Where there's smoke, there's fire

Is something burning? Bitcoin fell from an all-time high of $108K three days ago to $92K on Friday. Since I firmly believe that we are in the middle of a bull cycle, the only question is whether it is time to deploy dry powder or not. Graham Stone, Marketing Lead at Bitcoin.com, and I discussed this in this week's episode of Token Narratives. We also discussed what to do if dry powder is running low, but you're convinced that prices will be higher in 2025. Hint: The answer involves leverage!

As is normal and right, when Bitcoin falls, alts fall much more. For those with the stomach to step out on the risk curve, these downturns are useful to find which alts could be worthwhile to take a position in when the market once again begins trending upward. I can't believe I'm saying this, but I'm taking a serious look at XRP. As pointed out by Donalt, a legendary CT trader who has nailed price action all year, XRP has held up remarkably well against BTC. It cannot be stressed enough that altcoin trading is not for the faint of heart.

I need to make a correction from this week's Token Narratives concerning the following chart from the great X account The Mad King – definitely worth a follow. I said the chart is bullish because it shows that stablecoin inflows proceed price appreciation. The chart is bullish, and it is true that stablecoin inflows usually indicate broad price appreciation, but The Mad King was specifically focusing on a particular dynamic of stablecoins and the total crypto market cap. As the crypto market cap expands (i.e., crypto asset prices rise), those appreciated assets are used as collateral to take levered bets on the market via stablecoins, which sends asset prices higher.

It works like this:

Stablecoin net inflows start increasing.
Asset prices begin rising.
Assets/gains are used to lever up.
More stablecoins flow in.
Prices pump harder.

Finally, the U.S. strategic bitcoin reserve has become an important narrative influencing bitcoin's short to mid-term price action. The four scenarios for the bitcoin reserved were succinctly outlined by Graham in Token Narratives:

It is clearly rejected → price dumps
There is no clarity, no rejection nor acceptance → price grinds higher
The bitcoin currently held by the U.S. government is designated as the bitcoin reserve → bullish price appreciation
A bitcoin reserve bill like U.S. Senator Cynthia Lummis' is passed → face-melting price increase

There have been many stories surrounding a bitcoin reserve. Former President Trump recently hinted at supporting such a reserve, stating the U.S. must lead in crypto adoption to counter China's advancements. Stroke CEO suggested Trump might issue a "day one" executive order to establish a reserve. U.S. states like Texas have proposed Bitcoin reserve bills, while lawmakers in Russia and Japan are discussing similar moves. Vancouver has already passed a motion to explore adding Bitcoin to its strategic assets, aiming to boost financial stability and embrace a "Bitcoin-friendly" stance by next year. David Bailey, the CEO of Bitcoin Magazine predicted that, "by this time next year the USA, China, Russia, and Saudi will all have one."

I didn't think there was a good chance of a strategic bitcoin reserve, but with so many stories coming out, I think a strategic bitcoin reserve in some form or another is now more likely than not. As the proverb goes, "where there's smoke, there's fire."

-David Sencil

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Editor's comment: Remember, even in bull cycles, bitcoin can go down upwards of 20%. Don't get shaken out now!

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