The word “anti-fragile” gets thrown around a lot these days. You hear it in podcasts, on the news and in articles. It’s a popular word but if you pay attention you’ll notice that it often gets misused. Used correctly, anti-fragile doesn’t mean that something is strong, Rather, anti-fragile describes something that gets better as it’s attacked. Most things are not anti-fragile, but then again, most things are not Bitcoin.
In 2020 Bitcoin was lambasted by the mainstream media, the price dropped 50% in one day and the regulatory landscape has become noticeably more hostile. Despite all of this, as we enter into the first day of 2021 Bitcoin is less than $1,000 away from breaking through $30k. I think the lesson is: go after Bitcoin, and it only gets better.
Bitcoin is one of the few things in the world that isn’t just strong, it’s anti-fragile. In fact that’s our theme for this week: strength and performance. Bitcoin has eclipsed Berkshire Hathaway in market cap, just as Polkadot has eclipsed Bitcoin cash. Unsurprisingly, the demand for Bitcoin remains strong and the amount of liquid Bitcoin is continually decreasing. What do you get with high demand and low supply?
It’s the 1st day of January and if Bitcoin is any indicator, it’s going to be a great 2021. Case in point. It’s official: Bitcoin has done a value flip on some of the biggest names in the legacy financial system. BTC is up more than 50% since the start of December, giving Bitcoin a larger market cap than financial giants like Visa, MasterCard and JP Morgan. Satoshi, if he or she is still alive, must be loving the fact that Bitcoin, which was created in response to large banks acting irresponsibly, now has a bigger market cap than one of the largest banks in the world!
For crypto holders, one of the coolest things about this price rise is that Bitcoin now has a bigger market cap than Berkshire Hathaway. For anyone not already in the know, Berkshire is the investment company run by Warren Buffet. Although Warren is one of the most successful investors of all time, he’s no fan of Bitcoin. Nobody in the crypto community has forgotten the time that Buffet called Bitcoin “rat poison squared.” So there’s a bit of sweet justice in seeing the market cap of Bitcoin exceed the market cap for Berkshire. In fact, Bitcoin is beating Berkshire in both market cap and performance. Bitcoin 1, Buffet 0.
Out with the old, and in with the new. Since the fork in 2017 Bitcoin cash has failed to prove itself as a viable alternative to Bitcoin. Just a quick look at the BCH/BTC chart will tell you everything you need to know, it’s one long line down as Bitcoin Cash bleeds value against Bitcoin. Bitcoin isn’t the only asset that’s doing better than Bitcoin Cash though, as we’ve recently seen a flippening with Polkadot.
The blockchain interoperability platform Polkadot has taken over Bitcoin Cash’s number 5 spot on the crypto charts. Not just by a few billion either! Polkadot’s market cap has grown to almost $8 billion while Bitcoin Cash’s has shrunk to $6.6 billion. Who’s next? Litecoin? XRP?
The thing about Polkadot is that it’s offering a service to the cryptocurrency community that could be tremendously valuable. Polkadot is creating a platform to join blockchains and create an interoperability standard between all of the major cryptos. It’s an ambitious project, but if Polkadot can pull it off they will have justified their high spot in the crypto rankings.
Scarcity is another key factor in determining how much a digital asset is worth. The less liquid the supply is, the fewer coins there are to meet demand. In Bitcoin’s case what we’re witnessing right now is record high levels of hoarding. Investors big and small are taking their Bitcoins off exchanges and the available supply is shrinking rapidly. In fact, according to the blockchain analytics firm Glassnode, fully 78% of all Bitcoin has now been taken out of the market. That leaves just 22% of BTC, about 4.2 million coins, to fulfill all of the rising institutional demand. For anyone who is surprised by Bitcoin going from $20k to just under $30k in only a matter of days, this lack of Bitcoin supply helps to explain what’s going on.
Why are so many people withdrawing their Bitcoin from exchanges and way does this latest run look different than 2017? There are a couple of good reasons. First off, awareness is growing about Bitcoin, pure and simple. The passing of the last All time high has helped bring BTC back into the spotlight. And inflation, This time around, one of the main reasons that investors and institutions are buying BTC is to protect against inflation. And well, inflation isn’t something that just happens for a few weeks, and then it’s over. Inflation is typically a long term phenomenon that can go on for quite a while. So if someone is buying BTC to protect against inflation, their timeline for holding BTC is probably years, not months.
What will happen if even more BTC is taken off exchanges? Less Bitcoin on the market means anybody who wants to invest is going to have to pay more per coin, which means higher BTC prices. Or, in technical jargon, orange coin goes up. But remember, one Bitcoin is always worth one bitcoin so it’s never to late to enter the market.
From a purely crypto point of view 2020 was actually a really good year. We’ve seen the explosion of DeFi, Bitcoin smashed its previous all time high and new projects like Polkadot are promising to bring all sorts of interesting functionality to the cryptocurrency ecosystem. Having a look at the charts we can see that since January 1st, Bitcoin has gone up a massive 330%. Measured since the March lows, BTC has gone up approximately 550%. Ethereum is up 485% since January 1st and up 575% since the March lows. We can also look at the altcoin index, which is basically the market cap of all cryptocurrencies minus Bitcoin. This index is up 156% since the first of the year, and up 220% since the March lows.