Bitcoin Ordinals

Scarcity does not guarantee appreciation

In the world of crypto, you’re either a believer or you’re not. I’m not, but I am a believer in my ability to extract profit from fluctuating price lines, and crypto brings a big one.

The problem is unknowable demand, something I mentioned last month:

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In that report, I wrote that there seems to be “no fundamental reason for a digital, non-productive asset to grow in value.” Absent earnings growth, what will sustain its demand?

To discuss this, I journeyed to Yebisu Garden Place Tower in Tokyo.

It’s located near The Westin Tokyo, Michelin 3-starred Chateau Restaurant Joël Robuchon, Lawry’s The Prime Rib — and home to a bevy of obscurely named financial firms. The directory repeats words such as “capital,” “holdings,” “securities,” “trust,” “consulting,” and “consortium,” but the office where I met “the crypto kids” included no such traditional monikers. When I inquired about this, the young man who greeted me said, “We don’t do tradfi.” That’s traditional finance.

Around a blank table in a stark room featuring little more than white boards and skyline views punctuated by jets descending to Haneda Airport, I proffered concerns to these traders from points around the globe.

“Forgive me,” I began, “but I’m researching a ‘tradfi’ program that would apply some of my tried-and-true stock-market techniques to one or more of the new bitcoin ETFs.”

I explained my quarterly schedule, automated rules for buying low and selling high, and other staples of the plans that I run in The Kelly Letter. “I can extract profit from a fluctuating price line,” I said, “but investors have to feel confident that recoveries will follow drops. Otherwise, they might bail on a system that signals buying cheaper prices. How can I be sure crypto will grow over time, and therefore recover from price setbacks? With stocks, earnings growth eventually powers all dips to recovery, but crypto features no such organic reason to keep growing.”

“Naive!” one of them blurted. Didn’t I know that the new economy would be fueled by crypto?

No, I didn’t, I replied, but assured them that I had not come for a fight. I was not there as the grumpy “tradfi” guy looking to set the record straight. I was genuinely researching, and eager to hear their explanations.

So explain they did.