SM (ed.16) The (unnoticed) geopolitical event of the decade

SM (ed.16) The unnoticed geopolitical event of the decade

November 02, 2021

Friends and associates,

We experienced a major 40% rally in bitcoin in October, driven by valuation, but triggered by SEC ETF approval. Valuation is less attractive today than a month ago, but still very constructive so large price increases this year remain the base case. However an increasing number of leveraged speculators and uncharted price discovery above all time highs implies the market will likely get more volatile and skittish.

For this months note we get into bitcoin mining and the burgeoning world of bitcoin geopolitics.

The political and economic sun has been rising in the East over the past century with China playing an increasingly important role in global geopolitics. Despite this trend I have long been sceptical of China's centralised and autocratic governance structure. 2021 could be a monumental year, exposing the frailties of excessive control. If bitcoin proves to as important technology as I think it is, then the CCP's decision to ban bitcoin mining could prove to be the biggest geopolitical faux pas of the next decade.

TDLR:

While decentralised bitcoin displayed its resilience to regulation, bans and decreased the probability of a 51% attack in 2021, centralised China may have handed a critical technology of the future to its peers.

Conclusions

  • Bitcoin mining is far more decentralized post the China mining ban.

  • The likelihood of a 51% attack has reduced, enhancing bitcoin security.

  • Bitcoin displayed resilience to a massive reduction in hash rate, processing transactions as normal through Q3 2021

  • China’s actions highlight the risks of centralised autocratic governance.

  • Western entrepreneurs have capitalized, benefiting society long-term, no matter the views of their politicians.

  • Bitcoin continues to become more entrenched economically, financially and politically in western countries.

  • China may have handed a strategic global resource of the future to the rest of the globe.

On the personal front, I have been cognisant of the shift in seasons from summer "fall" to autumn in the northern hemisphere. The trees are turning orange, the sky is duller than a month ago and it has impacted my mood.

The transition has made me aware of the seasonality on a more micro level too. Each passage of the day contains undulations, which require equanimity if one wants to treat life with the respect it deserves. Easier said than done but I am committed to the pursuit of equanimity in life and markets.

Autumn is the time of harvest. "Seeds sown in spring, nurtured in summer, now yield their fruit in autumn" - John O'Donohue. Now if my bank accounts would just come through we may begin to harvest some of the seeds that we have sown...

Wishing you a great November, whatever season you are in!