One Bitcoin equals one Bitcoin becomes the narrative when the drop becomes “too painful”

by James · October 7, 2022

(Bloomberg) — Virtual money, digital gold, inflation hedge, uncorrelated asset, store of value: these are phrases once used by Bitcoin’s fans to describe the cryptocurrency’s virtues. The new narrative? A Bitcoin is a Bitcoin.

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That’s the phrase that has been making the rounds on Twitter in recent days, where users, in the midst of a deep price decline, have posted that 1 BTC = 1 BTC. The idea is that it doesn’t really matter what the coin’s price is. The supply is fixed and it should theoretically act as a buoy for prices in the long term.

“1 BTC = 1 BTC is something Bitcoin maximalists say tongue in cheek when it becomes too painful to look at the USD price of BTC,” said Joshua Lim, former head of derivatives at Genesis Trading. “The implication is that BTC will eventually become a unit of account, so just focus on the absolute number of BTC you own today.”

Anyone paying attention to the crypto market has become familiar with the many guises Bitcoin has taken on over the years. Fans had, prior to 2022, used a variety of narratives for the coin, including that it could at some point replace gold, or that it is a great inflation hedge. Most of those narratives have fallen by the wayside this year as prices fell under monetary policy. Bitcoin has lost roughly 60% this year and has traded below $19,000 in recent days, down from a peak of nearly $69,000 in late 2021.

When the pandemic first broke out, crypto investors ran with the idea that Bitcoin, thanks to its limited supply, could act as a hedge against rising prices. But consumer price pressures have remained sticky this year, while prices for most cryptocurrencies plunged. Many market watchers say investors are now searching for a new narrative for the digital asset market. Twitter has been flooded with posts proclaiming that all that matters is that 1 BTC equals 1 BTC.

Tagus Capital’s Ilan Solot says the Bitcoin-as-an-inflation-hedge narrative argued by its proponents has been misconstrued. It is wrong to think that Bitcoin is not rising while prices are skyrocketing. “The narrative was never really Bitcoin is an inflation tracker, it’s not TIPS,” he said. “Bitcoin was a hedge against irresponsible money printing by central banks.”

Still, that’s not to say die-hard crypto investors have been deterred. The percentage of Bitcoin that hasn’t been moved in over a year has remained stable — at 68%, the metric is currently at its highest level since 2014, according to data compiled by FRNT Financial Inc.

Bitcoin remains trapped in the macro environment and has not broken its correlation with risk assets, said Stephane Ouellette, CEO of FRNT.

“Narratives tend to follow markets, more often than not,” he said. “When things are correlated, one way of looking at it is that it’s the same kind of traders of strategies involved. Ultimately, there is a growing and significant percentage of BTC holders who will never sell their BTC and those who use it for commercial purposes. At a certain point BTC will start to behave differently from risk assets, but it’s clearly not there yet.”

Still, it’s clear that Bitcoin’s other narratives haven’t paid off, said Peter Mallouk, president of Creative Planning. “We now know that cryptocurrencies are not an inflation hedge, that’s proven to us now,” he said. “It’s a big, big speculative play for anyone interested in it.”