(Jul 13, 2021)

June’s Price Action 

The price action for cryptocurrencies over the last 6 weeks or so has been ‘sideways/choppy/down’ – which suits SCF’s trading strategy rather poorly. Of course, one can attempt to ‘buy the dip’ and assume that $30,000 for BTC is the bottom. However, it is impossible to know for sure whether this is true. Whilst we have been stopped out on a handful of occasions attempting to get long possible breakouts in both BTC and ETH, we have sat largely in cash for the month. Silver also fell approximately -8% in June. Unfortunately, it is possible that both crypto and precious metals continue a poor run further into the summer as USD rallies.  

The Big Picture

Which is more likely to happen first: the West lives within its means or China abandons tyranny?
This is one of the great questions of our times, and cryptocurrencies are going to force an answer. Bitcoin was a self emergent form of life that sprang into existence during the GFC (Great Financial Crisis) and has since percolated upwards through the ascending layers of power and will soon be the most significant topic debate in the halls of power throughout the world. At first, cryptocurrencies were the interest of obscure nerds, then mainstream people, then corporations and finally now sovereign governments.  

El Salvador 

El Salvador became the first country in the world to adopt Bitcoin as legal tender after 62 out of 84 congressmen approved President Bukele’s proposal. Such a move puts the country at odds with the IMF from whom it is hoping to get a loan. However, Bukele’s calculations may well prove to be vindicated in the near future. El Salvador currently does not have its own currency, but rather uses USD domestically. Without the luxury of printing money, it has less to lose from adopting a hard currency which should attract capital inflows into the country. Furthermore, Bukele has even floated the idea of using the currently unharnessed energy from its volcano to power a bitcoin mine. If this was achieved, El Salvador would have its own supply of Bitcoin denominated income making it independent from the control of the IMF. Unsurprisingly, this has attracted the attention of many politicians of indebted Latin American countries.  

“China bans Bitcoin”

Since circa 2013 the above headline has been written time and time again. This time however, it appears to be for real. Coinciding with the CCP’s 100th Anniversary, the CCP (Chinese Communist Party) has started to roll out the Digital Renminbi which can be traced, blocked, frozen, charged demurrage and reversed. Central Bank Digital Currencies are the fantasy of any tyrannical ruler. Obviously, access to an opposite alternative currency must be removed. In June, the PBOC (People’s Bank of China) announced that Banks must not provide products or services such as trading, clearing and settlement for crypto transactions. Furthermore, banks are to cut the payment links to ‘fictitious currency’ exchanges. Chinese Bitcoin miners have also been taken behind the woodshed and have been forced to transport their equipment to neighbouring Kazakhstan or simply close operations. Given that China held approximately 65% of the hashrate, Bitcoin’s difficulty and hashrate have fallen significantly. 

The CCP’s crackdown on Bitcoin has no doubt played an important role in the ongoing collapse in cryptocurrency value. However, the hasrate has already increased 20% over the last month as Bitcoin miners have expanded their operations in the USA, Canada and Sweden. The migration west of Bitcoin’s hash power further decentralises Bitcoin and is therefore positive for the industry in the long run. 

The juxtaposition of Western largesse versus China’s tyrannical aspirations presents an overly simplified false dichotomy. China also has a vast debt bubble and the West is abandoning freedom of speech/thought and capitalism at an alarming rate. Cryptocurrencies are voluntary and provide monetary sovereignty to individuals via cryptography. These fundamental concepts are going to be hotly contested on the geopolitical level in the coming years.