Bitcoin either goes to zero or it goes supernova
I’ve been inundated with questions from many of you following the recent events. Brexit, that is, not Justin Timbertrouser’s latest antics. While I can’t publish all of them, I’ve selected what I think are some of the most important ones.
A lot of questions were related to positioning during and post Brexit. I hate to mention it as I may choose to trade out of whatever I mention at any given moment so please bare that in mind.
- Sold a bit of GLD on Thursday and will look to buy back after the shock/euphoria subsides.
- Long GBP/EUR and USD/EUR.
- Net short equities.
- Lightened up by 25% on short Spanish 10-year and long US 10-year. (hint: you get paid to do it and are synthetically short EUR which I’m OK with).
Ok, onto the questions…
By the way, your latest article ” World out of whack” was great. I believe the next crisis country will be Italy with their massive banking problems. The Euro is simply too strong for them and in the old days they were able to compete against Germany by constantly depreciating the Lira.
Excellent points on the historical situation with Germany and Italy, and pinpointing the currency aspect.
Not everyone agreed with Italy as it came in a close second to France, as you can see below from the poll I ran in the recent World Out Of Whack.
We’re actually dealing with two drifferent problems here – the EU and the currency. Let’s take a closer look at both.
The EU was originally designed to stop Europeans killing each other (something they’ve been doing for centuries) and to foster closer ties between European countries by eliminating barriers to trade. As the old adage goes, “When goods don’t flow, bullets do.” And this was at the core of the EU idea.
Giuseppe always loved BMWs, didn’t care for sauerkraut (I don’t blame him), and – while being infuriated with Hans who is as punctual as Big Ben – saw no reason not to make the buying of his BMW any easier.
Hans, on the other hand, still believed that all Italian woman were smoking hot, all Italian men were plumbers, and though he couldn’t understand how pasta could be eaten everyday without causing some sort of digestive problem, he welcomed the idea of shooting down to Puglia for a weekend’s sun – sans silly visa requirements.
So why not allow Hans and Giuseppe to manage all this with less friction?
Increasingly though, the EU has become a barrier to trade rather than an enabler. Today there are restrictions and laws governing how bendy a banana must be. Not bendy enough and it doesn’t meet regulation. Cucumbers can’t be too bendy, on the other hand. Not straight enough and they too are in the tip.
Then there is the famous case of the EU directive stating that water does in fact NOT hydrate you. Retailers of water were banned from suggesting water would in fact hydrate you.
Prunes are not laxatives (contrary to anyone who tests the theory), Turnips are not allowed to be called Swedes, and eggs are not allowed to be sold by the dozen. Instead, they must be sold by weight only.
Powerful vacuum cleaners are banned. You see, they chew up too much energy. Diabetics should be banned from driving and the list goes on and on. It’s enough to make blood shoot out of your eyes.
When looking at the sheer weight of unexplainable laws, you’re left thinking that only a mentally ill person could have put them together. And you’d be right.
The European Parliament is mentally ill and though Britain’s exit from this “fustercluck” will have immediate negative consequences, I’m all for a controlled demolition rather than a supernova which is where the EU is most assuredly headed.
The single currency, on the other hand, was always as terrible an idea as walking through Damascus with an “I hate Muslims” T-shirt would be. You just knew it would cause pain and suffering.
Each European country experiences unique business and credit cycles which are often independent of one another. They always had a shock absorber, allowing for economies to adjust to the economic bumps of the business cycle. That shock absorber was their own currency.
Let’s use an admittedly simplistic example.
Let’s say that Greece becomes uncompetitive in terms of trade. It would then experience weakening corporate profits, leading to less investment, leading to higher unemployment. This could then be met with weakening the currency, which in turn leads to lower operating costs, higher profit margins, renewed employment growth, and a renewal in investment.
The reason Greece is clocking a 51% youth unemployment and Spain a 45% youth unemployment rate is directly tied to the fact that the currency as a shock absorber has been taken away. Instead, these countries are forced into a straight jacket where rather than a weak currency they get a persistent weak economy.
Ironically this economic pain – left unchecked and unresolved – has the potential to cause rising nationalism as I discussed earlier this week. At the extremes we’re talking war.
Here’s the next one:
“Chris, thanks for the ton of really insightful material you put out. I have a question: you first mentioned to buy Bitcoin and it was at $380 or thereabouts I think. Then you put out that report on Bitcoin being a way to play the devaluation in the yuan and it was at like $480. I ignored you at $380 and again at $480 (I’ve a habit of doing this though I’m determined not to repeat it again). I watched in awe as it rocketed to recent highs and just yesterday it collapsed again back to $599. Have I missed the boat?
Well, it’s back up at $674 as I’m writing this which simply demonstrates how volatile it is.
Think about it like this: Bitcoin market cap is about $10bn. Around $3bn of that is reportedly owned by founders and early adopters, leaving around $7bn actively traded. Of that, over 80% is traded in China which is a black box.
It is one reason I’m paying a lot of attention to China and goes back to my devaluation argument.
One other thing to consider…
Do you know of any other asset with a market cap of say $6bn which has anywhere near the airtime that Bitcoin has?
Right now the ability for institutional money to get into Bitcoin is still somewhat limited. It is clear that market acceptance amongst the suited and booted is on the rise so it’s not just Molly dealers and kiddy fiddlers who are using it. If we get a real ETF in this space watch out!
Bottom line: I think Bitcoin either goes to zero or it goes supernova. I’ve spoken at length around the geopolitical environment which is highly conducive to Bitcoin doing well.
“I think you is a shill and dead wrong on the USD. Getting sick of you dollar bulls. Do you secretly work for Goldman Sachs or other jews? That turd is going to wipe out like all the other currencies before it and you helping