SM (ed.19) Rogue State Demand

SM ed.19 Rogue State Demand for BTC?

February 01, 2022

Friends and associates,

It has been wonderful navigating the bitcoin and crypto journey with you these last 18 months. Thanks for all your feedback - please keep it coming.

I am now working full-time on digital asset investment management at Sound Money Capital. It is a privilege to navigate these markets full-time, pursue a sound money future and serve as a custodian for client capital.

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As usual, this email starts with the market review and is followed by the monthly think piece with links to the longer form articles on the website.

Enjoy!

There are a lot of conflicting signals in the markets at the start of February 2022. The central banking monetary experiment is a long-term catalyst for bitcoin, but the Fed is reversing the trajectory temporarily this year. Macro conditions are responding (before the Fed has done much) which reveals both systemic fragility and a seasonal change in markets.  Bitcoin has experienced a 50% correction from its November 2021 highs and many higher beta assets have experienced even more pain. Volatility and reduced risk appetite will burn some retail fingers but institutions will use the lower prices as entry points because bitcoin's value proposition is as strong as ever. All-in-all, its difficult to see new all-time-highs under these conditions and high-beta assets are less favoured, but sharp rallies and short squeezes are possible in the face of trad-fi macro headwinds.

Conclusions:

  • The Fed is tightening and macro conditions are deteriorating

  • 2022 will likely remain a tough year as a result and high-beta assets are less favoured

  • Watch out for NFTs, which have held up very well in the face of Dec/Jan volatility

  • There is strong demand for BTC at lower levels and tight on-chain liquidity shows resilience

  • Bitcoin price can experience sharp rallies as shorts get squeezed by tight supply liquidity

  • Violent trading activity within wide ranges expected

  • Underlying demand will continue despite 2022 volatility

  • Watch out for rogue states, large institutions and disillusioned boomers

Source: BTC Manager

In 2021 El Salvador became the first nation to adopt bitcoin as legal tender, a monumental occasion on bitcoin's monetization path. Despite this encouraging development, I do not think we are going to see many major nations following in its footsteps just yet. Small, dollarized countries will be tempted. But for the vast majority of governments, the appeal of a centralized currency is too strong to hand legal tender status to bitcoin. Nevertheless, there is potentially another source of state-level demand. I expect that 'Rogue states' like Russia, Iran and China are looking closely at bitcoin as an alternative global settlement network to the USD. In this article I highlight the reasons why I think this is an important next development to monitor, and cover some of the consequences.

TLDR:

Rogue state demand is potentially a major bullish price catalyst, and at the same time it is a PR nightmare for bitcoin in the west. It is critical to return to the principles guiding your decision making to ensure you are not caught up in the inevitable PR nightmare this catalyst will present. Bitcoin's detractors will jump on the opportunity to call the technology un-American or anti-West.

Send through any questions and have a great February!