Did you own any cryptocurrency in 2021? How about an NFT? Or Dogecoin? At the very least, I hope you bought some bitcoin, as there were several great stacking opportunities this year. But also, investing in cryptocurrency is about more than just the gains, it’s also about the philosophy. It’s about the adoption of a fundamentally different way of moving value around the planet.
So regardless of if you’re in the green or not, I want to congratulate you for participating in one of the most exciting experiments that humans have undertaken thus far. The experiment of The Internet of Money.
2021 was quite a year in terms of adoption. In this letter, I want to take some time to highlight what I see to be some of the most significant events leading to the adoption of cryptocurrency worldwide.
Are we Detached from the Stock to Flow Chart?
One of my favourite charts and guiding metrics for the last 3 years of my trading and investing experience is the Bitcoin Stock to Flow Chart (S2F). Up until recently, it has been an unwavering source of relative truth as to where the price of bitcoin is going. But it seems like we’re straying further away from the trajectory laid out by the S2F model.
In each of the previous cycles, the price of bitcoin has gone through a “Blow Off the Top”1 event by this point in its cycle. This has lead many proponents of the S2F model (including myself) to wonder and doubt whether or not bitcoin will continue to adhere to the model.
To be clear, I still think that the short term and long term trajectory of bitcoin is “Up and To The Right” (UTTR). However, I think that we’re at a critical point in bitcoin’s journey where the price of bitcoin is controlled more by large holders, and less by miners.
In the past, when the miners controlled a significant share of existing and newly minted bitcoin, it made sense that the price of bitcoin would adhere to a model wherein the “stock” (existing supply), and “flow” (newly minted supply) are the inputs. But now that the yearly inflation rate of bitcoin is below 2%, we may see adoption and retail buyers control more of the price action.
The only thing the detachment from the S2F model means for me, is that I can no longer use it as a reliable predictor or estimate of where bitcoin will be on a 1-3 year timescale. I still think that bitcoin will have its quadrennial pumps, but they make be a bit more prolonged than previous cycles.
El Salvador Adopts Bitcoin … Sort of
Some of the biggest news to come out of 2021 is the fact that a country has made bitcoin legal tender. I honestly didn’t think we would see an event like this until at least 2025. At first the news was serendipitous, with bitcoiners everywhere revelling in the news.
On the one hand, they have excellent reason to celebrate. A country has adopted the first weird internet currency just 12 years after its inception. On the other hand, I would like to suggest that the celebration is a bit premature, and much work needs to be done. All eyes are on “The Bitcoin Experiment” that El Salvador is undertaking.
It is important for all bitcoiners to speak truthfully about what is going on, and help to make sure the project is a success.
Check out Ep 86 and Ep 87 of my podcast to catch our experience of being in El Salvador in November of this year.
Chivo Wallet Needs to Be Better
Latest reports (December 28th, 2021) say that funds are missing from people’s wallets.2 Other reports say that Chivo is not interoperable with the lightning network, which defeats the purpose of adopting universally interoperable money (bitcoin).
When Mrugakshee and I went to El Salvador to see for ourselves, we saw something similar. People using the Chivo wallet are left unsatisfied, and there is not enough education to let these people know that there are much better open source wallet alternatives (ex. BlueWallet).
Bitcoiners can really step up and make a difference here. I met dozens of bitcoiners in El Salvador, each with the necessary knowledge to teach willing individuals how to use bitcoin. I think at the end of the day, the Chivo wallet really doesn’t need to exist. We should reject government endorsed wallets and embrace what high quality open source initiatives are building.
Bukele Begins Dissent Against IMF
Everything aside, we are in the early days of El Salvador adopting bitcoin. It’s officially only been about 3 months since the bill became law. The president of El Salvador (Nayib Bukele) has gotten no shortage of criticism and pushback from the international monetary community.
I agree with Bukele when he says that El Salvador is just the spark that ignites the revolution. It is no small feat to declare bitcoin as a country’s legal tender. I think the effects of this decision will occur further downstream than present day, but they will occur nonetheless.
Ultimately what this signals, is the ability for countries to dissent against the monoculture of using the United States Dollar as the global reserve currency.
El Salvador Mines Green Bitcoin
Lastly, as the debate on bitcoin environmentalism heats up, El Salvador demonstrates that bitcoin can be mined using geothermal energy provided by a volcano.
According to MoneyWeek3, as much as 75% of the bitcoin network is running on renewable energy. Other sources report that number as low as 40%4.
Regardless of where the actual figure lays, anywhere between 40% and 75% makes bitcoin one of the most green industries on earth in terms of where its electricity comes from. All in all, bitcoin makes up about 0.28% of the entire planets energy usage.5
Watch This Machine Greens for more details on the bitcoin environmental debate.
NFTs are Everywhere
Unless you were living under a rock (and not a virtual one worth $1.3 million), you must have noticed NFTs in 2021.
The NFT market had a volume of more than $3 billion in August 2021
Virtual land in Decentraland is selling for $400 per square foot
Snoop Dog, Matt Damon, Grimes, Paris Hilton, Lindsay Lohan are all getting into NFTs
I bought only a couple of NFTs in 2021, most notably a Snoop Dog NFT on Crypto.com. I’ve made my stance on NFTs known in earlier newsletters, and the opinion has largely remained the same.
The Year of the Ethereum Virtual Machine (EVM)
This one might not be immediately obvious to some, but for me, I noticed a massive trend taking place. Ethereum is largely being cannibalized by its own technology, the Ethereum Virtual Machine (EVM).
Since the EVM and all the smart contracts on Ethereum are open source, anyone can copy and paste them onto existing blockchain infrastructure. As a result, we saw the birth of at least 17 different independent blockchains, each with their own EVM. The most notable among them are Polygon (MATIC), Cronos (CRO), Binance Smart Chain (BNB), and Avalanche (AVAX).
I’ve said this before, and I’ll say it again. The longer Ethereum takes to launch and deploy ETH2.0, the longer these other blockchains will have to capture market share away from ethereum itself.
The irony here is that the very technology that Ethereum is known for is being used to manifest its demise.
Honorable Mentions
Memecoins (DOGE, SHIB, FLOKI, DOGELON) and memetrades (GME) lead to massive gains for investors this year
Bitcoin Futures ETF in the United States
China Bans Bitcoin Mining
Hilary Clinton says Bitcoin could destabilize nations
This has been an amazing year creating newsletters for my readers. I aim to continue producing these letters for you in 2022. If you have any ideas or suggestions on how I can make these more valuable to you, please reach out to me with an email or comment, as I thrive off of getting feedback from you.
Wish you a safe and fruitful 2022.
Regards,
Keegan