El Salvador innovates Bitcoin usage by bringing in bond markets

24.06.21 03:16 AM By Stormrake

Welcome to the Stormrake Monthly Australian crypto market & education update.
For sophisticated investors who want to expand their crypto knowledge.
Written by Michael Milmeister with research from the Stormrake Team

* Is this the most important volcano in the world? - Izalco Volcano in El Salvador's Cerro Verde National Park with thanks to Kraig Lieb

Summary:

If you are a busy investor that doesn't have time to read this whole newsletter here is a brief summary:

* The world's first country (El Salvador) officially set Bitcoin as legal tender and we devote this month's newsletter to El Salvador. The Volcano pictured above is set to be the power source for a new bitcoin mining operation in El Salvador.
* Microstrategy (NASDAQ: MSTR) completed another enormous capital raising for Bitcoin investment
* Markets have continued trading in a sideways pattern between 30K USD and 40K USD
* Coins continue to pass from small speculators to strong hands (long term large hodlers)
* Bitcoin dominance increased significantly in June now over 45% of all crypto value.
*Chinese shutdown of mining operations is seen as the biggest dampener on prices
* Taproot is now locked in - Taproot will be a soft fork that brings some improvement to the Bitcoin network including some greater privacy. We will focus on this in next months newsletter

or read below for all the detail.

Countries adopt Bitcoin.

In brief, my view is that the news of El Salvador adopting Bitcoin is incredible. I always said that it is inevitable that countries will start adopting Bitcoin, but I thought we would be waiting until the next cycle in 2025 to see this. I was wrong. It's all happening now and it makes the case for a double pump in 2021 much stronger. I don't like price predictions, but Plan B (the creator of the Stock to Flow model) has been quoted saying: Bitcoin (BTC) could trade at an eye-watering $450,000 by the end of 2021, while $135,000 would be the “worst-case scenario”.

Now you might laugh and say that El Salvador is a small country and insignificant globally. Well, yes, El Salvador is the 148th biggest country in land size (10 times smaller than the state of Victoria), Ranked 107th in population (marginally larger than Victoria) and 102nd in GDP (1/20th of Victoria).

That's all true but.....

1. El Salvador is experiencing a boom as a direct result of this exposure and the opportunity is now there to become a Central American financial capital. El Salvador will attract foreign talent by allowing citizenship for investing 3 BTC in the local economy. It will seek to set up a crypto hub including high speed internet and it will encourage Bitcoin mining using renewable and cheap power from the very volcano pictured above. El Salvador is likely to get first mover advantage on this, and could look like a very different country 5-10 years from now.
2. Someone has to take the first step and this opened the door for others. Paraguay is already introducing legislation around Bitcoin, a country that is much larger and has a slightly bigger population and Economy. Then there is Tanzania and Tonga. Tonga will look to invest up to a third of its sovereign fund into Bitcoin directly.

I'll cover more of the El Salvador news later but let's take a look at something quite different yet very linked. Our fundamental understanding of money needs to change and evolve to really understand the significance of Bitcoin:

A look at Money in popular culture.
Ren - Money Game Pt2

This is a Rap song I came across recently thanks to my 12 year old son. He showed me the song because he thought I might be interested in the lyrics so let's take a look at an excerpt of the song and discuss:

"Money is a game and the ladder we climb
Turns a saint into a sinner with his finger in crime
I'll break it down for you m........... line by line
This is business economics in a nursery rhyme
She sells seashells on a seashore
But the value of these shells will fall
Due to the laws of supply and demand
No one wants to buy shells 'cause there's loads on the sand

Comment:
The author is talking about how the government controls money supply leading to distortions in the economy that in turn lead to wealth disparity and allow those that control the money supply to have all the power and even lead to war and injustice. I don't want to get into that too deeply but let's have a look at the first couple of lines and you can explore the track yourselves if you like later.

Seashells used to literally be money and that form of money went to zero for the obvious reason that it was easier to go and collect seashells then it was working all day and getting paid in seashells. Too much supply leads to the money being worthless. The dollar suffers from this issue because it can be printed cheaper than it is currently selling for. The people that print the money benefit from the printing and the last 2 years have seen more money printing for both USD and AUD than ever before, which devalues the dollar and destroys the savings of anyone holding dollars (or seashells). Bitcoin however, solves this. It has a hard supply limit of 21 Million BTC, and no one has the authority to print more.

Step one: you must create a sense of scarcity
Shells will sell much better if the people think they're rare, you see
Bare with me, take as many shells as you can find and hide 'em on an island
Stockpile 'em high until they’re rarer than a diamond

Comment: If you control the currency you can pretend it is scarce by releasing only part for circulation. This happens with Diamonds for example. It also happens with digital currencies that have a small circulating supply but no hard cap on supply (or heavy centralisation where the rules can change - be wary of shit coins)

Step two: you gotta make the people think that they want 'em
Really want 'em, really fuckin' want 'em, hit 'em like Bronson
Influencers, product placement, featured prime time entertainment
If you haven't got a shell, then you're just a f...... waste, man

Comment: We talk often about why terrible crypto projects sometimes do well and its a concept called "proof of marketing". DOGE is a proof of marketing coin. Rising because of viral marketing and advertising via Elon. It's not hard money though and has a huge supply and concentration of ownership.

Listen to the track yourselves and let me know what you think. I just love that artists can sing about really important money concepts and our kids are listening to something that isn't just popular garbage.

Let's get into the report:

This month's Video

Jack Mallers, the founder of Strike and Zap, announcing the incredible achievement of Bitcoin becoming legal tender in El Salvador. Don't let his appearance or emotion distract you, Jack is on a mission to change the world and will no doubt receive a Nobel prize one day for his impact on the financial freedom and prosperity of millions of people.

Markets

Bitcoin is currently trading around $32,500 USD over 50% lower than the ATH of almost $65,000 USD 2 months ago. People that bought BTC a year ago are up 250%. There are now 3 stable coins in the top 10 which suggests that the market is oversold. DOT is the biggest loser down by a third in just the last week which has pushed it out of the top 8.

* Top 8 Coins by Market Cap thanks to Coin Gecko

In the NEWS

1. C ountries adopting Bitcoin

As we have flagged above El salvador has started what could become a wave of countries dumping the IMF and adopting Bitcoin, reducing the cost of remittances for their citizens and ushering in a new era of prosperity due to hard money. Paraguay is set to be next and Mexico, Brazil and Argentina are all possible early adopters. We are also seeing the Pacific and Africa as regions that could adopt Bitcoin. Smaller nations have more to gain and less to lose from Bitcoin's volatility as their own currencies are already volatile.

2. McAfee death in custody. Another Epstein?

John McAfee has been found dead in his Spanish prison cell according to local reports. The death of the founder of the software with the same name is being treated as highly suspicious online. The entrepreneur is famous in crypto circles for shamelessly spruiking one shitcoin after another which the SEC is chasing him for. He also refused to pay tax for 10 years on ethical grounds which the IRS is chasing him for. He has been in hiding for a long time now on his mega yacht but the authorities caught up to him and an extradition to the US was expected to be granted. He tweeted that if he "dies" in custody

3. China rolls out regional mining bans

The biggest issue weighing on the Bitcoin price seems to be the crackdown in China. Reportedly there are crackdowns in the 3 most important bitcoin mining regions of China. Mining equipment is leaving the country as further evidence of the Bitcoin mining network adjusting to the new environment. The difficulty of Mining is likely to fall 20% in the next adjustment meaning it will get a whole lot more profitable to mine in the rest of the world. Great news for existing miners that can ramp up and also for the decentralisation of the whole Bitcoin network which was too heavily reliant on China.

Bitcoin Dashboard

This month we again focus on just one part of the Dashboard: Difficulty (Bitcoin Network)

Bitcoin is a decentralised network. This means Bitcoin can't be shut down and has no central point of failure.

Mining Difficulty is adjusted every 2 weeks to keep block times to 10 minute increments. China's mining issues has meant less mining being done in China, which drops the total hashrate working on mining worldwide. That means block time has become slow (12:33 below) and a 20% difficulty adjustment is required to bridge the gap. The adjustment will mean that the same amount of computer power is enough to keep blocks to 10minutes.

Price also has an affect on mining and the current action was also weighing on hashrate due to profitability so we can't put this all down to the China action.

Stock to Flow Valuation:

Current Long-Term Stock to Flow (S2F) Price: $72,344 USD vs Current Price - $32,500 USD. Market price is now the lowest as compared to trend, we have ever seen, suggesting that Bitcoin is hugely undervalued today. The S2F model also shows an increasing price every day for the next year to $103,000 USD. According to the efficient markets hypothesis, a rational investor would buy today and wait for the $103,000 USD price to materialise if you trusted the model. That’s why we rate Bitcoin as a BUY

Monthly Memes

1. McAfee joking about Epstein in 2019. Did the same thing happen to him in 2021?

2. Brilliant Line by Samson Mow
(On the World Bank declining El Salvador's request for assistance in a smooth transition to Bitcoin)

3. Bitcoins Progression according to detractors.

Until next month, Happy Investing!

Stormrake Team

custody@stormrake.com

General Advice Warning

The information provided in this newsletter is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information contained here you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Therefore, before you decide to buy any product or keep or cancel a similar product that you already hold, it is important that you read and consider the relevant Product Disclosure Statement (PDS) of the product provider to make sure that the product is appropriate for you. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice. You can get a copy of relevant PDSs from Stormrake by email custody@stormrake.com.

Disclaimer

All statements made in this newsletter are made in good faith and we believe they are accurate and reliable. Stormrake does not give any warranty as to the accuracy, reliability or completeness of information that is contained here, except insofar as any liability under statute cannot be excluded. Stormrake, its directors, employees and their representatives do not accept any liability for any error or omission in this newsletter or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided in this newsletter is owned by Stormrake. You may not alter or modify this information in any way, including the removal of this copyright notice.

Copyright © 2020 Stormrake Pty Ltd, All rights reserved