Sep 14, 2021

8 min read

Peer Review: “Bitcoin is Going To Suffer a Vicious & Painful Death”

So I was scrolling through medium when I found an article colourfully titled “Bitcoin Is Going to Suffer a Vicious & Painful Death: 4 painfully obvious signs that point to Bitcoin’s long-term demise”, (I’d just like to point out that nothing is ever as obvious as it seems in economics) and I like to expose myself to as much bearish Bitcoin analysis as possible, so I gave it a read, and it was, although passionate at times, a well put together article, however, I had a few issues with the content of the bearish analysis that I would like to go over here.

Part 1: The Premise.

The article starts out by saying: “…if we zoom out of technical charting and assess the real-world, macro-economic factors that affect Bitcoin, we can see that it is ultimately on a warpath to new lows, most likely in the next 6–9 months.” and continues on to present some (questionable) technical charting which I will attempt to clear the air on.

Okay, so, here is his premise; we are in a short term bull market, but global macro trends are suggesting we are on our way ‘to new lows’… first off, due to the nature of Bitcoins price history, we cant have new lows, if the price goes down even 50%, it’ll be returning to a price considered high 10 months ago, but lets not get too caught up on the semantics.

Ginsberg goes on to say:

Free capital and high debt to GDP ratios are a major macro-economic concern in general, I agree, however this is exactly what is driving interest for Bitcoin as a treasury reserve asset. The aggressive over-expansion of M1 money supply (some of this may be due to M2 categories being shifted into M1) seen since the beginning of the COVID-19 pandemic, along with the average interest rate on savings accounts standing at 0.06% and the federal reserve stating predictions for 5% compounding inflation rates in the US for food, rent and medical expenses (source: https://www.newyorkfed.org/microeconomics/sce#/ ) raises serious questions about where the demand for FIAT cash savings stands, and asks another question; if not FIAT, then where?

Following on from this, he states “They [Bitcoiners] are so deeply indoctrinated in the mythical theology of Bitcoin, that they can no longer provide any semblance of accurate information about the asset” so I will do my best to provide accurate information as I give my perspective on the evidence he considers to be ‘accurate information’.

Part 2: The Evidence

Okay, so, his first point is that whales are selling their Bitcoin, 400 whale wallets, to be exact, and this would be a good critique of the bull case for Bitcoin if the fluctuation was anything outside of the norm, but it isn’t. To make a trade purely based on this indicator during 2016/2017 would have had you selling your Bitcoin at sub $1,000.

And in fact, at this resolution, we can see a naturally occurring somewhat-inverse correlation between this metric and price action, and since price has been going up recently, this dip in balances > 1K is two-fold: no cause for concern, and to be expected.

On top of this, his ‘accurate information’ is incomplete, and therefore inaccurate, to only measure the number of entities in possession of more than 1000 BTC is half of the picture, you also need to take into account the amount of BTC they hold, so you can measure the conviction of the address cohort as a whole, and BTC holdings by that same cohort of entities has been on the rise (shown in green);

Another piece of evidence cited in the article he linked was a tweet regarding a short term drop in illiquid supply ratio from Will Clemente;

Short-term bearish indicators used as grounds to support a long-term bearish thesis is a theme in this article. Using the same logic, a more recent tweet from the same analyst regarding the same indicator would lead you to be long-term bullish;

Along with the decline of whale addresses being a natural occurrence during the second half of bull market/first half of bear market, it is not the only metric used to gauge market sentiment, for instance, percent balance on exchange;

This metric tells us, as a percentage of BTC supply, the amount of BTC held on exchanges. This metric shows us being in a strong accumulation phase since the beginning of 2020.

There are many good indicators for gauging market sentiment, the majority painting bullish pictures, it seems Ginsberg has chosen the one metric that shows, what he believes to be, out of the ordinary and bearish data, however when you take into account whale holdings, you can see clearly that the cohort (and by extension, market as a whole) is in accumulation.

One final note on this argument presented by Ginsberg; the decrease in accounts with holdings > 1K BTC is a recent downtick on a much larger uptrend in the graph he presents in his article, which was supposed to be making the case for a long term demise of Bitcoin, but when unpacked, this first bit of ‘accurate data’ turns out to actually support a long term bullish BTC case, I just found it a bit weird that he used a short term fluctuation of an on-chain metric to support the case for a “vicious & painful death” of BTC.

In his second argument, he makes some very good points about serious questions surrounding the eligibility and long-term viability of the Tether project USDT as a stable-coin. This provides substance to his argument that they are ‘fake dollars’, but continues to provide no evidence that the price of BTC is inflated by such.

However, the only problem with this argument, is that it has nothing to do with Bitcoin. To imply that Bitcoins price is somehow ‘held up’ by USDT, as if backed by it, is untrue and inaccurate for these reasons;

USDT is bought with Bitcoin, to buy USDT, you (generally speaking) must already own Bitcoin, people don’t buy USDT to buy Bitcoin, that would be unnecessary, they buy Bitcoin and trade it for USDT (or a selection of other stable-coins) as and when they please. Therefore, mentioning 96% of USDT is not backed by dollars only speaks to the fact that BTC is in demand, since USDT market cap is a proxy for gauging interest in BTC (so his second bear case is also accidentally a bull case).
BTC is not Tether. The argument of a potential liquidity crisis caused by USDT being cause for concern of a price drop ‘up to 80%’ is a legitimate one, but Bitcoin does that every 4 years, and on average it is still up 200% year on year, so again, this is more of an argument for a potential short term crash in the price of BTC, rather than the slow and painful long term demise of the underlying asset price, or whatever he said.

Institutional buying is down from where it was when we were having our Q1 and Q2 bull run if you are measuring it through the GBTC premium, but again, this is another short term change in a metric, cited on an article making a case for a long term bear market.

Bitcoin “still” isn’t a currency, after existing for… 10 years? You would have to be crazy to be surprised by that… but I’ll bite;

There is an idea floating around in a lot of peoples brains that Bitcoin needs to be established and considered a currency in order for it to succeed in price terms… this is false.

Bitcoin doesn’t need to become a currency to be a store of value, therefore if it never happens and even if El Salvador never made it a currency, then this would not make me bearish, since adoption of Bitcoin doesn’t mean you can buy a coffee with it, adoption of Bitcoin means that its market-cap is high enough to stabilise its price as a store of value against the various world currencies that are failing to do the same.

Ginsberg goes on to explain the potential problems and intricacies of making Bitcoin legal tender in El Salvador, which are all potentially valid points, that have nothing to do with a bear case for Bitcoin, it’s just the case against making BTC legal tender in El Salvador, which I’m not an expert on, so I won’t comment.

Anyway, there was much more that I had to say, but the article is getting quite long already, so I’ll end it there, I appreciate the bearish analysis from Ginsberg, and if you are reading this, I hope I wasn’t too “…deeply indoctrinated in the mythical theology of Bitcoin, that they can no longer provide any semblance of accurate information about the asset”, but hey, what does some random 19 year old on the internet know about anything anyway ;)

Be sure to check our our website at www.permissionlessltd.com and follow me here on medium if you found it useful. Thank you for reading.

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Peer Review: “Bitcoin is Going To Suffer a Vicious & Painful Death”

Part 1: The Premise.

Part 2: The Evidence

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