User Growth

If the bitcoin price is continuing to disappoint short term participants, they should perhaps look to user adoption for comfort. In these log charts (from woobull.com) we can see the start of the previous bear markets in 2011, 2014 and 2018. The pattern this time is different. User growth is going absolutely parabolic.

The network effect is the power of bitcoin and it is growing even if the price is sitting back watching at the moment. The best possible thing we could have is silent adoption with minimal movement in price.

We see a similar trend in the bitcoin lightning network with the doubling time of network capacity shortening continuously. Confidence in lightning is growing but it is still small. 1806 BTC currently is only two day’s worth a bitcoin mining.

Even so, this micro adoption is hugely important to bitcoin. We need ETF’s at one end buying billions of the stuff and we need Bitcoin Beach in El Salvador selling $1 drinks on lightning.

Mining recovery begins

Following the crack down on bitcoin mining in China, the hash rate has only just started to recover. We anticipated this would take 6 – 9 months and no change there in terms of estimates.

On the three-year chart you can see just how dramatic the collapse was and how the recovery has begun. I would expect to be back above 150TH/s by the end of the year, particularly with the massive investments being made in mining in the US.

There is more to the reason why this happened than meet the eye. China has an awful reputation on matters green, mostly because we are all used to images of smog in Beijing. You cannot fault their ambitions on energy mix though, which are set out below.

Despite the low starting base, no country in the world invests more in renewable energy than China. In particular they are the leader by miles in solar energy and nobody is building more nuclear capacity than them.

Once China gets firmly on this road you can bet that bitcoin mining will be back, it’s just too strategically important for them to sit out.

Reserve currency

Unarguably the United States Dollar is still the world’s reserve currency. Looking at this chart, it shouldn’t be.

Therein lie so many of the issues faced by the global economy and particularly developing countries. The US does not account for enough global trade anymore to sustain it. It just is not a relatively big enough economy anymore so there aren’t enough dollars floating around to support everything that’s going on (hard to believe I know).

I’m not for a moment suggesting that bitcoin will become the replacement, it won’t, but the dollars days are up, and the slow decline has begun. The fact is it is no longer easy or convenient for everyone to use them, not least with the insane regulatory web that captures anyone who dares to interact with the USD.

This chart reflects something the US did post 9/11. Anyone interacting with USD had to register, any business, any company. Everyone must now fill in the crazy US banking KYC form. They then went further in 2009 with the FACTA, the Foreign Account Tax Compliance Act, which was a massive burden on anyone interacting with America.

It’s not that China did anything that special, the US just strangled the world in crazy admin as they tried to retain control at everyone else’s cost. They made dealing with them painful, as anyone going through US Customs can tell you.

Now the chart is red the US will complain. Not fair, foreign exchange manipulation etc. No. They strangled the golden goose with their stupid rules that helped nobody.

It’s obituary time

Euro-Trash

The safest form of money, “central bank money”. Except that of course, the supply of that money in Europe roughly doubles every six years. Even using their own inflation numbers, which are curiously low, the purchasing power of the Euro has eroded steadily with time.

Putting that to one side, a digital Euro, or indeed any digital national currency is more profound than people think. In summary here is why.

Today, money is created by you and I borrowing money from our bank. The Central Bank does not actually create money. For example, using a credit card is creating money that did not previously exist. We all do that through our demand for credit. The Central Bank will provide liquidity to the system by taking assets off the hands of retail banks overnight and in doing so they can set the market interest rate, but they are not actually printing money.

Digital Euro’s might work differently. Let’s say there was some sort of crisis and the government wanted to get money in people’s hands quickly. Well now they can do so without recourse to commercial businesses like retail banks. For example, in a pandemic scenario like the current one, giving everyone $1,000 with an expiry date for spending becomes quite easy. You can imagine all sorts of cohort specific stimulus being programmed via money. Arguably it will be a lot cheaper and a lot more efficient than the current blanket giveaways, making the whole idea easy to for governments to sell to the public.

The ultimate question will be, will we all have a personal account with the central bank, or will we retain our accounts via retail banking? That isn’t clear. Likely both, with the latter only being used in a “crisis” which will inevitably appear.

Naturally, the ECB didn’t miss the opportunity to tell us that their imaginary currency, that is likely 10 years away, will be much more environmentally friendly than bitcoin.

We have come a long way in a few years. In 2017 it was “obvious” digital currencies wouldn’t work because [insert false reason]. Now, we think they do work, it’s just that ours will be better than yours.

Agent Lagarde is ‘moving up a gear’ and she needs to because the real race is whether the ECB release a workable digital currency before their entire house of cards collapses.