On 26 Sep, 2022 
I’ve lived through my second Bull and Bear cycle in Bitcoin and crypto now.
I recall the 2017 bull market being nervous the entire way that Bitcoin went from $3,000 to $20,000 because of the ‘block wars’. At the time Bitcoin was undergoing its first of what would be many ‘forks’, whereby alternative ‘Bitcoins’ (e.g. Bitcoin Cash, Bitcoin Gold) were launched. This was a new development for Bitcoin and a potential black swan event that had many of the insiders on edge.
However the price of Bitcoin continued to climb despite these internal concerns. It was described as climbing a ‘wall of worry’.
I did not feel these concerns in the 2019-2020 Bull market. I was feeling excitement as we saw new industries and players entering the Bitcoin ecosystem.
Legendary traders and fund managers such as Paul Tudor Jones, Bill Miller and Stan Drukenmiller were publicly adding bitcoins to their portfolio. Large established commercial banks around the world were making it possible for their customers to easily buy bitcoin. Then El Salvador announced that Bitcoin would become legal tender, it would be accepted as currency across the nation, and vendors could not refuse it. Every citizen would receive $30 of bitcoin to their Chivo wallet and the Bukele administration announced Bitcoin ‘volcano bonds.’ Whether a causation or not, tourism in the country rebounded to just shy of its pre-covid levels.
Also in 2021 Elon Musk announced that both he personally and Tesla were purchasing bitcoin. Michael Saylor, CEO of MicroStrategy, borrowed $900 million against the company for the sole purposes of buying Bitcoin. This saw MicroStrategy’s share price rise from $150 to $1,315.
For Bitcoiners this was the sign of growing adoption. The price was shattering new records and many bitcoins and pundits added ‘laser eyes’ onto their Twitter profiles signalling the ‘inevitable fact’ that bitcoin was due to hit a price of $100,000 per coin.
From a technical perspective bitcoin hit a double top at ~$69,000, from there it underwent a 75% correction. Though many bitcoin (and crypto) traders have witnessed 90% drawdowns this one was surprising.
Respected family offices, commercial banks, Time magazine’s man of the year, and even sovereign states adopting a Bitcoin standard was incredibly bullish for growth. But despite this the price plummeted, even breaching the key mark of $20,000 which was the high of the 2017 cycle.
What happened?
It appears that bitcoin was traded as a risk-on asset, highly correlated to the Nasdaq 100. We also witnessed a monumental bull run in the US dollar, due to its inverse correlation this has resulted in the devaluation of commodities (as they are priced in USD) and potentially the BTC-USD cross.
When priced in non-USD currencies, Bitcoin has appreciated 10% more against the EUR, NZD and 14% against the GBP than again the US dollar. When compared to gold, bitcoin has appreciated by 20% since the June 2022 lows.
Many believe that Bitcoin has lost its narrative as an inflation hedge, as inflation has been soaring Bitcoin’s price has been plummeting. Jim Bianco, president of Bianco Research wrote: “I’ve been arguing for some time that BTC is a risk asset, a 3x or 4x SPY. It should not be this way, and at some point in the future, I expect this correlation to be zero.”(1)
It is this author’s opinion that Bitcoin is the perfect inflation hedge; either it is not yet appreciated it as such or that fact that publicly listed companies have been buying bitcoin means they are accountable to boards, shareholders and earnings seasons; therefore their time-horizon is not longe term, but quarterly.
