Bitcoin is Pumping

If you’ve paid any attention to financial news the last week, you’ve probably seen that Bitcoin is pumping, up 100% year-to-date.

It’s easy to get caught up in the mania. Bitcoiners will get cocky about being right, others will FOMO in without properly understanding Bitcoin’s fundamentals, and many will, in the coming year or two, get wrecked trying to trade or take on leverage to accumulate this absolutely scarce form of money.

Here are a few possible reasons for Bitcoin’s recent rise:

1. The “Trump Pump” theory suggests that president-elect Donald Trump’s recent pro-Bitcoin remarks and subsequent election victory will reduce regulatory friction for those seeking to hold the asset, particularly at the institutional level.
2. The four-year cycle that we tend to see (three years of Bitcoin in the “green,” followed by a violent one-year correction) appears to be playing out and right on track.
3. The effects of the halving that took place back in April, whereby miners are compensated with only half the reward they’d previously earned for new blocks found, means a supply squeeze and therefore higher valuations of the asset.
4. The macro outlook still looks bleak for many, with some in commercial real estate, banking, and even sovereign nations tinkering on the brink of collapse.

The point is that Bitcoin’s recent exchange rate to dollars could look promising for any number of reasons, and likely many.

But before you get caught up in the “hopium” and excited of “number go up,” I’d encourage you to revisit the fundamentals.

What is it that makes Bitcoin useful and to be assigned value by people in the first place?

Bitcoin is a scarce form of money that nobody can control and is available for exchange to and from nearly any other currency 24 hours a day, seven days a week, and 365 days per year. You can custody it yourself with zero counterparty risk. And short of physical coercion, it is unconfiscatable.

It is this combination of attributes, and others, that make demand for it high. As more people make this discovery, more will demand it and the dollar-to-Bitcoin exchange rate will continue to increase.

But Bitcoin is still a small boat on a giant ocean of global assets, which means you can and should expect volatility. Don’t be surprised if the $88,000+ “high” we are experiencing today is the $88,000 “low” in a crash we could see a couple of years from now. We are still so early.

Bitcoin isn’t and never was intended as a conduit for greater dollar accumulation. It is a means by which you can escape the noise of a broken monetary system through a superior form of money.

If you are stacking Bitcoin, which I’d strongly recommend (not financial advice), do so at a pace that makes sense for your own life, without any leverage or trading, and as calmly and responsibly as possible.

Bitcoin will continue to climb over a long time horizon, but that doesn’t mean it’s a one-way elevator ride to the top. Stay humble, keep stacking, and expect the unexpected along the way.