The End of Bitcoin

Bitcoin's performance has been absolutely abysmal in 2025. In fact, as of the time of this recording, it is down 31% from its all-time highs in just about 60 days. Not only that, but it is lower than it was at the beginning of this year, down about 7.5% year to date. This means that if you had owned basically anything else from the start of this year, including a treasury bond fund like TLT, you would have done better. Now, long-term Bitcoin holders are not new to volatility. They have endured many much larger drawdowns than the current one. But some of those long-term Bitcoin holders have already cashed out. In fact, just a couple of weeks ago, a Satoshi-era whale sold about $1.5 billion worth of Bitcoin after holding for 15 years. This has left many people wondering what is causing the exodus, what is causing this massive sell-off, and is this potentially the death of Bitcoin? Now, you're gonna hear stories spun up on both sides of the current sell-off. You're gonna hear the permabulls say buy the dip no matter what, because it's going to a million. And you're gonna hear the doom and gloomers say, I told you so, you should have sold everything, it's going to zero. But there are a couple of big things happening right now that once you see them, it makes you think, well, yeah, this current sell-off actually makes a lot of sense. And the first one, which I think is the elephant in the room, is MicroStrategy. You can view these numbers yourself at strategy.com. They have their common shares, symbol MSTR, and they also have a bunch of preferred shares they've issued that pay dividends to shareholders. Now, these dividends are not paid out like dividends of a real company. When you have a real company who is producing cash flow and profits, they're gonna take some of those profits and pay them back to shareholders as a dividend. But MicroStrategy does not have cash flows. They do not have profits, which means every cent they pay out as a dividend does not come from profits. It comes from raising money from new investors. In other words, the only source of money that they have coming in in order to pay out to investors is money from current or new investors. If this sounds like a Ponzi scheme, it's because it is very close. The main difference here is all of these preferreds can shut off their dividend payments. They're not required to continue to pay them out. And if push comes to shove, that would be the first switch to get flipped. Saylor would just stop paying the dividends. Unfortunately, that is not possible with the debt because not only have they raised more money by issuing all these preferreds, they've also raised money by borrowing. And the people who lend money don't just want those interest payments shut off, which is why Strategy's CEO recently said that we can sell Bitcoin and we would sell Bitcoin if we needed to fund our dividend payments below MNAV. In other words, at the current price that MicroStrategy is trading at, at around $170 per share, they're currently at a little over one MNAV. That basically just means that the market cap of the company is worth just a tad bit more than the Bitcoin that they hold. In this situation, they can still sell shares, in other words, raise new money from new investors at a premium to the Bitcoin they hold. Their CEO said if it gets to the point, push comes to shove, where they cannot sell shares at a premium because the price of Bitcoin has fallen below the amount of Bitcoin they hold and they needed to raise money to make their payments, they could sell Bitcoin. At the current price of Bitcoin, they have about 69 years worth of Bitcoin that they could sell to cover payments. But everybody knows if MicroStrategy was forced to sell Bitcoin in order to cover their payments, there would be a cascading, a snowball effect where both their shares and the price of Bitcoin would be tumbling even more, which means this 69 years number would very quickly fall. And it's already been declining. In fact, just a couple of months ago, it was well over 100 years, which is why Strategy just announced that they recently sold shares in order to secure about $1.5 billion worth of just dollar reserves. In other words, this time when they raised money, they didn't plow it back into buying more Bitcoin, they're just holding it in cash so that they can make their dividend and debt payments. Now, this is a smart idea for them, but ultimately it will only cover about 24 months worth of its dividends. So what does this all have to do with the price of Bitcoin collapsing? Well, if the price of Bitcoin goes low enough and MicroStrategy turns into a forced seller of Bitcoin, then somebody else can scoop up those deeply discounted Bitcoin at very attractive prices. Anytime you have an insanely, massively leveraged player buying something and there is a sign of weakness that they could be forced to unwind everything and that could cause the price to collapse, there's a financial incentive for other players in the industry to do whatever they can to get that player to be forced to unwind. Especially if you are bullish on that asset because then you will be able to pick up that asset at a fire sale price. And so all of the Bitcoin selling that's been happening recently, all the short selling on MicroStrategy, all the news articles and negative publicity that has been making its way aimed at MicroStrategy, whether it's well-deserved or not, financially, it is a good move for anybody that wants to buy Bitcoin at a lower price because if you can cause a leveraged player with a ton of Bitcoin to force them to unwind their position, you can pick those things up at pennies on the dollar. It's unclear whether or not it will get that far, but what is clear is that it is possible and it does seem like that, at least for some players, is the intention behind what is going on right now. Which brings me to the second thing causing Bitcoin to go down right now, which is OG Whale's selling. Over the last year or so, we've seen story after story of original Bitcoin holders sitting on hundreds of millions or even billions of dollars worth of gains finally selling their Bitcoin. Now, there are a couple of reasons why somebody who has held onto Bitcoin for that long and sitting on that large of gains would suddenly sell. Number one, it could just be regular old profit-taking and diversification. If you are now sitting on a billion dollars or two billion dollars worth of Bitcoin, maybe it makes sense for you to take some of that, sell it off and buy some stocks, buy some real estate, buy some gold, just in case your future idea about what you think will happen is wrong. And anytime you have somebody who makes an astounding amount of money in one asset, you'll very commonly see diversification happen at some point. That is normal behavior. The second reason why you might see some of these original Bitcoin holders selling is that they're not actually selling. In other words, maybe they are just transferring some Bitcoin from one wallet to another. When transactions happen on chain, it is very difficult to be able to determine whether it was a sale or whether it was just movement. But guess what? Even if it was a sale, how do you know that they're not taking that cash and purchasing Bitcoin in a brokerage account in an ETF? Maybe they want to more easily access traditional finance options like putting it in a brokerage account, being able to use margin, being able to hedge it with puts, making it easier to buy, borrow, trade, transfer, or combination of the above. And this is important to remember across all financial markets. Just because you see a transaction take place, you don't know what the intent behind it is and you don't know what other transactions are connected to that. If you see a bunch of calls being purchased, it's somebody on the other side who is selling those calls. You also don't know whether that's connected to somebody who is short a bunch of shares and just hedging. It's important to remember that sometimes, even if we can see transactions taking place in financial markets, we don't know the whole story and it may not signal to you everything you think it does. And finally, the reason why some of these original Bitcoin holders might be selling is precisely what I mentioned before, which is in order to trigger unwinds of large leveraged positions like MicroStrategy because they know if that happens, they'll be able to pick up Bitcoin at a much more discounted price. And by them, some of the original holders selling, it could communicate some panic to some of the new Bitcoin holders and everybody selling off would be good for them if they're trying to buy back in lower. But the unwind of large leveraged players is not just concentrated to MicroStrategy and Michael Saylor. And that is the third thing happening, causing Bitcoin to drop right now, which is the yen carry trade. This is a chart of the yield on the 10-year government bond in Japan. You can see all the way back here in 2006, the yield on the Japanese 10-year government bond was around 1.8, 1.9%. It spent the next decade dropping and this blue line here is the zero line. So for a while, the 10-year bond there was trading with a yield below 0%. Yes, that means a negative yield, not return, yield. And over the past five years, we've seen that entire drop completely reversed as the yield has gone higher and higher and higher, now trading at the exact same levels it was before. Back in 2024, this rise in yields from Japan hit the market by storm unexpectedly. In fact, you may remember in July of 2024, the market dropped 10% over the course of just a couple of weeks. This drop occurred as the original yen carry trade unwound. Essentially, there was a bunch of leverage borrowing cheap yen built up in the system. And when Japanese debt started to get more expensive, this trade had to unwind very quickly. It was a very large trade across the financial system with lots of leverage built on top of it. And when it unwound, it unwound violently. Many people are afraid of that exact same thing happening right now because of how high the yield on the 10-year has gotten recently. Problem is, these things never happen the same way twice. Just like lightning, it never strikes in the same way, in the same place twice. One of the main reasons why there's been so much leverage built up in crypto, but especially Bitcoin, over the last year or so is because of the narrative that was being built around it, which is the next point, the fourth point of what is going on with Bitcoin right now. And that is a shift in the narrative, especially at the beginning of the Trump administration. Many people were very hopeful and very expectant that 2025 would be a year in which Bitcoin would go up to 200, 300,000 or more because of sovereign adoption. And along with sovereign adoption, many new Bitcoin investors and many original Bitcoin holders were expecting institutional adoption. But the reality is, institutional adoption has largely been concentrated to retail investors buying Bitcoin through things like ETFs. That is not true institutional adoption. And yes, you do have some funds like Harvard buying some IBIT, but we're not seeing anything like large-scale allocations across pensions and 401ks with any meaningful percentages. So institutional adoption was a narrative that came and has now changed because it has so far not happened. And the same thing with sovereign adoption. Many people were expecting the US government with the Trump administration to start actively purchasing Bitcoin in the newly created Sovereign Wealth Fund. And when they did announce their plans with Bitcoin, the plan was, hey, we're just gonna keep what we have. We're not gonna sell it, but we're not gonna buy any more. Bills have been introduced to Congress in order to change that so that the US government will start buying Bitcoin. Some of those bills have come and gone, and some of them are still in the works. But at this point, there has been no massive sovereign adoption like many people expected, which again, the narrative has shifted, meaning many people who got in at 80, 90, or 100,000 expecting it to go to the moon are now selling at a loss because what they expected to happen didn't happen. Now, if we take a look at the percentage gains that have happened in the past bull markets in Bitcoin, the first big bull market was obviously very large, around 34,000%, but that's gonna happen when you're going from basically zero. The next big bull market around 2013 saw gains around 1,700% from bottom to top, and then the next bull market in 2017 saw gains around 1,500% from bottom to top. And yet so far, gains on this last bull market can barely even be seen on this chart. This is to be expected as something increases in market cap and achieves more and more mass adoption. You're not going to see the same types of explosive gains that you see from something when it goes from being worth basically nothing to being worth trillions of dollars. But it's not just the gains during the bull markets that have been increasing with mass adoption. It is also the losses during the bear markets that have been decreasing from this mass adoption, which makes sense. As something grows in adoption, grows in market cap, the volatility will decrease because by nature, you have more and more people doing active price discovery, buying when it's dropping, selling when it's rising, smoothing out the price along the way. The drop from top to bottom in the 2018 bear market was around an 84% drop. The next bear market in 2022 from top to bottom was only about a 77% drop, which means that the current 31% drop that we've seen from top to bottom so far may be close to being done. Sure, it's possible that we go a lot farther down from here, but it's also very likely considering how many people purchase on a regular basis that this bear market may only go down 37%, 42% or 50%. At this stage in the game, if Bitcoin does do what many people hope that it does, in other words, become used as money universally, it must be worth many, many times more than what it's worth right now in order to support global transactions. It is still an asymmetric bet. And while it may not be as good of an asymmetric bet as it was five years ago or 10 years ago, it is still an asymmetric bet. None of the fundamentals have changed. And by fundamentals, I obviously don't mean cashflow, profits, value, because Bitcoin is not a company. It's not even really an asset because an asset is something that puts money in your pocket. In the same way, I wouldn't even call gold an asset. It is a monetary technology. It is software that is competing for that dominant position as money. I put 5% of my net worth into Bitcoin in October of 2020 when I finally learned about it and therefore changed my mind on it. That is the allocation I continue to recommend to this day because if it does become used as money universally, it will be worth many times more than it is today, which means it will drastically, positively impact your overall portfolio. But if it drops 80% from here, if it goes to zero because at the end of the day, people just don't actually want to use it, then the worst case scenario is you lose 5%. So is this the death of Bitcoin? It possibly could be, but not for any of the reasons that people are talking about. Volatility is something to be expected when something is evolving and growing into potentially being used as universal money. You'd expect it to get fought. You'd expect it to be massively leveraged and those leveraged positions then get unwound violently. You'd expect price manipulation. You'd expect new narratives popping up and being destroyed from day to day. So if it is the end and if it is dying, make sure your exposure is small enough where it doesn't ruin you. But if this is just something to be expected along the way to it becoming much larger, you probably also want to have enough of an exposure to make sure you're along for the ride. As always, thank you so much for watching. Have a great day.