This is an opinion editorial by Andrea Bianconi, a research assistant at the Idaho Freedom Foundation, which is a public policy think tank.
An analysis of the fundamentals, recent geopolitical and macroeconomic events and their impact on Bitcoin’s future.
Introduction
In the last few months, financial markets have lost over 30% from their highs as the Federal Reserve Board took away the punchbowl from the intoxicated market players by hiking interest rates, and now recession (stagflation) seemingly looms.
The yen and the euro are inflating like developing countries’ currencies.
Inflation and commodities explode higher.
The spark for WWIII has been lit in Ukraine — unbeknownst to the ignorant and brainwashed masses who think that this is just a local conflict and that “peace” can be reached in spite of Western nations selling unlimited quantities of weapons into the war and pouring billions of “freshly printed” U.S. dollars and euro debt into the conflict, adding fuel to the fire.
Then we have the suicidal sanctions, which are destroying the economies of the Western sanctioning countries rather than the sanctioned Russia.
After all, it is clear to anyone with a functioning brain that 10 years of sanctions have made Russia totally decoupled and immune from Western economical warfare.
And finally, the icing on the cake, bitcoin has died for the 459th time in its short 12-year history.
Financialization Is The Problem
As I have expected and warned about in this February 2021 article, the growing financialization of the industry could become an existential threat for Bitcoin. Wall Street has brought its usual playbook — excessive debt and leverage — to their darling DeFi cryptocurrency sector drawing a crowd of suckers and shitcoiners who were allowed to leverage their bitcoin equity 100x or more to speculate on altcoins like LUNA. The leveraging and deleveraging process is well described in this ZeroHedge article here. All this is good until, sooner or later, reality hits. Shitcoins are invariably revealed for what they ultimately are, usually scams, and the only real asset posted as collateral (bitcoin) is then sold to cover the losses. Then the deleveraging causes a cascading liquidation of collateralized bitcoins. The suckers are wiped out and the smart money buys back the bitcoin on the cheap.
While one of the biggest purposes of Bitcoin is to “be your own bank,” DeFi rather aims at recreating the fiat fractional banking system with all its risks and hazards. This Bitcoin Magazine article correctly points out: “Crypto lending shops such as Celsius are fractional reserve banks in principle; however this time there is no ‘lender of last resort’ in the form of a central bank to bail out the founders and their clients when things turn sour.”
“Let’s make one thing clear: a yield always has to come from somewhere. To generate a positive yield on a scarce asset such as bitcoin, the institution offering said yield has to leverage the clients’ deposits in various ways. And whereas banks face strong regulatory requirements as to what they can do with the customer deposits (such as buy treasuries, facilitate mortgage loans etc.), cryptocurrency lending companies face no such regulatory requirements, so they basically go and put their customers’ deposits into casinos of various kinds — DeFi yield farming, staking, speculating on obscure altcoins.”
While this wash-and-rinse cycle is nothing new for seasoned Bitcoiners — and one can reasonably argue that it is needed to clean up the market from excesses — I feel that there is one new, worrying and more obscure side to it this time.
Bitcoin In Davos Crosshairs And What Everyone’s Missing
As I wrote in this series of articles Part 1 here and Part 2 here, Bitcoin represents the “wrench thrown in the engine” of the globalist agenda: global money, global government and consequent global enslavement. As there is no practical way to stop Bitcoin adoption (since it is a fully decentralized, immutable, uncensorable peer-to-peer settlement asset and parallel payment system with cash-like finality), the only way is to try to demonize it. This is done using the usual FUD and mainstream media scare tactic campaigns and — arguably more effectively — by causing its price to drop substantially thanks to smartly engineered attacks on highly leveraged shitcoins where bitcoin is used as collateral.
The Terra/LUNA collapse is an example. We do not know for sure whose fiat fake money was behind the attack. Both Blackrock and Citadel — among the most influential Davos players in advancing the globalist agenda – were rumored to have played a key role in the attack, however they officially denied involvement. The thought remains, though, in order to borrow 100,000 bitcoin worth approximately $3 billion to pull off the attack you must be a big player — or at least have someone with big pockets to back you up. It will be almost impossible to learn where the money came from.
Until the current fiat-based system — which grants to the few close enough to the spigots of “fake” money the “great privilege” to fight wars, colonize and enslave others at no cost — collapses, then the massive amount of fiat-based debt created ex nihilo will be always used by the privileged few to expropriate real assets like gold or bitcoin. This is the main reason why one should keep direct custody of his/her bitcoin and not play the corrupted fiat game with DeFi and shitcoins.
Bitcoiners Should Stay Away From Altcoins And DeFi
Alternative cryptocurrencies and DeFi in the end are nothing but the latest casino playground for Wall Street. The problems are well-known: excessive leverage, derivatives, derivatives of derivatives in an endless chain of liabilities, contagion and spiraling insolvencies when things turn sour. There’s one big difference though: in cryptocurrency and DeFi there is no Fed to bail risk-takers out. Unfortunately bitcoin is the only solid cryptocurrency asset with no counterparty risk which can be used as collateral in the sector. Therefore bitcoin will always be subject to extreme volatility in case of insolvencies in the sector. This is not the first time nor the last it will happen.
Ultimately, DeFi’s artificial yield game will play against one’s bitcoin stash. Every bitcoin which is left in third-party custody or rather pledged as collateral, will be used against its ultimate owner. It will be lent out or collateralized in a spiraling game of leverage with shitcoins and un-stablecoins. When prices go down this triggers margin calls and the liquidation of the only real asset pledged as collateral in a cascading effect of ever-increasing margin calls and liquidations to cover the losses. In the end one will lose both the speculative altcoin position and the collateralized bitcoins. By using the structural weaknesses of fragile protocols like Terra/LUNA, smart players can trigger margin calls and liquidations thereby gaining both from shorting the shitcoin, betting safely against bitcoin on the futures market (they are causing the price drop so it is a safe bet) and then closing the positions by buying the suckers’ bitcoin on the cheap. They can further double the bet by going long on the futures market as well. An easy and safe bet given enough “firepower.” And traditional finance has plenty of firepower thanks to the leveraged debt-based fiat system. Unless of course, Bitcoiners finally wake up and stop playing in DeFi’s casino and stop collateralizing their bitcoin.
Reality Check: Bitcoin Is Stronger Than Ever
Truth is, like most of bitcoin’s pullbacks before, this one too has very little to do with Bitcoin itself.
The protocol is stronger than ever. The following charts will give you an idea of the exponential growth of the network.
Figure 1 — Hash Rate
The growth of the Lightning Network — which is a real proxy for Bitcoin’s adoption mainly in the East and global South — has been impressive. Here is the chart:
Figure 2 — Lightning
Lightning can handle 1 million transactions per second, while Visa handles 24,000 per second. The network has been increasing its capacity and is currently handling approximately 4,000 BTC on public channels.
Kraken, a major cryptocurrency exchange, has now added Lightning to its standard payment options and it has released an intelligence report showing very interesting data on Lightning growth and adoption.
According to the Kraken Report “Lightning usage has been on a steep upwards trajectory since late 2020, growing parabolically in September 2021 corresponding with the introduction of BTC as legal tender in El Salvador. Still, public metrics do not describe the full extent of Lightning adoption because of the number of users in the Lightning ecosystem utilizing private channels.”
Figure 3 — Lightning Nodes
Regarding the Lightning nodes´growth (Figure 2), Kraken states “Furthermore, the growth in the sheer number of Lightning nodes indicates that the network is beginning to see many new participants. Nodes saw continuous growth from 2018 to late August 2020, rising from 54 to 6,134. However, node growth…
Read More: Bitcoin Down But Never More Compelling – Bitcoin Magazine