I made a large Bitcoin purchase on June 27th morning and intend to buy more over the next few weeks. This is a short thesis on why I’m adding to Bitcoin. Wanted to get out before the July 4th weekend because Bitcoin never stops trading.
Bitcoin has shrugged off all the negative news flow that came out of the FTX collapse and the more recent Coinbase/SEC drama. If all that negative news did not take Bitcoin down, I don’t know what will.
Here are 4 reasons I’m bullish on Bitcoin right now:
Bitcoin Halving:
The next bitcoin halving is expected in April 2024, which can have a major impact on Bitcoin’s price.
New bitcoins enter circulation as block rewards, produced by the efforts of “miners” who use expensive electronic equipment to earn, or “mine,” them.
Roughly every four years, the total number of bitcoin that miners can potentially win is halved.
In 2009, the system rewarded successful miners with 50 bitcoin every 10 minutes. Three halvings later, 6.25 bitcoins are being dispensed every 10 minutes.
The process will end once the number of bitcoin in circulation reaches 21 million. A popular estimate is that it will occur sometime near the year 2140.
The main takeaway is that scarcity was built into Bitcoin’s Code.
Now let’s study the impact Bitcoin halving has had on Bitcoin’s Price. As we know, when scarcity goes up, prices go up and that is clearly visible in the chart below.
Each time Bitcoin has gone through halving, the price of Bitcoin has climbed and the rally usually starts well before the halving date.
Here is a note from Standard Chartered predicting that Bitcoin prices could go up to $100K by end of 2024 because of halving:
Looking to the long-term, bitcoin's (BTC-USD) next halving -- the mechanism whereby the reward for mining a new block on the blockchain is cut in half after every 210,000 blocks produced -- could also be a boon for its price, the report said. The event, which is part of the process of capping BTC's supply at 21 million coins, is due around April 2024. “As we approach the next halving, we expect cyclical drivers to become more constructive, as they have in previous cycles.
One of the big criticism’s of Bitcoin is the lack of real world use cases. Apart from the reality that Bitcoin is a relatively more stable option for people living in countries that have an unstable currency, it helps the unbanked and that it is the most efficient way to transfer funds anywhere in the world, it could also play a crucial role in Generative AI.
Here is a clip from The Compound & Friends, where Dror Poleg explains the role Crypto could play in digital verification and authentication where Generative AI can produce fakes that look real. This a huge challenge for the AI industry with potential catastrophic results, imagine a fake video of a world leader that ticks off some dictator. So the ability to certify something as “AI generated” is going to become important and hopefully required by law.
There are other use cases for Bitcoin which have been broadly discussed and beyond the scope of this article, Generative AI is a new one. So wanted to point that out.
Bitcoin’s Fund Flows:
As reported in Seeking Alpha:
Digital asset investment funds reportedly logged the largest week of inflows since last July in the same week that saw bitcoin (BTC-USD) surge 7.9% after Wall Street giants renewed their bets on the token.
The $199M of inflows corrected nearly half of the prior nine consecutive weeks of outflows, CoinShares noted Monday in its weekly crypto asset flows update.
Of course, bitcoin (BTC-USD) saw the vast majority of the inflows, at $187M
Meantime, CoinShares said that ethereum (ETH-USD), the largest altcoin by market cap, raked in inflows of $7.8M, "suggesting appetite for Ethereum is lower than Bitcoin at present."
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Bitcoin’s Technical Setup:
Bitcoin’s chart looks pretty good and if it breaks out above $32K, we could race up to $45K. And given the setup with halving expected in April next year and the fact that we are coming out of a 2 year long bear market, I think $BTC is due for a bounce.
My Bitcoin Positioning & Trades:
I am under invested in Bitcoin. I had been trading in and out in 2020-21, which was not a smart move. I know better, in the “buy and hold” camp now.
I started with a small BTC exposure, left over from my purchase in 2019.
Added to $BITO ETF and have been continuing to dollar cost average into it. But at some point, I will move that over to $BTC. I wanted to test the ETF for a bit but think buying $BTC directly is better. The total return for both are similar.
As mentioned at the start of the article, I made a large Bitcoin purchase on June 27th morning and intend to continue to add to it over the coming weeks.
My goal is to have ~2-3% of my portfolio in Bitcoin.
Past performance is no guarantee of future results.
The ideas discussed in this article should not be constituted as investment advice.
Disclosure: We own positions in some/all of the tickers mentioned in this article.
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