⏱️ [Analysis] Why Bitcoin & why sooner rather than later? - Jonathan Cheesman

Jonathan Cheesman proposes that Bitcoin ($BTC) presents an asymmetric investment opportunity. It is the first investment open to everyone in and the fixed supply schedule presented a very clear route to mania should it grow in popularity. There will only ever exist 21 million BTC, and currently, only ~17 million have been mined. Far fewer are actually available to buy thanks to lost coins, exchanges and OTC desks holding inventories, and allocations held by true believers. Bitcoin's demand will likely be driven by macro factors related to generational preferences. Mistrust of politicians, central banks, corporations, and the media is growing. The monetization or misuse of data by companies like Facebook is creating demand for more privacy and control over data and digital identity. Bitcoin could represent an option for individuals to regain ownership and control of their data. Furthermore, Bitcoin represents an option for savers in emerging markets where many economies are reaching a breaking point and are seeing huge wealth destruction. Despite its promise, sentiment for Bitcoin is currently extremely bearish following a price decline from a $20,000 all-time high. This downtrend has been caused by six major headwinds:

• Macro: The dominant macro trend of 2018 has been a dollar liquidity squeeze caused by central bank tapering. Crypto has not been immune to this as the U.S. dollar and U.S. yields have risen and gold has fallen. After the market rushes to USD it can then re-focus. This was exactly what happened to gold in the financial crisis and if bitcoin is successful, it will be anti-fragile — something that benefits from disorder.
• Speculative dominance and reflexivity: In its early life, Bitcoin’s use has been dominated by retail speculation. Given this, and a lack of accepted valuation framework, Bitcoin is prone to multiple hype cycles as are many new technologies. Over time this reflexivity will fade as the value proposition is better understood.
• Regulatory hesitance and the slow path to institutional adoption: Regulators across the globe have struggled with how to responsibly police crypto. Decentralized technologies, complications in classifying new assets, and bad actors have muddied the water. This uncertainty has slowed institutional investors, which lack of custody, insurance, data, and risk management solutions. Progress is being made on both fronts which has lead to new tokenized assets, mostly real estate, sold and accounted for on the blockchain.
• Weaker projects or scams: The hysteria at the end of 2017 has been a bad hangover for 2018. Many projects reached valuations exceeding any sort of reasonable measure and now some trade more down 90% from their highs. This multi-billion dollar decline in the aggregate market cap has impacted the reputation of crypto as an asset class. Over time impact marginal impact of weaker projects will decline compared to the effects of stronger projects.
• Natural supply: Bitcoin is prone to fairly deep bear markets because of both mining supply and exchange sales. This flow headwind can dominate the market and extend lulls.
• Short selling: Retail flows and algorithmic funds have been attracted by the profitability of short selling. Short sellers have become accustomed to using Bitcoin as it is the most liquid cryptocurrency.

In the medium-term Bitcoin will co-exist with sovereign currencies but the trend of globalization is shifting the gaze of our imaginations beyond the nation-state. Despite headwinds, the societal and generational preferences towards cryptoassets are tailwinds, and the relative size of the market make the asymmetry of the opportunity compelling.

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