February 26, 2023
What the NYFED describes in The Bitcoin–Macro Disconnect as “Bitcoin’s price puzzling disconnect to monetary news” is coincidentally the pattern I came across in December, while methodically tracing all 14 years of the BTC/USD price curve.
So, what’s the big deal with this Bitcoin chart?
Though they don’t express it as clearly, what Messrs. Benigno and Rosa describe in the Fed’s paper is the same marvel I happened to discover last December, while writing the 2022 annual report for the hedge fund I manage:
Since inception, 14 years ago, Bitcoin’s full price-cycle (peak to trough and back) has been patently agnostic to rate policy changes, liquidity events, inflation expectations, and other macroeconomic news.
The never-before-seen degree of disconnect between Bitcoin’s deep-seated price cyclicality versus the surrounding macroeconomic environment, evidenced by the 14-year Bitcoin price chart above, is positively mind-boggling, not just for the Fed, but for every one of us who has researched financial & economic history for decades, while pursuing careers in Treasury, the heart of the banking system’s most advanced trading algorithms, monetary-flow data and other intelligence.
More Stock-to-Flow, Rainbow Charts, etc., no?
From the first week of the analysis, I found the pattern had nothing to do with the Rainbow Charts or Stock-to-Flow Model others have proposed in comparison to Gold, whose fiat price hasn’t been a challenge to manipulators ever since Volcker began raising policy rates in the 80s, which finally let COMEX Gold Futures truly start swaying Gold Spot prices. So, when the NY FED says:
“Bitcoin shares most of the features of a store of value, such as Gold. But unlike other U.S. asset classes, Bitcoin is not affected by monetary and macroeconomic news.”
What they are not explaining to you is why. Here is how I answered that question in December, after a week of practical and conceptual research:
As Intrinsic Value derives from nothing else but preservation instincts that are deeply rooted in scarcity vs hoarding behavior -in humans some of these are survival traits inherited from biological evolution, others come from “cultural” resource competition dynamics– I concluded that it’s infinitely easier to game our primal instincts, than we’ve been taught.
In any case, whoever designed the Bitcoin algorithm is acutely aware of exactly how these types of preservation instincts work in humans, both at individual and collective levels. This shows that aside from Bitcoin Halvings‘ role in executing Bitcoin’s programmatically irreversible*monetary policy of zero-issuance by 2140, they play a crucial role in:
Bitcoin’s Game Theoretical Dynamics
Activating human preservation instincts in a group, regardless of its size, that fully understands the mathematical principles sustaining Bitcoin’s immutability seems to sufficiently determine its fiat-price progression path, once it starts.
Conversely, no matter how many speculators, “crypto” schemers, and otherwise uninformed fad-seekers come and go, their participation, or lack of it, seems to have no persistent effect over time.
In sum, Bitcoin’s price path seems to depend only on the collective response of individuals whose mathematical or scientific knowledge allows them to stay invested, regardless of the surrounding environment’s exposure to uneducated, falsified, or in any event, distorted price-discovery process.
The Proof of The Pudding has a Conclusive Taste
If you split Bitcoin’s 14-year price chart into 4 lines each for the halvings (blue) & their midpoints (grey), you find that each peak to trough cycle has pivoted up or down over the same time interval between each color pair.
To visualize these dynamics I drew blue verticals for each halving date and grey ones for each midpoint date. As the chart shows, Up Legs start about two years before halvings and end about one year after them, lasting about 1000 days. That is when Down Legs start: a few months before midpoints and they end a few months after them, lasting about 400 days, Which drove me to conclude that by:
“Levering upon Bitcoin’s 100% demand-inelastic production vs its Layer One monetary role (as a final-settlement asset, BTC’s utility function is wholly independent of systemic financial variables), allowed Satoshi to game our instinct to preserve intrinsic value (rooted in scarcity vs hoarding behavior traits) in order to tightly pin its price to a ~1000-Day Up Leg vs a ~400-Day Down Leg, regardless of the macro.“
Note also that Up Legs until now, seem confined to return no higher than ~20% over the immediately previous high return, within their ~1000-day period. This has occurred persistently between the months before and after each halving. While Down Legs seem confined to a return loss no higher than 80% of the immediately previous high return, within their ~400-day period. This has also occurred persistently between the months before and after each Midpoint.
Finally, here’s why we can’t just pick and choose the last +400 Day bottom. Until the “Latest Bottom” hypothesis is proven (at the end of the present cycle), we cannot firmly establish its precise date or price. All we can do is theorize its value ex-ante (via interpolating the last two ex-post time period samples -as shown in the excel sheet below).
In short, December 26th is not even the December price low, it results from averaging the total amount of days that elapsed as the last two ex-post lows were reached. The same goes for the price and date at the end of the dashed white lines, on the top chart. Those ex-ante y and x values are merely projections trained on the confirmed ex-post values locked on top of the partial ellipsis formed by the slope of the secants dropping off.
* BTC’s PoW turns energy into a generic entry fee to preserve miner & block-winner anonymity+unpredictability & BTC’s immunity; while turning their ASICS & all other participating nodes into a global server that can’t be rigged, monopolized or altered to hinder Bitcoin’s consensus protocol.