[News] 3 Pieces of Bitcoin & 51M Naira

plus an explanation of Bitcoin so simple even a three year old gets it

Feb 16

In this issue:

Nigeria grapples with the implications of Bitcoin
Bitcoin movements after the Tesla acquisition

Nigeria grapples with the implications of Bitcoin

We talked last week about how Nigerian Bitcoin use is surprisingly common in spite of being formally banned by the Nigerian Central Bank. On Thursday we saw something extraordinary - live video of a government grappling with the realization that Bitcoin was beyond their control:

Documenting Bitcoin 📄 @DocumentingBTC

Today in the Senate of Nigeria, "Bitcoin has made our currency almost useless or valueless."

The Nigerian Senate @NGRSenate

“Cryptocurrency has become a worldwide transaction of which you cannot even identify who owns what. The technology is so strong that I don’t see the kind of regulation that we can do. Bitcoin has made our currency almost useless or valueless." - Senator Sani Musa

Nigerians have experienced a number of devaluations in recent years since the currency was allowed to float in 2016. Current interest rates and ongoing dollar shortages suggest the market expects those trends to continue. As Senator Sani Musa observes above, there may not be much the Nigerian government can do to stop it.

If this does actually play out as Senator Musa fears the effects on Nigeria will probably be somewhat similar to that of dollarization, where a weaker local currency is outcompeted in the market by a stronger foreign currency like the dollar. Nigeria’s government would be unable to raise funds through seigniorage and unable to serve as the lender of last resort for its banks. The Nigerian people on the other hand would be able to defend their savings against the steadily dropping value of the Naira.

Those of us in economies with strong, stable currencies can sometimes forget how others may view Bitcoin as a lifeline in spite of the volatility.

Bitcoin movements after the Tesla acquisition

In the wake of Tesla announcing their purchase of $1.5B Bitcoin last Monday the price shot up roughly +$7k/bitcoin (+16%) and has held onto those gains since, drifting slowly up towards $50k/bitcoin but not (as of writing) crossing it yet.

If you are an Elonnoisseur and have been inspired by his confidence to take your own leap into Bitcoin there are two basic groups that you can buy from: miners and holders. Through all of January both miners and holders have been selling heavily into the rally and then both slowed down slightly at the beginning of February. When Tesla made their announcement though they had opposite reactions.

Miners seemed bullish about the announcement - in the week following they cut their selling back significantly.

Unlike miners holders reacted to the Tesla announcement by moving their coins. You can see this movement by watching the age of Bitcoin outputs - a metric Glassnode calls the Average Spent Output Lifespan (ASOL).

When ASOL is higher, the coins moving right now haven’t moved for a while. When ASOL is lower, the coins moving are ones that also moved recently. So a higher ASOL implies that older investors are moving coins - presumably to sell them. After Tesla’s announcement ASOL almost doubled:

Old whales taking profits is a natural part of the bull cycle and part of how Bitcoin becomes more widely distributed and adopted - but it is also a signal to watch to gauge when the top is near. Old holders are somewhat by definition high conviction, the new investors they are selling to are still untested. As a group newer holders are more excitable about price movements in both directions - so the more new investors there are on the market relative to old hands, the more volatile the price swings will be.

By that metric, we are still pretty early in the cycle relative to the heights of 2017:

Old investors selling to new hands right now is also compatible with my pet theory that we are seeing millionthaires (those who hold >21 Bitcoin) take profits as their crypto portfolio crosses over the $1M threshold creating a soft cloud of resistance centered around ~$47.6k/bitcoin (i.e. ≈ $1M/21).

Old memes never really die.

Other things happening right now:

Here is another fun but not especially meaningful graph. If you take that comparison at face value it implies a top of ~$274,000 this cycle. Don’t actually take it at face value, though - these things are exercises in apophenia.

Jack Purdy @jpurd17

It's pretty mindblowing that the #Bitcoin chart is damn near IDENTICAL to Aug. 2017 🤯 Anyone need a refresher for what happened next?

The NFT craze continues. An alien CryptoPunk (the rarest type of CryptoPunk, there are 9 in total) now has a standing bid of 1111 ETH (~$2M) against it. Recall that a bid in the CryptoPunk smart contract requires the money to actually be locked so that’s not a bluff - in fact, they outbid a 1000 ETH offer placed the previous day. The owner of that Punk has been active since those offers were made - but so far they have decided $2M worth of ETH isn’t enough.