michael Oliver discusses? The truth is – NO ONE KNOWS – but what you are seeing above is evidence of the beginning of a rollover.

This punch bowl is allowing for cheap borrowing. As the Fed stops buying shitty bonds, treasuries, and mortgage backed securities, it means there are less buyers for these instruments. What this also means is because of the inverse nature of bonds/treasuries – less buyers means the rates will rise with the market to entice more investors. In an environment where PPI is almost 10%, it is very hard to fathom lots of big money want to put it into 1.5% treasuries. Why would they buy junk bonds at all of that risk of default at UNDER the rate of inflation. They won’t.

To me, this is showing rates are rising. A decent amount. By March. While there COULD be a Hunter situation unfolding, to me, it’s possible an Oliver situation is unfolding too – as we could see rates rise daily on everything as buyers for these instruments are harder and harder to come by.

From what I had heard, something like .01% of the BTC holders own 27% of all BTC. This is a very small group that could be essentially dip buying right now. When you have someone as dangerous as the guy running Microstrategy (Michael Saylor) buying up BTC on dips with bonds – and BTC down from those buys, you have to wonder how easy it will be for him in the future to continue to buy dips as these bond rates start increasing.

4. News articles coming out against it

The BTC people are hardened soldiers against this now. However, a recent piece came out and said it is worse than a ponzi, because those that invest have no recourse to get their money back. Another article with Steve Hanke, says it is probably worth zero. Again – the first thing the battle hardened BTCoiners do is run to the FUD, hold their ears, and call people boomers because they don’t get it. Unfortunately, many of you don’t get it either. This video is a satire, but it sort of nails it on the head. When I have tried to discuss BTC rationally with people over the years, I get people talking about “value proposition” and “hard money” and “deflationary asset” and they use a lot of words to describe this entity. You have Saylor as sort of a cult leader that tells you to pour everything you have into BTC, then borrow money to buy BTC.

Remember how I said many rich people might put 1-5% into gold? This guy is telling you to sell your children and live in a rented van down by the river and never spend BTC. It’s complete lunacy.

The articles are stacking up. And IF this is a Ponzi, the only way you get new investors is constantly getting new highs. There isn’t a doubt here, to me, this is a Giffen Good – in which the higher prices attract more “investors”. The questions are this….

  • If more and more articles and prominent economists come out against BTC, could that hurt BTC’s chances for institutional investment?
  • If it is not constantly going vertical, do you have time getting investors?
  • If bonds are going up in rates, could the Saylors of the world keep borrowing to fuel on dips?
  • If BTC has never seen a recession, how might it act?
  • If BTC is not in the same asset class as gold, how could it act when the fear play is on and risk off is in effect?
  • If the punch bowl and stimmies are gone, does this starve BTC of more millennial type investors who were putting money into cryptos?
  • Is BTC a Giffen Good and if there are lower prices, less new investors will come in?
  • Could BTC charts show a move to $20,000 is coming, and if so, wouldn’t ardent and savvy BTC investors wait to buy until then, creating the very pull back that is being forecasted?

All of these things above add up to dry up newer investors.

5. Existing on quicksand

I don’t pretend to know the inner workings of the crypto universe. I don’t pretend to know all of the hashing and blockchain intricacies. However, I understand all of this at a bit and byte level that you may not. I also understand that 99.99% of the people out there don’t understand these concepts as well as some of us, and are very much following packs in this. I like to ask crypto people if they would invest all of that for 1% returns each year for the next 100 years? No. The risks are too high. It’s too volatile. If you sit down and really talk with anyone about cryptos, the constant theme is this – moonshot on everything. This is the mind of a wild speculator, not a savvy money manager. If you told a gold investor that a year from now we would be at $1820 from $1810 now, they’d probably be still in. Many might play that volatility. But if you ask a crypto investor if they would pour their life savings into something that would not move in a year, most wouldn’t. They are chasing that high. That 10x. Most gold investors are hedged for doom and not a 10x.

Can you be a Larry Lepard and Don Durrett and exist in both worlds? SURE! Can you play BTC in risk on, draw back your gold stocks when RSI is 80, and put more of your worth into crypto? SURE!! But when things are looking like they are rolling over, and your gold stocks are at RSI 30, my bet is these guys are probably taking profits on BTC and rolling these profits into gold stocks for FREE.

So I’m not saying here that everyone needs to dump their BTC speculations because I know something you do not. Not at all. What I’m saying is that my understanding of economics, investments, and risk analysis – points to ask you to look at the risk you are carrying now and perhaps taking profits from cryptos IF you had profits there. For instance, if you bought BTC at $25,000 and it hit $50,000, why not sell half and take a double? That is how you would play a speculation. Not ride it up and down for 5 years to hopefully get to $1m.

The quicksand I’m referring to is Tether. Which I BELIEVE is based in Hong Kong. Which was SUPPOSED to be backed 1:1 with USD. It turned out, it’s 3% USD and 97% commercial paper. There’s all kinds of problems with the attorneys for New York trying to get compliance here or see books. Many on Twitter write about how shady Tether is. Many people buy BTC with Tether.

How COULD a scheme with a Tether work? Imagine people buy your ABC coin from you with USD. You then take those USD and buy junk bonds and riskier real estate bonds at 5-6% interest. The coin is paid for by the high risk investments. This is kinda sorta how insurance parks your money when you are sleeping – not the same vehicles though. The point is the model here seems legit. Take dollars, invest in something that pays the bills and makes you money, and therefore this service is provided for relatively free.

Now, when people want to cash in ABC for dollars, how do you do it? Well, you keep dollars on hand as a fractional reserve. In Tether’s case, it is accused of having 3% dollars. So IF a bank run were to happen, only those first out the door get cash. The bonds would have to be liquidated to get more cash. To me, this is what I see in the back of my head when all of you see exchanges going down. It seems reasonable enough they have to raise cash, and keeping a LOT of cash is stupid with 10% inflation.

Now, imagine all of that risk with holding junk bonds or the like, and defaults actually happen?

Perhaps now you thought you had 97 dollars backed by commercial paper, and now you only have 30 dollars backed by commercial paper. But you have 100 dollars in circulation. And, every time the S&P has a bad day and BTC goes down, you have more and more people asking for USD. It is reasonable to assume that in a situation like this, where the S&P loses 20% of its value in 2022 AND you start seeing defaults cascading through the system, that many of these stablecoins may have problems.

Remember, most of this stuff is not regulated.

Most of you who invest in crypto understand the problem with our money. You came to this sector because you have seen the income disparity, and many of you NEED to have a lottery ticket just to get a downpayment for a house. But many of you also never invested prior to 2008, and haven’t seen a lot of pain with your investments.

With Evergrande, I hear a lot of people saying this is contained to China. Others talk about how little effect this may have on the West. Honestly, unless you are in these meetings and can forensically draw out who is affected and who is NOT affected, there should be a concern this $300b default can hit a lot of banks.

When you look at these crypto exchanges, problems with regulation are a common theme. Most are quick to point out that celebrities own BTC, so they should too. What I’m trying to tell you is that when celebrities are buying BTC, it might be .01% of their net worth. Maybe 1%? You think Elon has $250B in BTC? No. The same point here should be that in order to de-risk your BTC holdings, during time of uncertainty may mean drawing back your holdings and putting them into different asset classes.

Conclusion

Bitcoin is not, and has never been for me. I had considered it in 2012. I owned a server with a quad core xeon processor and thought I would just mine BTC. That was my first lesson where my server-grade machine might take 100 years to mine a BTC, if then at all. I do remember it at the time feeling like it was expensive, and I had a very small child and no extra money to dabble while still in grad school. This was a few years after the GFC, and the 5BR house I bought at $130,000 was being valued at like $85,000. I was stuck in that house as a prisoner to a collapsed housing market. I could not afford to speculate.

Many years later I could not believe it hit $20,000 or so. A little over 2 years ago I was riding a bike and it was $11,000 and I really considered it, and a month or so later I checked and it was $9500. Whew! I dodged a bullet. Then down to $3900 in March 2020? I REALLY dodged a bullet. Those of you who bought there when I bought gold – obviously made out better with BTC. You were speculating on much higher gains, I was trying to prepare for another crash. You were right. But what I bought was a hedge insurance against my existing real estate – you went all in on high risk.

I feel that BTC people and gold people generally feel the same way about the Fed and inflation, but I feel most BTC people don’t understand the speculative nature of their investment and are falsely convinced this will moon to $1m. The question I then have is when you go play powerball to win $100m in the lottery, do you take a $10 or $20 bill and have some fun, or do you wager your child’s college fund on a can’t miss opportunity?

The question you have to ask yourself, is IF there is a problem in the stock market coming up in the next 6 months and all of this risk is there – how have you hedged your BTC speculation? Have you taken profits?