Heres why you really should own at least some bitcoin – MoneyWeek

Today we consider bitcoin.

I found myself writing the following phrase to begin this mornings missive.

Bitcoin has been stuck in the $8,000-$12,000 range since May.

Then I thought that, while true, its kind of insane...

Bitcoin has been trading between about $8,000 and $12,000 per coin since May.

Using the mid-price of that range $10,000 as the base price, I am effectively saying that bitcoin has been stuck in a 40% ($4,000) range.

Imagine my saying that gold, or the Dow or the housing market was stuck in a 40% range. It takes several years, a global pandemic and an extraordinary amount of financial intervention to move any of those markets by as much as 40%.

Yet so normalised is bitcoins volatility, that Im now describing the cryptocurrencys 40% range trading as stuck.

Who needs leverage when youve got bitcoin?

In any case, bitcoin is by its own standards if nothing elses quiet at the moment. It began the year at $7,000, enjoyed a great run into February, taking it north of $10,000, collapsed with the coronavirus panic, and lost nearly 50%.

The rebound took it from below around $5,000 in March to north of $12,000 come August, since when the market has pulled back and found support around $10,000.

And this feels like a quiet year.

I guess thats because, for all the volatility, the 200-day moving average is as flat as a pancake, indicating that on this timeframe at least the market is going nowhere. The 50-day moving average is rising.

Quite interesting is that since February, bitcoin has been behaving like its a tech stock listed on the Nasdaq. You could pretty much overlay the bitcoin chart over the Nasdaq and see that whither one, thither the other. Theyve both been going the same way.

On a long- and intermediate-term basis, the Nasdaq is in an uptrend, on a short-term basis the picture is less clear. Its fallen a bit, then rallied.

For all their bubblicious qualities, Id be very careful shorting tech stocks because they have the ability to go so much higher. Its a scalability thing. Anything digital is so much more rapidly scalable than anything analogue. You can design a really good app, stick it in the app store and it can be sold anywhere in the world, pretty much instantly, a billion or more times over.

Lets say on the other hand you design a really good dog lead or a picture frame or a sandwich. To sell a billion units, you have to somehow make and distribute a billion dog leads, picture frames or sandwiches. Its a lot harder.

Im convinced scalability is the reason that so many Nasdaq stocks have been so unstoppable.

The same logic applies to bitcoin. The US dollar or the pound any fiat currency has limited scalability because of national borders. No such limitations affect bitcoin. It was designed to be cash for the internet and the internet is, effectively, borderless.

You can send and receive bitcoin to anyone anywhere as long as you both have an internet connection. As such it has the potential and I dont say this will happen, just that it has the potential to become the default cash system for the internet. The scalability of that is just too great to ignore.

Then, on the other side of the coin, it is almost infinitely divisible, yet in limited supply, so the potential for gains is so enormous that I say you just have to own some whether its having a quiet year or not.

In fact, quiet years in bitcoin are generally a good time to stake a position. Bitcoin has this tendency to go quiet for a couple of years, then go bananas. You want to buy it when its quiet.

As things have evolved, bitcoins purpose as cash for the internet has sort of disappeared. 31% of bitcoins have been inactive for at least three years, says Guy Hirsch, US managing director for multi-asset brokerage eToro. Some of those bitcoins will have been somehow lost, but a large portion will belong to people who do not see them as cash, but more like digital gold as something to hoard. Hodlers, as they are known.

Bitcoin has become the backbone of the cryptoverse, rather like gold was to the monetary system of the 19th century. Most peoples route into the booming and ever-expanding crypto economy from fiat is via bitcoin. It has a sort of portal status.

The latest craze to have gripped the crypto economy is defi decentralised finance. There are now over 100,000 bitcoins, worth over $10bn, locked up in it.

In theory, defi is the self-sovereign future. Its accessible to anyone in the world with a smartphone and internet connection. And you will find every type of financial service available interest-paying savings accounts, lending, trading, insurance, betting, prediction markets, even a lottery. You name it, therell be an app for it. Actually a dapp decentralised app.

You can use some apps in conjunction with each other hence it being called Lego money. For example, you could buy a stablecoin with one app, then lend it on another to earn interest, all using your smartphone.

Its the usual story: rather than being set by institutions, the rules of each dapp are set in code, and the code can be read on the blockchain for you to audit. Assuming you are capable of such a thing, which few are.

Normally the apps are built on the ethereum blockchain which is why the ethereum cryptocurrency has woken up over the last six months as the defi craze has spread. (Though the ethereum platform is notoriously rickety and it is kind of crucial to the whole thing.)

Its a full-time job trying to track and understand the whole sector, and to keep your finger on the pulse. I poke my head in and just feel like grandad.

If you dont have the time or the inclination to get involved, and most of us dont, yet you can sort of feel the whole thing has immense potential and is tremendously scalable the easiest way to get exposure is simply to own bitcoin.

So, theres yet another reason, as if you needed it.

Daylight Robbery How Tax Shaped The Past And Will Change The Future is available at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.

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Heres why you really should own at least some bitcoin - MoneyWeek