The FTX scandal caused a real storm around the world and strong declines on BTC. Recently, the markets have returned to the upside, however, after a close look, the upside is not as strong as the previous declines. The question of whether this is a real reversal or just a temporary upward correction remains open.
All the more reason to look at the macro factors that cause price changes on BTC and the factors that may lead to further declines. Because, unfortunately, the latter are quite numerous.
For now, I don’t have any good news, we have before us potentially three groups of problems threaten the price of Bitcoin. In the following article, I will first discuss the four most dangerous problems I see, and then show how to solve them (or at least in what direction to look for a solution) so that price increases return. I believe that the overall goal of action taken should be to bring BTC price increases to levels of 500,000+, a rallying target that is very ambitious and requires the activation of many strong mechanisms.
Problems #1 and #2: Negative news tsunami multiplied by two
The events surrounding FTX have exposed many of the weaknesses and pathologies that exist in the crypto industry. Many companies that held their money in FTX are at risk, some of them likely to go bankrupt. Each of these developments is reflected immediately in Bitcoin price declines.
The keywords that will appear are: fraud, embezzlement, theft of billions of dollars, buying residences with customers’ money. This kind of news usually scares retail investors, there is an outflow of small capital from the market.
Currently there have been increases, but… ahead is the trial of Elon Musk, the richest man in the world. The Musk – Johnson trial over the value of Doge will attract media attention from around the world. Many journalists will carefully read the two lawsuits (there are already two, a basic one and an extended one) and find dozens of quotes from various influential figures. All of them are negative.
Well-known investors, heads of large funds, directors of central banks, there is even a Nobel laureate in economics. They will find many negative keywords: financial pyramid, Bitcoin and cryptocurrencies are worthless, scam, fraud, Ponzi scheme, speculative bubble about to burst. Such content will poison news cycles for weeks.
In this wave of negative information, opponents of cryptocurrencies will become active again. Particularly dangerous are politicians, heads of central banks, for whom bitcoin and crypto are competitors because they are beyond their control. As a result, this will be a good breeding ground for the most dangerous phenomenon for the entire industry: negative regulations, limiting or completely banning Bitcoin and others.
Bitcoin’s ban is currently most feasible in the US and Canada
Problem #3: Possible outright ban on BTC in the US, Canada and the EU.
It has long been known that digging and transactions are energy intensive. The annual energy consumption of all crypto is often compared to those of medium-sized countries: Australia, Argentina. About 80% of this is consumed by bitcoin.
Currently, crypto in the US consumes between 0.9 and 1.7% of annual energy consumption. For the US government, greenhouse gas emissions are very important. One BTC transaction is equal to 1,712,000 Visa transactions. Or the energy consumption of an average household for 47.49 days. That’s a huge amount of energy. With rising energy prices, this topic is becoming political in both the US and Europe. In September of this year, a White House report on the climate and energy implications of cryptocurrency mining (Climate and Energy Implications of Crypto-Assets in the United States) appeared, listing the five most serious problems posed by cryptocurrency mining:
– energy consumption (the data quoted above is from the report),
– excessive load on power grids,
– high greenhouse gas emissions,
– contributing to rising energy prices,
– deterioration of the financial and energy situation of the most vulnerable communities.
As a result, we have an increasingly tense political situation around cryptocurrencies, especially BTC. The solution that is realistically being considered is a ban on proof-of-work cryptocurrencies (such as BTC). No matter how much the BTC/crypto community outrages and protests against aggressive policy solutions, the U.S. government may simply cut off the electricity. This means a panic sell-off, for many (perhaps even most) miners – the end of profitability and the prospect of bankruptcy.
The same will happen in Europe. I live in the UK, electricity costs have more than doubled. If there are negative regulations in the US, practically within a month we will have similar solutions throughout Europe. For BTC, this will be a disaster. This is the prospect of a panic sell-off, a panicked flight from the markets. To put it in one sentence: if the US imposes a ban, almost certainly Europe will do the same.
There will be a domino effect – blocking mining and transactions. Disaster. We will be lucky if BTC stops somewhere around $2000. But if panic begins, it could go even lower. Those who have $1 million in BTC today will have $100,000. Or less.
Problem number 4: Wall Street and London City
As if all this wasn’t enough, we have a third factor. BTC has become too risky for big City and Wall Street investors, and there is an outflow of capital from the industry. Let’s start with a very simple truth in investing: capital inflows cause prices to rise (e.g., stocks or BTC), and outflows cause declines. Different types of institutional investors have the most capital: investment banks, hedge funds, family offices. Big players read the analyses of major investment banks and take their recommendations into account when making decisions.
Let’s look at one such analysis, issued by Goldman Sachs: Insights: “Beauty is not in the eye of the beholder.” Note that they do not distinguish between BTC and Altcoins, calling them all cryptocurrencies.
“We do not consider cryptocurrencies to be a strategic asset that adds value to our clients’ portfolios,” he says.
“After analyzing six different approaches, we believe it is virtually impossible to build a convincing framework for valuing cryptocurrencies.”
“We believe that an asset whose increase in value depends mainly on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients.
On valuation: “Using the same valuation method that the market uses to value other credit card payment systems, the price of Bitcoin is estimated to be around $22.” My comment: this is not a mistake, they value BTC not at $22,000, but at $22 (twenty-two dollars).
Without going into a deeper analysis of whether these calculations are right or wrong (easy to dispute in my opinion), let’s consider how such documents affect mainstream investors. Investors first read that BTC has no value, there is no valuation model, Bitcoin builds its price solely on psychological effect, politicians think about banning BTC, and then they see valuations at: $22. How do you think, after reading these analyses, will anyone feel like investing, for example, half a billion dollars in Bitcoin? If you answered no – you’re right.
Of course, major investors also read the press and government reports and know about the possibility of a ban. It’s a risk factor they certainly don’t overlook, and perhaps even take advantage of – playing for declines. To sum up, we have not one reason for the crash, but three (or even four), one worse than the other, which unhappily coincide at the same time.
The solution: it's time to get organized
Given the intensity and scope of the problems, there should be some kind of institutional solution. That is, some kind of organization, preferably a foundation, which will solve problems, counteract negative information, try to stop negative regulations. And on top of that, it will launch value-building projects for BTC
Traditional currencies have the state apparatus behind them, and BTC has no one. This must change, in my opinion, there should be such an organization that realistically looks after the interests of the industry. And to make sure that those who today have assets worth millions of dollars in BTC do not wake up in a few months with assets worth…. 1/10 of what they are today.
Today, you have to gather arguments, people, prepare strategies for action, then execute them and repeat as necessary. This is a job for a dozen, maybe a few dozen people. I think the whole industry is facing a broad discussion about the future and gathering reasonable ideas about what to do next.
Of course, major investors from Wall Street and London City should be invited to the discussion. Many very interesting ideas can come from their side. But above all, the hodlers themselves should be asked for their opinions. Below I will make some comments on what can and should be done about each of the problems described above.
Tsunami of negative news
What is needed is a group of people who will actively oppose the argument against BTC (and also Doge). Now and in the future.
The industry needs people who will be tasked every day with following, commenting, presenting counter-arguments where necessary: in the press, on the radio, on television. Television and the mainstream media are currently controlled by those with traditional views, and it’s time to change that.
It’s time to provide arguments contrary to the views of W. Buffet, Krugman, Goldman Sachs analysts, central bank heads and their ilk. This is not easy, it is a huge task, but it is possible. A list of counter-arguments is in the pipeline.
Similarly, with the written media and mainstream journalists, you need to reach out to those who will comment on the process and provide them with counter-arguments against the opponents of BTC. I have prepared a list of more than 50 contacts, producers and journalists of major programs in the US, this is definitely something to start with.
In addition to this, consider publishing articles about prospects, opportunities on major news networks to maintain a positive narrative on the subject.
In this area, it’s worth spending some time trying to take over the narrative and weave more and more positive content about BTC, since we’re already going to stop the bad things, it’s worth simultaneously promoting the good things with interest. I have a list of about 60 counter-arguments (and positive news), which I will develop.
This is the most dangerous issue. If there is a ban and a domino effect, it will be a matter of saving BTC from the 2000 – 3000 level, if we are lucky. To avoid such a situation, several things need to be done.
Review all the technical, political and social arguments that support a BTC ban. Prepare strategies and solutions for each of them. Why on all of them? If we address the energy consumption argument alone and the effects of greenhouse gas emissions, and, for example, prepare a program to transition to renewables, we may suddenly find that the grid load and social arguments become paramount. In politics, it often happens that the arguments presented are just a facade behind which the real decision is hidden.
I fear that this may also be the case in our case. And the decision to ban could benefit many big players who have shorts on BTC and cryptocurrencies. The ban will cause panic and allow them to come out with huge, multi-billion dollar profits. Too late to investigate whether such a situation exists, it is safer to assume that it does. And make every effort to ensure that politicians have no way to “reasonably justify” the decision to ban. That is, take every argument very seriously. In addition, closely follow the mainstream media and react to comments calling for a ban or treating it as a reasonable solution.
Aggregation of values
BTC is to grow to 100k, 200k and more, I see only one way. We have to figure out a way to do it together.
The main principle is this: only an influx of capital (and a lot of it) into the industry will increase the price of BTC and cryptocurrencies in general. I wrote about this above: it is necessary to create such a way for BTC to “aggregate” value, so that the new pricing model will be accepted by the largest investors. I have several proposals, but I think it is better to generate a large discussion and listen to the most diverse ideas, rather than limiting ourselves to one or two solutions. If we are successful, there should be a way to “add” and build value for BTC to the level of $500k-$1 million.
This should be our premise in this challenge. Ideally, the entire BTC/crypto community should start thinking about this. In addition to these challenges, it is worth adding a few others that will accelerate the development of BTC and cryptocurrencies in general, I have put them in two additional projects.
Project 1: Accelerating business adoption
To accelerate business adoption, we have several initiatives to choose from: information and training (on business development and BTC use) for companies that are considering BTC adoption, creating ready-made programs for universities to help introduce topics related to the modern economy and BTC into university curricula, exploring ways in which the BTC/crypto environment can positively influence corporations to introduce payments and develop access for their customers. In each area, it is worth creating a knowledge base, best practices to accelerate and facilitate adoption in traditional business.
Project 2: Facilitate BTC adoption by countries
Active networking strategies for countries looking to introduce BTC more widely, databases of best practices (what has worked and what hasn’t and why), Expand initiatives to use renewable energy sources for mining,
Discussion of geopolitical risks (in the U.S., they are concerned that BTC could threaten the position of the dollar, reduce the influence of the U.S. in the global economy. Such opinions are published in several foreign policy journals, so they should be taken seriously in order to gain as much favor for BTC and cryptocurrencies as possible).
We have entered a difficult period for BTC and cryptocurrencies. A tsunami of negative news, capital flight, possible banning – this is very bad news. It’s time to think about creating an institution that will protect the interests of the BTC industry, deal with stopping the ban, falling prices, deal with building an investment value for BTC that will be acceptable to mainstream investors and attract large capital. If you want to avoid being left with 10 cents of every BTC/crypto dollar, now is the time to act. Creating a foundation should be the first step.