Has Bitcoin crossed the chasm?

Whenever there's a brand-new technology introduced, it usually follows a predictable path. It's called the Diffusion of Innovations and is a theory that seeks to explain how, why, and at what rate new ideas and technology will spread. It’s like a bell curve. First you have the innovators, these are the people that developed the code. Then you have the true believers that come along, and then there are the revolutionaries that continue to talk about it. But most people don't get in because there's the chasm and the possible crash. The chasm has to be crossed before the early majority can get in and then eventually the late majority.

The chasm is a psychological divide where the mindset has to shift. The true believers, the nerds, the techies, the geeks, whatever you want to call them, they can envision the new technologies future when it first comes out. But crossing the chasm is where it becomes normal. The Internet has been around for a while, but in 2007, when we got the first iPhone, that was the point of crossing the chasm.

So, have we crossed the chasm with Bitcoin? It’s up 40% just over the last month, 160% over the last 12 months, and it is outperforming almost every other asset. Let’s look at how most people misunderstand how Bitcoin is becoming the new Wall Street Darling, the role of ETF's, how it faked most people out, but clearly shows what could be next.

Since 2020, Bitcoin is up 1200%. Wall Street of course sees that this has been the best performing asset and how much money is being made. They've been trying for decades now to get in and get a piece. Cameron and Tyler Winklevoss, the Winklevoss twins of Gemini, filed on July 1st of 2013 to launch the Winklevoss Bitcoin Trust. Back then, the price of Bitcoin was around US $100. The SEC denied the request as well as another Winklevoss attempt again in 2017, noting the lack of regulation in the Bitcoin market.

In fact they rejected spot bitcoin ETF’s for more than a decade, claiming to protect investors from market manipulation. But last month, the SEC was forced to approve them after Grayscale Investments won a court challenge. A federal appeals court ruled that the SEC had not sufficiently detailed its reasoning for rejecting the products.

That decision encouraged 12 asset managers, including Blackrock, Grayscale, ProShares, VanEck, Invesco, Fidelity and Ark Investments, to file applications to launch 25 next-generation cryptocurrency ETFs. Especially Blackrock’s filing turned heads and changed the game. They are the largest asset manager in the world, with more than $9 trillion in assets.  

Blackrock, the empire that has been helping the government to do a lot of things as we saw during the 2020 pandemic and through the bank collapse in 2023, was very unlikely to be denied.

Of course, there are the common arguments of a chasm, ‘it’s a scam’, ‘it's too late to get in’, ‘pump and dump’, ‘just magic Internet money that you can't hold in your hand’, ‘too hard to use’, ‘it could be stolen’, ‘the government is going to make it illegal’ and so on.

Those are all good thoughts to have and it's okay to be skeptical. It’s okay not to be a true believer. But when Larry Fink, the largest asset manager in the world, goes on national TV and changes his mind about bitcoin, the chasm is being crossed. When you have Bitcoin ETF’s, and then Fidelity and other fund managers putting Bitcoin into funds, it starts to change the mindset. People start to realize that this is legitimate and that change initiates a broader buying.

In 2017, Larry Fink called it “An index of money laundering”. At the time, Bitcoin was around $5000. In 2023, he called it a safe haven and said that this rally is firmly grounded in reality and goes well beyond mere rumors. It’s not difficult to figure out why Larry Fink changed course, Bitcoin makes up 40% of the growing US $2.2 trillion crypto market.

More individuals are looking for some alternative assets, especially the ones that are considered safe havens, like Treasurys, Gold or Cryptocurrencies.

So, if the ETF launch was such big news, then why did we have a sell off as soon as the announcement was made? If you read my blog a few months ago, then you know that I anticipated this to be a “buy the rumor sell the news” event, and a big sell off was expected.

First part of the people that sold off were people that were trying to front run the trends. They bought the rumor and as soon as the news was announced, they sold. But we also saw massive selling from GBTC. Remember, Grayscale was one of the companies applying for a Bitcoin ETF a while ago but was denied by the SEC. They launched a trust instead. Bitcoin investors had their money locked up in that trust for years, and were getting charged exorbitant fees. They wanted to get out, and as soon as the cheaper ETF’s got released, they started selling.

We saw the price dropping 22% from USD $49,000 all the way down to USD $38,000. Now it’s all the way back up and just broke above USD $60,0000. The important question is what the future holds. What we’ve seen is that the Bitcoin ETF’s have already attracted almost $30 billion in assets under management in less than 2 months. The Bitcoin ETF’s speedy growth reminded everyone of the Gold ETF launch in 2004 that saw investors transfer US $1 billion within 3 days.

Most importantly, the Bitcoin supply is capped and there will not be more than 21 million Bitcoin. We’ve never seen a commodity like that. Around 900 Bitcoins are mined every day, and there are approximately only 1,400,000 Bitcoins left to be mined. There is also the ‘Halving’ event which occurs approximately every four years, or after every 210,000 blocks mined. The next one is coming up this April and will reduce the block reward by half.  

All of this will create a scarcity over time, which tends to increase demand and price. That explains Bitcoin being already up almost 45% for the first two months of this year.

So, now that you know all this, should you buy Bitcoin, and if so, should you buy it now, or should you wait? And if you buy it, should you buy an ETF or should you buy it directly?

Generally I recommend to buy Bitcoin directly and store it in a cold wallet. Low cost and the fact that no one can seize or steal it, and nobody can stop or block a transaction, support this strategy. So, if you want to be part of the revolutionary Bitcoin ecosystem, you should take delivery of it. However, there are some reasons why maybe owning Bitcoin through an ETF could be a better first step to get that first exposure and then move on to a cold wallet later.

So, for everyone who has already made the decision to buy Bitcoin, should they buy now or wait? Nothing ever goes up in a straight line and nothing ever goes down in a straight line. Now people can also bet against Bitcoin by shorting these ETF’s, and the introduction of options on the ETF’s may not be far out either. All this will contribute to more volatility.

If you're planning to buy and hold for 5 years, 10 years, 30 years or 50 years, it doesn’t matter much if you buy now or later. If you intend to trade Bitcoin and want to wait for the next downturn, you could be waiting for another year, or longer. According to technical analysis, the next bust cycle may not happen until October 2025. But there is only one thing for sure with predictions, and that is that they mostly fail.

Some people still think that the US government could make Bitcoin illegal. That argument has become very weak after companies like Fidelity, Invesco, Van Eck and most importantly Blackrock have spent billions of dollars to bring these new products to market and are now making billions of dollars.

Hopefully you made it to the end of this post, because here is the most important part. While biased media may tell you otherwise, Bitcoin is not for everyone and there are plenty of other things out there to invest. While it has been the best performing asset class, its ‘boom and bust’ cycles are hard to stomach for some investors. The volatility is crazy at times, just this past Wednesday it jumped up 12.6% and then fell almost 9% within 1 hour. History shows us that most money is lost in the markets by bad decisions made during extreme volatility. A good measurement for risk tolerance is to take the historical performance, plug in your number and see how high and more importantly how low your invested amount would have gone.

Example: If you had invested $100,000 in Bitcoin on January 1st 2022, one year later on January 1st 2023, the value of your investment would have been down to about $36,000. By now it would have recovered and be worth about $140,000, but these are violent fluctuations and you want to make sure that you can handle them, before you get into Bitcoin. Other crypto currencies can fluctuate even more than that.