RedBull Money Talk: Bitcoin in parabolic move again!

Bitcoin is on a parabolic move again these days, jumping from about $10,000 just a couple of months ago to over $18,000 this week. I have no doubt that it is going to challenge its all time high around $20,000 soon, maybe even before the end of the year. Of course, chasing it from this high is risky, especially in terms of the short term as there is a high chance it may cool down a bit or even a good correction before its next leg up.

So why all of a sudden, bitcoin is moving up so much and there seems nothing can stop it from going up more? There could be millions of answers to name a long list of potential causes for the bitcoin bullish move. But fundamentally, there is only one reason that is propelling it to the moon: the increasing demand meeting the decreasing supply!

First on the demand side. Take a look at this tweet:

The tweet says:

"To start with #Bitcoin, I share a video taken in a Latin country where banks throw money in the garbage (paper money is worth nothing) that is why it is always good to diversify our investment portfolio. This is inflationary expropriation!"

"Today I recommend THE BITCOIN PATTERN, this book is the best and most important to understand #Bitcoin. Bitcoin protects the citizen from government expropriation. Many people ask me if I have bitcoins, YES. I have 10% of my liquid portfolio invested."

This is a tweet from Mexico's second wealthiest man, Ricardo Salinas Pliego. With a net worth of $13.2 billion, he is the 166th wealthiest individual on Earth.

Here is another American billionaire, Paul Tudor Jones. He is a living legend, most famous in betting on the stock market crash of 1987 and walked away with a cool $100 million. He announced that he has invested 2% of his net asset in bitcoin......

Of course there are many more billionaires and rich people who have become increasingly interested in bitcoin and put their sizable money in bitcoin.

In addition, more and more institutional money is moving into the bitcoin asset now. And then just days ago, Paypal had announced to allow its customers to buy and sell bitcoin on its platform. This has basically opened the door for tens of millions of people to easily invest in bitcoin, which was somewhat challenging for most people before.

By now, I guess you get the point of the increasing demand for bitcoin. So how about the supply side story? Well, the elasticity of supply of bitcoin is effectively zero. (Elasticity is a measure of how much the supply of a given good tends to increase when the price of that good also increases.) Here is really the unique beauty for bitcoin that not many people truly understand! For all the other assets, regardless of how scarce of the stuff is, there is always the capability to increase the supply by some efforts. Just think about oil or gold. We have always been told that the gold source is quite limited and it is becoming more and more difficult to find gold with each day passing. But look, when the demand is increasing like what we see now, mining people just go somewhere to dig out a big hole on the ground and more gold will be mined out. There is no predefined known limit how much gold people can explore. But the situation for bitcoin is totally different. There is indeed a predefined limit of the max number of bitcoin that can be eventually mined. Just in case you don't know it, it is 21 million coins of bitcoin. That's it. So each passing day with some bitcoins mined out, the supply is proportionally decreasing towards its final limit. And every four years, there is a halving event that cuts down the mining capacity by half by design. So the supply side is truly becoming more and more scarce for bitcoin while the demand is increasing fast. On top of that, right now, a large number of people holding bitcoin will probably not easily cash it out but simply holding for long long time! Also each day, some people may have forgot or lost their private key and without it they will never be able to get the bitcoin back. In other words, even among the bitcoin pool that has already been mined out, rough 10% of it has been lost forever and the percentage is likely increasing everyday. Therefore there will be no increasing supply but rather decreasing supply for bitcoin when the demand is increasing everyday! This is really a perfect situation for any asset for preserving its value. You can hardly find anything like bitcoin with such kind of perfect storm!!

Of course I'm not suggesting to chase bitcoin from here as it is becoming increasingly risky when in a parabolic move. FOMO is never a great strategy in investing! Educate yourself if you still don't quite understand what bitcoin is all about and only buy when it has crashed and no one is talking about it!!

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