| At the risk of dating myself, The China Syndrome was a 70’s era disaster flick that posited a meltdown in a nuclear plant: the core would become so hot it would melt through its containment barriers and fall through the earth itself “all the way to China”. The premise is absurd when you think about it, because even if it were true, the white hot core would stop at the gravitational center of the planet, not China. A similar flawed logic is being spun around this Bitcoin correction, which was kicked off by Coinbase, made real by Elon Musk, and may now have finally entered a capitulation phase because of China. A few readers have asked me if this changes the crypto investment thesis at all. Let me clear and unambiguous: it does not. If anything, it provides us with a lens through which we can marvel at why Bitcoin was dubbed “The Honey Badger” of money nearly a decade ago. The short version is that in 2011, a video called “Honey Badger Don’t Care” went viral on Youtube. It was appropriated by the Bitcoin community in 2013, because, in the words of Roger Ver in that Wired article above… “I don’t think Bitcoin cares what the Chinese or American politicians do” It doesn’t. Nor does it care what Elon Musk thinks, nor does it care about Nassim Taleb, Elizabeth Warren, Peter Schiff or anybody else who honestly believes (or hopes) this thing is going to zero. They wish. It won’t. As for the China situation specifically, the overall hashrate of the network just got cut in half, or close to it. That means the difficulty is going to adjust and that means all of the Bitcoin miners that we own are going to mine more Bitcoin in the very near term. The China FUD has been a headwind against Bitcoin since the first episode of “China bans Bitcoin” back in 2013. It’s the same story ever since and now, it finally played out in this crescendo. There are two main takeaways from this, aside from the immediate, near-term benefit for companies we own in our portfolio. #1) Anybody who thought that the most repressive and totalitarian regime on earth was going to countenance the empowerment and freedom that Bitcoin and cryptos represent was operating on a flawed premise to begin with. Bitcoin is freedom. China is anti-freedom. They are like matter and anti-matter, so what is happening now is the inevitable split between the two. #2) After this, the China FUD is over. One of the largest clouds hanging over Bitcoin since 2013 will be fully in the rearview mirror. Anybody who glommed onto the “Bitcoin is Chinese financial weapon” narrative from last month now looks like a blithering idiot. And all those coal fired power plants in China running Bitcoin miners? What coal fired Bitcoin miners? There are no coal fired Bitcoin miners in China, not anymore. One pillar of the environmental fallacy against Bitcoin mining just ate itself. Thank-you China. As Anthony Pompliano (“Pomp”) observed around all this, China just did for themselves with Bitcoin what North Korea did to themselves with the Internet back in the 90’s. They cut themselves off from the technology of the future to preserve the ruling class’s power. It worked for the ruling elites, but at a severe economic cost for everybody else. I would recommend reading the entire Pomp letter, which is hard to do justice in a summary here, but I will cite that: “the letter [started with] with references to geopolitical mistakes. China has chosen a path that will become a more obvious self-inflicted wound, while simultaneously handing a large, non-violent victory to a Western superpower. It is hard to see in the moment. It may not be obvious for years. But this is what we are watching occur in real-time.” In my mind China is making the biggest unforced error in governance since the One Child Policy. Like communism, it seemed like a good idea at the time, but the long term effects have been an utter disaster for them. China now permits its subjects (not citizens) to have three children. There was a time when I thought that China was playing 4D chess and threatened total world domination. But lately I’ve been wondering if the entire zombified Chinese economy is actually closer to blowing up than ours is. With China’s own Digital Yuan turning out to be underwhelming, this move may be signalling exactly that. That’s it for now, I was going to write a note on Silvergate Capital and Link Global but that can wait until later. If you want to deploy capital at these prices, stick to the mainstays of the portfolio: GLXY, BITF, HUT, or for more correlated exposure, the ETFs. Averaging down on COIN or if you waited, now may be good entry point. Now that Bitfarms has switched to a HODL policy it also means that every Bitcoin miner in The Crypto Capitalist Portfolio is now HODL-ing the coins they mine. FORT sold some of theirs down at near peak prices, but they have a lot of working capital now to deploy at lower prices. I wasn’t crazy about the move in the last letter, now it appears to have been almost next level prescient. Down at the microcap level NDA.V is getting in range of where I bought it initially. BIGG had coverage initiated on it by PI Financial with a price target of $3 today, to be fair, there was also an article in Seeking Alpha that was a bit more muted on BIGG, but I’ll speak to that more in the monthly newsletter due out next week. I’ll leave you with a recent meme from /r/bitcoin with a hat-tip to the BanklessHQ podcast…. |
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