Vinny Lingam and ZeroHedge get bullish

Wednesday 18 May 2016

Is the ‘mother of all short squeezes’ on the cards for bitcoin?

This blog doesn’t usually go in for price speculation, beyond an overview in our regular market round-up, but occasionally people say things that are worth paying attention to.

ZeroHedge typically has some unconventional but often interesting and occasionally even accurate views on economic developments. A recent article they reposted picks up Vinny Lingam’s blog

Bull

Prepare for a short squeeze from this chap

Vinny, an entrepreneur and Bitcoin Foundation board member, is noteworthy because he has called it right a couple of times in the past against mainstream wisdom. He predicted the spike to $1,000 in 2013, and also the last two years of flat/downwards movement - at a time when a large proportion of the community was expecting a return to the all-time high and beyond to $2,000. Well, now that it’s played out like he said, he’s switched to bull mode. Some of the reasons why include:

  • Merchant adoption (= sell pressure) has slowed, and consumer adoption is starting to catch up.
  • There is significant interest in smart contracts and blockchain technology overall, which feeds through to bitcoin.
  • There is now upward momentum, rather than downward momentum, stagnation, and uncertainty.
  • Higher prices mean miners are in a much better position than they were.
  • The post-Gox mistrust in exchanges has largely been addressed through regulation and the professionalisation of the sector.

Interestingly, Vinny notes that banks have shown great interest in blockchain, but little in bitcoin itself - something he says he thinks will change. Specifically, he suggests that bitcoin might become ‘an intermediary platform for settling across chains’.

There are three further factors he points to, at least two of which may be quite compelling (his suggestion that governments could become the largest purchasers of bitcoin by 2017 seems highly unlikely, though I’ll be happy to be proven wrong).

Short squeeze

Vinny’s major argument is that we’re about to see a massive short squeeze. That’s when leveraged sellers who hope to buy back in lower realise the price has gone up instead and have to buy back, fast, to cover their positions. It happens to traders who get margin called, but he argues that it also includes miners in this instance. He suggests that miners often borrow and sell coins ahead of time to lock in profit, paying them back from their future BTC production. However, halving day is coming, currently expected on 11 July. Fluctuation of hashrate and prices around halving is going to make some unprepared miners’ lives very difficult, forcing them to buy BTC back at higher prices to avoid going further into the red.

Inflation

Lastly, he argues that bitcoin’s inflation is significantly lower than we generally think. Because a large number of coins are not in active circulation (Satoshi’s coins, long-term cold storage, lost coins, and so on), although nominal inflation is currently around 8%, real inflation is nearer 10%. That means the halving will put more downward pressure on inflation than most people anticipate, something that the market will need to factor into its new pricing.

Bottom line?

'It’s always easy to make outlandish predictions. My goal for this post was to outline what I think the tailwinds are behind Bitcoin. I don’t know if the price is going to $1000 or $10,000 — but I do know that it is going up. If I was forced to predict, I would say that it would hit $1000+ in 2016 and $3000+ in 2017. Looking forward to seeing how this all plays out!'


comments powered by Disqus