Please click the link to listen to the 84th episode of my weekly crypto podcast ‘Five Minute Crypto.’ These are intended to be short, single-topic ramblings on some aspect of the cryptosphere. Consider dropping a like and or a review on iTunes or Podbean if you enjoy the podcast. Comments and critiques welcome.
Welcome to Five Minute Crypto – today marks part one of a two-part series exploring the vital importance of assessing and planning for the known risk factors that may affect Bitcoin in the coming years.
A simple caveat before we begin – when outlining future risk events I’m drawing on my own understanding of Bitcoin, and the broader economic, financial and political systems within which it exists. I’ve highlighted many of these in previous episodes, a justification for each perspective expressed lies beyond the scope of this particular instalment. For example, my view on the probability of a China BTC ban has already been outlined in a five-part series which I will link in the transcript.
A statement of hodling intent does not a hodler make.
Simply buying BTC and waiting for number go up is a recipe for dashed hopes and eventual capitulation. The journey to BTC financial relevance is certain to be a rocky one. If you fail to reflect on what you will do should certain negative events occur you are simply setting yourself up to fail as a kneejerk emotional response to a situation you haven’t considered is much more likely to occur when you haven’t already thought it through. As Benjamin Franklin put it – ‘By failing to prepare, you are preparing to fail.’
First and foremost – you absolutely must take on board the reality that the current financial system and those that benefit from it are not simply going to roll over and fade quietly into the night. This is an entirely naïve perspective that flies against the whole of human history. Roll up your hodler sleeves – because you are going to have to fight for it.
By calmly assessing risk factors before they occur you are laying the groundwork for a more rational reaction if and when they do play out. Planning empowers you in your assessment of whether to sell, buy or sit it out. Can you precisely anticipate the challenges ahead – of course not – but you can forearm yourself to some extent as certain negative outcomes are much more probable than others.
Broadly speaking BTC risk can be broken down into five areas – two which are addressed here:
With almost absolute certainty bans await BTC. While it is relatively easy to shrug off such actions by developing or marginalized nations; have you considered the impact of a total Chinese or USD ban on Bitcoin? Doubting that China will ban Bitcoin – completely misses the key driver of the Chinese Communist Party – control and ever more of it. Money is a fundamental pillar of state control. The CCP is simply not going to allow a competitor to their remit over money. The only question is timing and extent. When and to what degree will they seek to ban BTC.
Additionally, the CCP will likely target mining too. Any move will be coordinated and intended to have maximum effect. A sharp selloff seems eminently likely in this scenario. BTC could plunge 50% or more and stay there for a prolonged period of time. The doomsayers would emerge in droves. Is this a scenario where you too would lose faith in BTC? Probably best to think on it now.
In a similar but less predictable vein, the US may adopt a draconian approach. Do you really view Donald Trump and Mnuchin as crypto friendly? The odds of a ban on BTC over the short to medium term are in my opinion roughly 50-50. Once again, the market would plunge on even the rumour of such an event. What would you do? Any US ban would likely be partial and temporary but would you know that in the moment?
In tandem with outright bans – restrictions are a near inevitability in the coming years. From punitive taxation to limitations on banking relationships, governments the world over are more likely to seek to harness BTC than simply embrace its quiet revolution. Of course, your mileage will vary. Aside from international financial regulatory bodies such as the Financial Stability Board (FSB) and the Basil Committee on Banking Supervision (BCBS) each jurisdiction will approach regulation and control within the context of their own regulatory environment. The Swedes for example – already enjoy freedoms beyond that of most other nations albeit with a high tax burden. In that context, Tax then might an area worth considering. In contrast, the UK, has long demonstrated a mild antipathy towards Bitcoin particularly the BOE – further anti-money laundering measures, etc. can and should be expected or at the very least planned for. In the US a host of regulatory bodies have the ability to restrict access to and the use of BTC – the SEC, FinCEN, and the CFTC are just three examples. Given the tendency to play political football with almost any issue -COVID-19 included it would be incredibly naïve to expect Bitcoin to escape such treatment.
Once again when it comes to Bitcoin – verify don’t trust. In this context, don’t trust that all will be well – it will not. Bans, restrictions and limitations will punctuate your hodling journey. If you hope to weather them – plan, note your thoughts, and from time to time revisit that plan. Indeed, you may decide that certain events would cause you to sell a portion or all of your position – that’s of course, entirely up to yourself.
Next week we’ll turn our attention to other areas worthy of reflection – protocol issues, bearish momentum, general FUD, and most pernicious of all – unrealistic expectations.
Thanks for listening.