Iâ€™m out of bitcoin (BTC) and ether (ETH) and I have loaded up on decentralized finance (DeFi), which is now running hot. The time for investment is over for BTC and ETH and for that matter DeFiâ€”these are now trading times.
DeFi is rocketing and rather than have two huge positions with limited upside, DeFi offers me a chance to have many small positions with huge upside. Diversification is a law you reject at your financial peril.
DeFi is going to have a huge run for sure but what is coming up next for bitcoin and ether does not seem so clear cut.
My thesis is quite simple and has done me no end of good on the recent bull run: It is that this is just another repeat of the halvening phenomena we saw in 2016 and 2017.
Here it is and it is my template:
It might seem incredible that bitcoin should repeat itself so literally, but I pointed out the start of a run like this in early November:
There is a whole series of good reasons why this would be the case but if you want to know more go read my old friend Benoit Mandelbrotâ€™s work.
But of course, this roadmap is not fate.Â There is a bull case and a bear case.
Letâ€™s start with the bear case.
Itâ€™s simple. The price is too high. $600 billion is a lot of dollars. Until the last couple of months, the U.S. only had $4 trillion of currency out there, period. $600 billion of token money is enough to be going on with and when you add the ether, bitcoin, moneros of the scene onto it and you approach $1 trillion, itâ€™s a good level. Gold, including all the bars the government stores to pay for war, and the circuit boards of all the iPhones and mainframes and all the trinkets hanging from the appendages of 8 billion people still only adds up to $5-$7 trillion.
Bitcoin has stopped where it has because it is fully valued for its use case.
So what about the bull case?
The bull case is more diverse.
- Bitcoin is breaking into the mainstream
- Institutions are getting in on the game
- Itâ€™s a global market
- Runaway Inflation is on the way
$1 trillion of crypto remains a drop in the bucket when the worldâ€™s stock markets are spinning on up towards $100 trillion.
So which is it?
To me the bear case feels like the anger and bargaining part of the cycle of grief. The glorious bull is dead. Â I really do want to be wrong because the DeFi outfits Iâ€™m loading up on will bubble over in a crescendo of froth if bitcoin heads for the $40,000-$60,000 range. What could be better! (There is that last gasp top in 2018 that could happen, and I admit to eyeing the possibility.) However, I believe that range would be the absolute limit for this bull. There is a good chance we have already seen the top and Iâ€™m not going to spend miserable weeks being cat-of-9-tailed by a whipsawing market even if there is a chunk of upside in play.
For me it would be better to back ether, and I have and grabbed some profit but was happy to be out again. The reason to look to ether is again in the 2017-2018 chart.
Ether ran on for a long time after bitcoin peaked:
This potential gives ether a lot of headroom, but if that comes about the DeFi token will run much further.
So my strategy is to play the DeFi revolution because fundamentally bitcoin is currency (or gold if you like) but DeFi is industry and crudely put there is $7 trillion of U.S. dollar currency. Likewise gold, and $50 trillion in publicly traded U.S. stocks (and more if you include private companies.) As such the scale of DeFi is multiples of cryptocurrency.
If BTC goes to $1 million a coin, DeFi will have traveled even further.
Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018.