I’ll make this one quick, because it’s pretty straightforward.
If bitcoin doesn’t rally if and when stocks are under pressure due to inflationary worries (i.e., now), it will likely set off an excruciating downtrend as king crypto’s mythos unravels and people come to terms with what it’s likely been about all along: selling to the next guy.
A lot of people have infamously written “bitcoin is dead” articles. Not me. I’ve written about why most people don’t need bitcoin, about why the evidence is overwhelming that bitcoin trades as a speculative asset, but I’ve always left room for the possibility of the seemingly impossible: that bitcoin will one day make a miraculous metamorphosis from a get-rich-quick trade to an inflationary hedge.
Evidence such a day will come is paltry, and the clock is ticking.
Investors were given a heads-up on Monday that nothing’s changed in bitcoin’s relationship with the stock market. The most bullish I’ve ever been on bitcoin was in October last year when bitcoin rose as the Nasdaq pulled back. When it broke through $20,000, I outlined why it was a clearly bullish technical event. I’ve always maintained the most positive thing for bitcoin would be if it rallies during a stock selloff. Apart from that brief moment last year, it’s never happened, and right now is when it counts.
Bitcoin’s been billed by its biggest proponents as a store of value in a hyperinflationary environment produced by excessive stimulus from policymakers. Right now, investors’ biggest concern is inflation produced by excessive stimulus form policymakers, and growth stocks are paying the price for it. If an inflation-driven selloff gets more serious and bitcoin drops too, its façade is going to start eroding quickly.
Bitcoin has utility in its role as a censorship-resistant means of money transfer, but many cryptos can accomplish this goal. It’s the gold story that’s been the secret to its success. “Digital gold” is the easiest catchphrase to remember, repeat, and fits with the financial narrative du’jour of the money-printing generation. But most importantly, it’s been the most successful story because it’s been impossible to disprove – up until now.
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This is the moment everyone’s been waiting for. The Fed literally doesn’t give a damn about inflation, policymakers are dumping everything into the economy they can possibly come up with, and the most reliable stocks of the bull market are breaking down. We just had the biggest bond selloff in history a few months ago and the dollar is in a month-long freefall. Bitcoiners have never been more convinced that destiny is manifest, and many believe crypto canon calls for an extension of gains after last year’s block “halving.” Gold is finally rallying, but bitcoin’s hit a wall.
If it sells off here, the entire story falls apart.
I think it will. For one, as I showed mathematically last month, there is zero evidence that bitcoin is evolving into anything like gold. There’s also the technical element. Bitcoin has never plateaued after a new high like this. Crypto bulls believe it implies a basing pattern before a big run, similar to late 2017; their expectations are extraordinarily high. I think the more compelling case is that the chart reflects a first-of-its kind peak for bitcoin that reflects a lack of new buyers as opposed to an intolerably fast extension of price. For bitcoin, a slow rollover is much worse than an explosive blow-off peak, because it could mean that bitcoin finally found an equilibrium of buyers and sellers. Without any utility, that would mark the limit of its reach.
Without the digital gold story, I don’t see how bitcoin sustains any price level from recent history. If it doesn’t come to fruition ASAP, the subsequent collapse will bring a crypto winter that’ll bury the entire asset class for a very long time.