Horses don’t “chomp” at the bit, they “champ” at the bit. When I first started learning about horsemanship, this is one of the first misapplied terms that I discovered. Colloquially, we all know that when someone says “chomping at the bit,” they mean that someone is very eager to get started on something. Still, one needs to be precise when using language, and the correct term here is “champing at the bit.” But why the pedantry over usage? It’s because a friend who is big into Bitcoin and cryptocurrency investing asked me the other day when I would begin “chomping at the bit” to get back into Bitcoin and proxy digital asset treasury (DAT) firms such as Strategy (NASDAQ: MSTR) after their recent drawdowns.
My initial answer here first contained the aforementioned idiom corrective. Then, I turned to the more important question of why Bitcoin has seen some big selling of late. To be certain, that selling has been significant. Over the past three months, the price of the Greyscale Bitcoin Mini Trust (BTC) has fallen some 18%. Meanwhile, MSTR has plunged some 47% over that time. That’s a big drawdown over a short period, and one that requires some analysis. Fortunately, my partners at Sevens Report Research did such an analysis recently, so let me recap some of those thoughts for you.
First, it’s important to understand that there really hasn’t been a specific reason for the recent drop in Bitcoin. Instead, this decline remains a general problem, not a specific one. That said, one development related to Bitcoin’s decline involved an executive at Strategy saying the company could sell some of its Bitcoin.
Now, MSTR has transformed itself from a software company to basically a company that buys and owns Bitcoin. This Kafkaesque metamorphosis was engineered by Strategy CEO Michael Saylor, someone whom I consider a brilliant innovator, whose Bitcoin evangelism rivals that of any true religious believer. The catechism Saylor preaches is to buy and hold Bitcoin. Yet, if MSTR were to decide to sell to raise cash (the company could need to do so for numerous reasons), that selling would indeed be an incremental short-term negative for Bitcoin.
Now, beyond the MSTR influence, I think the team at Sevens Report Research put things in proper perspective:
“The decline in Bitcoin is largely being driven by the same factors that drove previous Bitcoin bear markets, namely that Bitcoin is still a hyper-volatile, speculative asset, and in reality, nothing more (at least, not yet). The main reason for owning Bitcoin is, essentially, because you think someone will pay more for it tomorrow than they will today. That differentiates Bitcoin from stocks (which have earnings) and even commodities, which have fundamental demand characteristics tied to human activity (transportation, manufacturing, etc.).
“Now, it is true that fundamental uses for Bitcoin have risen, especially in the past year. Each month, we highlight the growing presence of Bitcoin on corporate and sovereign balance sheets, the increased use of Bitcoin in legitimate financial transactions and, most importantly, the booming market for spot Bitcoin ETFs, which creates a more fundamental type of demand as long-term investors buy and hold the cryptocurrency.
“Yet while all of that is moving in the right direction, it’s still a very small part of overall Bitcoin float. To that point, if we combined all the ETFs that own spot Bitcoin, they still only account for 6% of total Bitcoin (per www.bitco.io). Over time, these more fundamental uses for Bitcoin will continue to grow and the fundamental outlook for Bitcoin is bullish. But it seems that some Bitcoin investors/traders/owners perhaps got a bit ahead of themselves, and this decline is a stern reminder that while Bitcoin is maturing, it is still predominantly a speculative asset that rises and falls with the general risk asset tide.”
So, now that we know the “why” of Bitcoin’s recent decline, the question turns to when will I begin “champing at the Bitcoin” again for this asset? Technically speaking, I would start champing here after the spot price of Bitcoin climbs to its 50-day moving average, which currently sits at $100,578.
Courtesy of Stockcharts.com
A move from current levels to the 50-day moving average would be an approximate 8.6% increase, which for Bitcoin is an easily achievable move that could take place over just a few trading days (or even less).
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Jefferson’s Friend
“I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend.”
–Thomas Jefferson
Have you lost a friend in recent years over politics? I am somewhat ashamed to admit that I have, and it still bothers me. You see, I share Jefferson’s thoughts on friendship and differences of opinion, i.e., disagreement shouldn’t result in disengagement. Sadly, sometimes different views lead to departures, which makes logical sense, but is nevertheless emotionally unfortunate.
The way I see it, the world is full of different viewpoints, and most have counterviews with valid critiques. If we want to grow as humans, we should embrace the differences, while also holding firm to our principles. I know this is hard, and sometimes we will fail (I know I have). But the fight to understand opposing views is the only way toward peaceful human progress. We can have conversations and understanding, or we can have disagreement, schism and even violence. I prefer the former.
Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.
In the name of the best within us,
Jim Woods
