Bitcoin Is Surging And Holders Refuse To Sell

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To investors,

Gold and bitcoin surged in price over the weekend. Gold hit an all-time high crossing over $2,130. Bitcoin touched $42,000 early this morning. These meaningful movements in price say more about the state of fiat currencies than it does about hard assets.

Both communities of hardcore believers want to believe their asset is special, but ultimately global liquidity & currency debasement tell the story. The market is continues to accelerate their expectation of a return to loose monetary policy, including quantitative easing and interest rate cuts.

It is notable that gold’s all-time high coincides with bitcoin still being approximately 40% below it’s 2021 high of $69,000. Gold bugs will argue this is bearish, while bitcoiners will claim it is bullish. Frankly, I don’t think it is either. The comparison of these two assets may be intellectually stimulating, but it is not productive.

As bitcoin rises, there are some significant data points worth paying attention to.

First, bitcoin’s market cap is now higher than Berkshire Hathaway’s market cap. This is a completely worthless point, except that it reinforces to the bitcoin community “we are right!” in the face of critique from Warren Buffett, one of the best investors in the world.

Second, Nvidia was outperforming bitcoin over the last 5 years until the digital currency’s price appreciation over the last 24 hours. While that may not be what you expected, it speaks to the severity of bitcoin’s bear market drawdown and the rotation of capital to artificial intelligence. Now that bitcoin is once again prevailing in this comparison, we should start to see more bitcoin/crypto-centric media headlines. Historically this has led to additional capital flows and higher prices.

Speaking of prices, bitcoin holders don’t appear to have any interest in selling into the strength of bitcoin’s price. Although the price is up almost 150% year-to-date, the amount of bitcoin in circulation that hasn’t moved in 1+ year hit a new all-time high over the weekend of 70.5%.

This increasing lack of liquidity in the circulating supply creates a positive feedback loop on an increasing asset price because it takes less net new dollars to move the price upwards in the future. I don’t think I’ve ever seen an asset this large (~$800 billion) have such high illiquidity at the same time that the price is aggressively moving higher.

So what does this mean for bitcoin holders?

Let’s take a look at nation states first. El Salvador’s President took to Twitter/X this morning to highlight that the country’s bitcoin holdings are now profitable again. He said “Of course, we have no intention of selling; that has never been our objective. We are fully aware that the price will continue to fluctuate in the future, this doesn’t affect our long-term strategy.”

El Salvador is not alone. Michael Saylor’s Microstrategy was underwater on their bitcoin holdings for almost a year, but now they have returned to an unrealized profit as well. The company now holds 174,530 bitcoin on their balance sheet.

The nation states and corporations are not the only beneficiaries of the recent bitcoin price increase though. As Dylan LeClair pointed out, bitcoin is the significant winner if you had dollar cost averaged with $10 into various assets every day since 1/1/2020.

Bitcoin: +106%

Nasdaq: +28%

S&P 500: +18%

Gold: +16%

U.S. Treasury Bonds: -20%

This is an important point because it shows that an investor, regardless of sophistication, would have been able to drive a material return by dollar cost averaging through the boom and bust of the pandemic era.

Lastly, there is quite a bit of excitement about the incoming bitcoin spot ETF. I want to issue a word of caution about its potential ramifications. Here is some quick math — bitcoin is ~ $800 billion asset. Only 30% of that supply has moved in the last year, so that is $240 billion. If the spot bitcoin ETF gathered $50 billion overnight, which would be more than Grayscale’s GBTC had in assets at the 2021 peak, then we would only see an approximately 20% increase in capital compared to the liquid circulating supply.

That would 100% lead to a material increase in price, but it won’t triple the value of bitcoin overnight as some are predicting. What would the exact price impact be? It is nearly impossible to predict because there are numerous factors that we can’t know the answer to (for example - how many people will sell on ETF news?). It is fun to get excited about major milestone events like the ETF approval, but just do your best to refrain from being sucked into the crazy price predictions from anonymous people online.

Trust me, I’ve had my fair share of fun trying to predict the future. Even when you are directionally correct, you can never get it perfectly right. As the old saying goes, time in the market is more important than timing the market. Bitcoin has proven that statement true over and over again.

Think long-term. Enjoy the fun on the internet. And don’t try to outsmart the market. Hope you all have a great start to your week. I will talk to each of you tomorrow.

-Anthony Pompliano

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