A Dead-Inside Take On Bitcoin

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Nothingburger Or Greased Piglet?

by Alex King, CEO, Cestrian Capital Research, Inc

I expect Bitcoin to be of increasing importance to investors. Now in the rearview are (i) its early years as a hacker- or mathmo-type pursuit, (ii) the 2020-21 “Wen Lambo” phase, and (iii) the inevitable crash that followed in 2022.

Bitcoin has, I believe, grown up.

I myself do not believe Bitcoin to be anything that its most zealous proponents claim. It is not the Way, the Truth and the Light, whatever DaveTheCoinKing1 on Twitter would have you believe. It is not the answer to all financial problems, as Michael Saylor sometimes argues on a daily basis, usually in the runup to an ATM financing round for $MSTR. And I don’t think it will remedy US national debt.

But I do believe it is now part of the financial plumbing.

The Wall Street Embrace

In the last year or so there have been three key steps which for me underline the grownup nature of Bitcoin in today’s market.

• BlackRock’s launch of the $IBIT Spot Bitcoin ETF in January 2024. If the Wall Street mothership believes it to be good business to launch such a project, then I am inclined to agree with them.
• BlackRock’s choice of Coinbase Global as custodian. This was a huge vote of confidence in Coinbase, to my mind. The revenue bump to $COIN was minimal but the performative value of the association with BlackRock was enormous. This essentially anointed Coinbase and turned the company into a real boy. It was a precursor of the reintroduction of Brian Armstrong into polite society.
• The resolution of the regulatory question. Bitcoin’s regulatory status is now relatively clear. The battle for Bitcoin to be outlawed, restricted or regulated aggressively is over. The pro-regulatory camp lost.

Let’s get into the regulation a little because this settled issue is I think core to why Bitcoin is of more relevance to more investors now.

Regulatory Certainty

The CFTC does not consider Bitcoin a commodity. (Bitcoin futures are considered a commodity by the CFTC, but spot Bitcoin is not). The SEC does not consider Bitcoin to be a security. (Bitcoin ETFs are considered securities by the SEC, but spot Bitcoin is not). The regulatory reform washing through the Federal government at present is unlikely to re-regulate anytime soon, in my view.

Now, investors can choose to own this unregulated native Bitcoin in all manner of places, from private wallets (ie. things you own that plug into computers) to dedicated exchanges (ie. things somewhere on the Internet). But opting for unregulated exposure comes with the inherent disadvantages of (i) the risk of losing your plugin local device and (ii) the risk of crypto-specific exchanges being hacked. These are nonzero probabilities, as history has shown.

Or they can choose to own commoditized or securitized plays on Bitcoin - be that Bitcoin futures or ETFs (or indeed ETFs based on Bitcoin futures). This carries regulatory risk for those worried about such things, but they also offer a degree of protection insofar as you are dealing with, inter alia, the Chicago Mercantile Exchange / the CFTC or BlackRock et al / the SEC, instead of DiscountTokenXChange.com. For me at least that is an easy choice. I am more than capable of losing a wallet device; BlackRock is less likely to lose all my $IBIT.

Investoor vs. Tradoor

Does Bitcoin have any utility? Aside from money transfers for the unbanked, I can’t think of any. Lyn Alden will tell you that its function as a store of transmittable value for those not able or not permitted to join the banking system is of essential import, and I am sure she is right in that regard. But that’s of only incidental relevance to investors.

Actually to be specific, I don’t really mean “investors” insofar as that implies an individual or a fund seeking to deploy cash into a risk asset in anticipation of it rising in value and/or paying them an income. I mean trader. For Bitcoin does have utility to traders.

It offers increasing liquidity via the many instruments available to trade it (native Bitcoin; futures; ETFs; options on the above).

It is a highly volatile creature which has the twin benefits of (i) panicking inexperienced traders into buying and selling at exactly the wrong times and (ii) offering experienced traders the ability to make very good consistent returns just trading the ebbs and flows, with no regard to the final destination.

Moreover, its price behavior is very similar to that we see in major liquid securities - S&P500 futures and ETFs, Nasdaq-100 futures and ETFs. Take your favorite form of trading analysis - orderflow, technical analysis, visual tape-reading, astrology etc - and you will find the methods work pretty much as well in Bitcoin as they do in the e-mini. Which means the skills are entirely transferrable, if you already know what you are doing as a trader. (And just like the e-mini it means bigs will take all your money off of you if you don’t).

Finally, there are methods of predicting Bitcoin’s price movements to some degree - in the same way as one can predict the S&P’s movements to some degree, which is to say if you get good you can do better than just guessing! Yimin Xu will tell you that M2, a measure of the money supply, is a worthwhile predictor of Bitcoin price movements if you adopt a weeks/months timeframe; Robert P. Balan will tell you that measuring China credit impulse also provides a modicum of a window into the future. Why is this?

Out With The Old, In With The …. Old?

It’s because Bitcoin is a pure trading instrument. Don’t believe the hype about poor people seeking emancipation from fiat currencies by way of this thing. If that were true, then ownership would be more broadly distributed than just 5% of the US public, per the St. Louis Fed. This is a risk asset, pure and simple. When the money supply rises per M2 or per China credit issuance, that means surplus money has to find its way somewhere; and since surplus money is only a thing for asset owners (the unbanked and the labor class don’t have surplus money), it finds its way into … risk assets. And Bitcoin is a pure risk asset, perhaps the purest risk asset of all.

I think the scene is set for the coming years. Bitcoin is a pure risk asset with clarity of regulation, increasing liquidity, and price behavior / carrier waves which work in similar ways to more widely owned and better understood assets like US equity index futures and ETFs. We are in the post Wen Lambo era; and whilst Mr. Saylor is good for theater, I think that experienced traders can do a little better than just to buy $MSTR and hope for the best.

So…

If It’s Good Enough For Larry Fink

Starting today, we’re introducing Bitcoin coverage in our work here at Cestrian. We’ll apply the same technical analysis methods we use to good effect in the equity indices and the major name stocks and ETFs; we’ll teach our members about how to trade long and short Bitcoin with their choice of instrument (Bitcoin futures or ETFs) and, indeed how to trade Bitcoin as a hedged long/short pair using ETFs such as $BITU and $SBIT.

Cestrian Capital Research, Inc - 21 March 2025.