Long Reads Sunday #93

May 10, 2020

Happy Sunday from the Hudson Valley

And happy mother’s day to all the mother’s out there! This episode is all about hype for the upcoming halving - and specifically - 9 reasons why I think this hype is completely warranted. I did a podcast about this on Wednesday if you prefer that medium.

Speaking of podcasts, we just dropped episode 2 of The Breakdown’s Money Reimagined series. It’s a 4-part docu style (meaning that instead of a single interview, there is an overarching subject and contribution from a half dozen or more different voices. Episode 1 was about the strange paradox of current dollar strength. Episode 2 is all about whether contenders like the euro, China’s DCEP, or Libra stand a chance at displacing it. Or if, as one of our guests historian Niall Ferguson describes, we could be headed back to a multipolar, multi-currency world. Check it out.

Okay, top news then on to the main topic.

Happy Long Reads - NLW

This Week’s Top Bitcoin & Crypto News

Legendary hedge funder Paul Tudor Jones announces serious entrance into bitcoin as a hedge against the “Great Monetary Inflation”
Square’s Cash App reports $306m in bitcoin revenue in Q1 - up from $178m in Q4
Coinstar plans expansion on 40% spike in Bitcoin ATM usage
Zoom acquires Keybase as a way to improve privacy and security
Open interest in CME bitcoin futures reaches new all time high
The Libra Association has named a CEO - frmr HSBC chief legal officer Stuart Levy
Telegram tells US investors to leave with only 72% reimbursement
Crypto forensics firm TokenAnalyst shutting down
Iran gets a new licensed bitcoin farm in advance of the halving

This week on The Breakdown podcast

Monday | Why Buffett’s Bearishness Should End V-Shaped Recovery Talk
Tuesday | Why Crypto Matters for Financial Inclusion, Feat. Celo's Marek Olszewski
Wednesday | Surveying the Carnage: How Real Estate, Travel and Music Are Faring During the Crisis
Thursday | 9 Reasons Why Bitcoin Has Never Been Stronger Going Into A Halving
Friday | The Rise Of The Dollar Killers, Feat. Niall Ferguson & More [Money Reimagined - Part 2]

Nathaniel Whittemore @nlw

Theorists like Hayek & Friedman thought the world was better served by competing monetary regimes rather than a single dominant currency. Could that be the world we're headed back to? @nfergus explains on Ep2 of @BreakdownNLW #MoneyReimagined nlwcrypto.libsyn.com/could-these-cu…

Our Main Theme: 9 Reasons Bitcoin Has Never Been Stronger Going Into A Halving

The title basically says it all. Let’s go!

1. Price

Okay okay so, admittedly, this one has gotten a little more complicated since Wednesday when I produced the podcast version of this argument. Still, the reality is that for anyone who is watching, bitcoin is up on the year and meaningfully recovered from Black Thursday’s crater.

What’s more, the point of price is that it is a door for bringing new people in. So many of us have gotten the text messages and DMs over the last couple week’s from friends and family asking if they should FOMO in.

I’m reminded frequently of this immortal tweet.

Mr.Hodl🌕🍿 @MrHodl

None of you fuckers would be here if number didn't go up.

The reality is that number go up - even in the context of volatility on the way - is the first step for a whole lot of new market participants.

One final note has to do with miners. CoinDesk reported on April 30th that recent price gains had made even semi-obsolete miners like Bitmain’s AntMiner S9 able to turn a profit again.

2. Hash rate

Hash rate is a measure of the processing power in the bitcoin network. In the lead up to the halving it has been reaching all time highs as miners try to pull as much value as possible before the block reward subsidy is reduced.

glassnode @glassnode

#Bitcoin hash rate hit a new all-time high.

Now what about the idea that after the halving, hash rate will plummet as big groups of miners can’t make a profit?

As much we debate whether investors have “priced in” the halving, the reality is that mining businesses have a much stronger need to actually develop models for understanding how the halving is going to effect them. PlanB argues that miners are more prepared than we give them credit for.

PlanB @100trillionUSD

Thank you Patrick for sharing this DM, it's a great example of miner capitulation/deathspiral FUD - 2012&2016 halving data shows that difficulty will NOT adjust downward, but will keep rising post halving - Miners have ALREADY invested in new hw and are prepared for -50% revenue

Patrick OShaughnessy @patrick_oshag

An interesting response to this in my DMs, shared with permission but without attribution. On why halvening is in fact bearish: https://t.co/h36qA3AWfh

3. Mining Competition

In this instance, the competition I’m referring to isn’t miners competing for the block reward (which shows up in the hash rate) but instead competition in the sector servicing and supply the mining industry.

Miner maker Ebang filed for a $100m IPO in the US.
On April 17th, Bitmain competitor MicroBT rolled out 3 new high end BTC mining devices
Innovative new operations launching like Great American Mining Co which is meant to help oil and gas producers build a digital pipeline for stranded energy

Marty Bent @MartyBent

Thinking about Bitcoin mining operations as digital pipelines that consume all of the wasted gas in the world gets me really jacked up. The second and third order effects that these efficiencies will produce are mind blowing. We may become a Type 1 civilization in my lifetime.

4. Accessibility & Services

Simply put, it has never been easier to access bitcoin.

First, there is a wave of new “bitcoin only” businesses including Swan Bitcoin, River Financial, and CoinFloor. The decision to focus exclusively on the bitcoin ecosystem creates new opportunities for products and services that would be crowded out by maintaining a multicoin environment.

Second, the state of mass consumer onramps has never been stronger. Square’s Cash App is most notable of the bunch. In Q1 of this year, Cash App sold $306m of bitcoin, up from $178m last quarter. Bitcoin sales comprised more than 60% of Cash App’s revenue.

Cory Klippsten 🦢₿ 🎁₿ 🚀 @coryklippsten

So... I *know* I'm supposed to consider CashApp to be Swan's competition or whatever, but dammit if I don't LOVE @jack, @matt_odell and @MartyBent, and @milessuter and the whole team for what they're doing for #Bitcoin. Keep kicking ass, and we'll do our best to catch up! https://t.co/cHJcD76lS4

Marty Bent @MartyBent

Even more people are #stackingsats on the @CashApp. Things are picking up... https://t.co/GkUxSAUAJ8 https://t.co/whyHpQEKsJ

5. Infrastructure

Marty writes this section perfectly.

Marty Bent @MartyBent

It is irresponsible to not have skin in the Bitcoin game at this current moment considering the macro landscape and the strides the network has made since the last halving.

Reflecting on the bear marketAs we approach Bitcoin’s third block subsidy halving, it is incredible to take a step back, scan the horizon, and review all of the incredible things that have been built.tftc.io

Between self-sovereign hardware like Nodl, MyNode, and RaspiBlitz; privacy work from Samouri, Wasabi, and Join Market; and of course, advances in Lightning, the ways in which people can interact with bitcoin has never been more robust.

6. Institutional participation

When I first recorded this segment, I focused on the idea that the bitcoin crash and its temporary correlation with equity markets was a reflection of the fact that the past two years of campaigning to get institutional investors off zero worked. When that type of investor has to rush to liquidity, they have to sell whatever they can sell, not what they want to sell.

Then Paul Tudor Jones happened. The guy who put the ‘hedge’ in ‘hedge fund’ and one of Wall Street’s most famous investors dropped an investor letter that shook the bitcoin world.

Frank Chaparro @fintechfrank

"This brilliant feature of Bitcoin was designed by the anonymous creator of Bitcoin to protect its integrity by making it increasingly near and dear, a concept alien to the current thinking of central banks and governments." ~ Paul Tudor Jones, The Great Monetary Inflation

It’s only been a few days, but the influence is already being seen:

Frank Chaparro @fintechfrank

We are at the forefront of something very interesting, a non-retail driven crypto rally. Family offices and HNW investors are begging bulge bracket banks for exposure in derivatives, hedge funds are seeing an increase in subscriptions, and private banker clients are very engaged.

7. Narrative Relevance

Paul Tudor Jones is also a perfect example of what I discussed as the “narrative relevance” of bitcoin. The entire premise of his letter is that we’re on the verge of the GMI or “great monetary inflation” and that in that environment, an asset which is becoming more scarce than gold is incredibly well positioned.

It’s hard to overstate how clean this narrative is. On the one hand, fiat - unlimited printing, through the mandate of the government. On the other hand, bitcoin - hard capped and with an actual reducing in its issuance happening as we speak.

Just watch this - it’s basically impossible to get the narrative wrong.

Stephan Livera @stephanlivera

Impressive #bitcoin segment here, they mentioned: - Cut in supply - Quantitative Hardening - Inefficient miners being shaken out - Bitcoin S2F > Gold S2F

CNBC's Fast Money @CNBCFastMoney

The halvening is coming. With only 11 out until a major bitcoin supply cut, @BKBrianKelly breaks down why there could be a big breakout ahead for the cryptocurrency. https://t.co/w9bzhbjNej

8. Perceived & Real Resilience

There is another part of that bitcoin narrative that matters right now as well: the idea of its resilience.

Many have commented that, in a world where governments are backstopping every industry and every debt, bitcoin is the last truly free market.

Over the last few months of crisis that free market - one that never turns off, by the way - has worked perfectly without any intervention or help. Take this and combine it with the halving price narrative in the face of QE and the price increase and stabilization and you have an overwhelming sense of the asset’s resilience.

The Wolf Of All Streets @scottmelker

Bitcoin is resilient AF. $10,000 —> $3,800 —> $9,000 in the blink of an eye. Even if you’re not a believer, Bitcoin’s volatility is a trader’s wet dream.

9. Lindy

Lastly, we come back to Lindy Effects - the idea that the longer something survives, the longer it is likely to survive in the future. Every time bitcoin is pronounced dead and then not only survives but thrives, the more people on the margins get convinced it’s worth paying attention to. In this chaotic moment, that impact has never been more pronounced.