One of bitcoin’s original goals as a decentralised currency, was that it obviated the need for central banking.
One of its achievements is that it has obviated the need for roller coasters as well.
What a ride!
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So let’s start with a price update. Let’s see if we can work out where we are in the grand scheme of things.
Talk of a Bitcoin Mining Council is all a bit 2017
As I write we are at $40,000. Bitcoin began the year at $29,000. So five months into 2021 we are looking at gains of around 40%. So far so good.
What that story doesn’t tell you, of course, is that we also went as high as $64,000, then in the space of barely a month, crashed by over 50%.
The world’s most celebrated (and attention-seeking) billionaire – Elon Musk, as if you didn’t know – meanwhile, has embraced bitcoin, then spurned bitcoin, and now seems intent on controlling bitcoin, according to the parameters of his own moral compass, which happens to stray rather far from the moral compass of many of those involved in this hitherto leaderless project.
Veteran bitcoiners are crying, “whoah, wait a minute”, while in front of their noses, all of a sudden, there is a Bitcoin Mining Council, to “standardise energy reporting, pursue industry ESG goals, & educate+grow the marketplace” in the words of leading bitcoin evangelist, Michael Saylor.
The last time key stakeholders got together and then attempted to speak on behalf of the entire industry was 2017. The result was an almighty civil war, new forked versions of bitcoin, the creation of “bitcoin cash”, then “bitcoin SV”, the excommunication of previous bitcoin cheerleaders and a divide that made Brexit look harmonious.
At that point another billionaire, Peter Thiel, chipped in, to say that “nobody’s trying to centralise or control anything. It’s really about sharing best practices.”
It’s why I like charts. They strip out the noise.
Civil war or not, now the price is rebounding, bringing some relief to those eyes which, until yesterday, were bleeding.
The question we all want to know the answer to is: is this a bounce of the dead cat variety? Or do we go higher? I’ll come to that in a moment.
Bitcoin needs to win the environmental argument or it’s in trouble
This anti-fossil fuel narrative is extraordinarily powerful, never mind the extraordinary improvements fossil fuels have brought to living standards. Bitcoin may be accelerating the adoption of renewable alternatives in a quite natural, market-driven way, but the overriding narrative, especially from sources such as the Financial Times, the BBC and The Economist (who also told you bitcoin would never catch on), is that bitcoin is bad for the environment and must be banned.
Why does nobody tot up all the energy used to do Google searches worldwide and then try and have Google searches banned because they consume too much energy?
For me the biggest threat to bitcoin, at present, is the environmental lobby. I think bitcoin will survive it in the long term. Truth usually wins in the end. But you just need to see what one tweet from Musk airing concerns about bitcoin’s fossil fuel consumption did to the price to know that this narrative is a problem for bitcoin in terms of short-term and intermediate-term price action.
And so, while I fully support the ethos of bitcoin’s decentralisation, and I subscribe to Adam Smith’s view that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”, I also recognise the importance to bitcoin of making and winning the environmental argument now.
The public and the authorities must be persuaded that bitcoin is accelerating renewable energy adoption and is thus net positive for the evolution of man’s energy consumption.
To this extent, getting Musk on board is important. Bitcoin is bigger than Musk – though he may not think so – but it is better off not having him as an enemy.
So maybe, at least in the short term, this council may have a role to play, though I say that with a certain amount of trepidation.
Enough of all that – where is bitcoin going next?
Back to the thing we all really care about most: the price. What is it going to next?
There is support at $30,000. That figure of $30,000, or just below, was support in January and it is support now. It has held twice over the past weeks. We don’t want to see it tested too many times, as the more a level is tested the less likely it is to hold.
If we stay above $30,000, that is good. Very good. It means we have an almighty “W” in place, a “double bottom”, from which the price can launch much higher. I’m talking over $100,000 higher. So that is what I am hoping for.
In the short term, I see resistance in the $42,000 area. That was the January high and the February low. It’s a TA101 support-resistance point. Above $42,000 is good.
If $30,000 doesn’t hold, then I am afraid we go back to $20,000. That’s another pivotal price point – the December high, but also, once, the all-time high from back in 2016-2017. I have to say, I really would not be surprised to see it go back there – I hope it doesn’t, but it looks like a bit of a magnet.
And if it does go back there, then I think $12,000 comes into play. Let’s hope that’s a conversation we never have to have.
For now it’s a battle of narratives. Bitcoin has been brilliant at telling its story. Price has confirmed the narrative. The battleground of the next six months will be to make the environmental argument and win it. Saylor’s council has a role in that.
Purists will say bitcoin doesn’t want this council and they may be right. Nevertheless, it is an important argument to win. Otherwise, bitcoin has problems – and will be staring down the barrel of $12,000.
(And for more on my take on bitcoin’s energy consumption, have a read of this piece here).
Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
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