Bitcoin gathers momentum as national currencies stumble

The Rake Review: September 2022

a visual aide showing the history of hard forks of the Ethereum blockchain

Chancellor on the Brink of Another Bailout

When Satoshi Nakamoto mined the very first Bitcoin Block he (or she or them) inserted reference to the front page of The Times 3 Jan 2009. The front page carried headlines of another Bank bailout off the back of the Global financial crisis.

13 years later, we pulled the following headline from The Times “A bailout for just six months leaves firms feeling the chill”. In 13 years, The Times Saturday physical newspaper has gone up 100% from 1.5GBP to 3GBP (Or the purchasing power of 1GBP has halved). In 13 years, Bitcoin went from an idea to a $375 Billion USD payment and store of wealth network without receiving a single bailout. Meanwhile, in the traditional financial system the Bank of England is in the middle of yet another bailout. Again it's the taxpayers that will feel the pain

In this month's Rake Review we focus on what this latest bailout means for you and for the crypto markets and in particular Bitcoin.

On Thursday, one of our founders was asked to go live on TV to explain the UK crisis, the current economic situation and how the narrative is changing for crypto as well as the state of adoption world-wide. We will share with you some of the relevant content and explain why the latest UK bailout matters.

You can catch the full Interview here if you missed it on Channel 7.

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UK in deep trouble

UK government bonds crash

Last month we wrote about Germany’s energy woes but England is in the same boat. Years of underinvestment in base load have led to energy shortages and this coming winter is looking particularly brutal. With the spot price of energy going through the roof, energy companies have naturally been raising their prices and consumers have responded by burning their bills and refusing to pay.

Something has to give and the UK government decided to subsidise power by putting a limit on total bills per year. This of course has to be funded from somewhere.

On top of these issues the pension industry is taking huge risks and coming unstuck in Bonds markets. The Bank of England has had to come to the rescue with a massive bailout for only 6 months. As the economy looks extremely shaky tax cuts were announced which of course doesn’t help the inflation problems. All this is going to be paid for by more money printing at the expense of anyone holding British Pounds.

The Pound fell Monday to an all time low, at almost parity with the USD. We now see an interesting situation where the Pound, USD and Euro are all roughly equal value. The Pound has fallen over 11% in 3 months. Since 2020 the pound has fallen over 20% and Bitcoin is up 180% over the same period. This leads us to the changing narrative.

The narrative is changing

For the last few months the strongest narrative in crypto has been the Ethereum merge. It has led the market and we saw Ethereum price wagging the rest of the market like a tail. Investors piled in hoping the move to proof of stake (PoS) would lead them out of this crypto winter. ETH had a successful merge but the price actually lost ground.

Buy the rumour - Sell the news as they say.

The ETH merge narrative has dissipated and a new narrative is playing out. As the British Pound (GBP), once the world’s reserve currency, lost over 5% in a day, traders around the world woke up to the idea that Fiat currencies may not make it (NGMI).

If the Great British Pound can be shaken that hard by the actions of the Bank of England, what chance does the Turkish Lira or Vietnamese Dong have? At present both of these currencies have a total market cap (value) higher than Bitcoin.

The new narrative is simply this: Bitcoin is your lifeboat against the collapse of currencies that have unlimited supply and central bank control (All Fiat currencies). This is the exact situation that Bitcoin was created for 13 years ago by Satoshi. BTC has a finite supply and full decentralisation which means no one can print more. That scarcity contrasts perfectly to the debacle in England and the reversal of monetary policy from contractionary to expansionary. Don’t be caught short on Bitcoin. It’s possible that the next few months see a Bitcoin recovery and 10-15K Bitcoin that some traders are hoping for does NOT eventuate.

ETHW successful trade

All of Stormrake's Ethereum holding clients were offered to sell their Forked token ETHW prior to the merge and for those of you that took it up you not only got to be paid out early but managed to capture a significantly higher price around $50 USD. Even the clients who sold once the fork was confirmed at circa $19.50 have done really well. The token currently trades around $11.80 and got as low as $4. Even at the current price, those of you that are still holding may want to consider making a call on your holding.

Australian cryptocurrency convention 2022

Last weekend the Stormrake team was involved in the inaugural Australian Cryptocurrency Convention. It was great to be part of the largest convention in Australia’s history in the crypto space despite the bear market. Great to see so many Australian based and built new projects.

Let’s get into the report.

Market update

Here is the fast five of what you need to know about the crypto market in September 2022:

Bitcoin remained relatively unchanged shedding only -1.2% of its value, despite significant market turmoil
Ethereum got smacked post merge as everyone rushed to 'sell the news', it proceeded to dropped -12.5% of its value for the month
The total crypto market dropped approx. 4.8% having lost $46 billion USD in September
The best performing coin for the month was XRP having put moved up in value approx. 46% for the month. Rumours of Ripple winning its SEC court case have provided the catalyst
Chainlink managed to catch a bid as they unveiled their staking plans, it proceeded to pump nearly 20% for the month

Top 10 cryptocurrencies by market cap

Video of the month

Legendary investor Stanley Druckenmiller explains his reasoning for a recession in 2023.

In the news

Nord stream 1, a Russian gas pipeline to Germany has been indefinitely shutdown, whilst Nord stream 2 has had major leaks and is dumping gas into the Baltic Sea at an astonishing rate
Liquidity in the US Treasury market represents the biggest systemic risk to stocks since the 2007 housing bubble
Persistent inflation both locally and abroad, particularly in the US gave markets a fright as further rate hikes are anticipated
Crypto trader exploits GMX, manipulates AVAX price to remove $565K
Giorgia Meloni: Italy's new leader arrives at a critical time for Europe

In this edition of the Rake Review, our education piece will focus on the hard cap supply of Bitcoin and its fixed supply schedule contrasted to the supply and creation of fiat currencies.

We believe it's timely to cover this as we begin to see bailouts, money printing and loose fiscal policies to keep the debt bubble from popping.

Despite the image above being 5 years old, it's still accurate and relevant today. As the price of Bitcoin has remained around the same level from its 2017 high, albeit with a strong bull market in between, meanwhile the USD has been massively devalued. Despite its relative short term strength in 2022, it has massive structural issues. These all revolve around centralisation (the FED sets the rates and issuance), no cap on supply and arbitrary inflation schedules.

Against fiat currencies, Bitcoin shows its critical importance as an exit valve from the debt based fiat system. You can see the huge spike in volume across BTC/EUR and BTC/GBP pairings, it paints a pretty clear picture of the need for hard money with a fixed supply cap.

There will only ever by 21 million Bitcoins and with 91.25% already mined (equivalent to 19,164,229 BTC). When paired against a currency with theoretical infinite supply and huge debts to inflate away, the clear winner over time becomes pretty clear.