Bitcoin’s ‘price trick’ explained
GM, we take the latest Web3 news and translate it into plain old English - so you can stay up to date, without your eyes glazing over.
In today’s edition:
Bitcoin's 'downward cascading price' trick
NFTs - and we mean this quite literally - to the moon!
RESOURCE: What is Monero? (Learn in 12 mins)
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How big brands should approach NFTs
Terms used (click for translation):
NFTs, Web3.
Bitcoin's 'downward cascading price' trick
As a kid, learning the 'disappearing thumb' trick (you know the one ) is almost a right of passage.Sure, once you know how it works, a little bit of the magic is lost...
But at least you can stop worrying for the health and safety of your uncle Peter, the next time he does it at Christmas lunch.
The price fluctuation of Bitcoin can feel similar to a magic trick, eliciting those same feelings of excitement and fear - depending on which direction the price is heading.
At the moment, that direction is down - and BTC is hitting price levels that many analysts thought we'd never see again.
It's not great - but as with most cryptocurrencies, wild price fluctuation is a part of the experience.
So, here's how the 'downward cascading price' trick works.
(Hopefully by understanding it, it'll all become a little less terrifying).
Basically, as the positive sentiment around Bitcoin grew through 2021, investors started taking out loans, in order to buy more Bitcoin.
As long as the Bitcoin price stayed steady, or better yet, went up - the debt on that loan would be easy to manage and everything would be fine.
But if the price were to drop substantially (as it is now) safeguard clauses within many of these loans agreements would be triggered.
These clauses pretty much say to the borrower:
'Hey bud, we're starting to lose faith that you'll be able to cover your loan over time...so we want it all back NOW - sell whatever you need to sell, and give us our money.
P.S. we know where you live.'
And this is how the cascade starts...
BTC price drops -> traders have to sell BTC to cover loans -> selling pressure causes BTC price to drop further -> more traders have to sell BTC to cover loans...
This loop continues until all of the 'leveraged' Bitcoin (aka Bitcoin bought with borrowed money) is shaken out of the market.
The bad news: Over the past few years, more leveraged Bitcoin has been accrued than ever before, so it's having a greater effect on the overall BTC price.
The good news: once all of this leveraged Bitcoin is shaken out of the market, prices should level off, whales (aka 'big money') will likely come in and scoop up all the discounted BTC, and prices will rise again.
(That's the hope at least - not financial advice).
NFTs - and we mean this quite literally - to the moon!
Ok, time for some low nutrient, high sugar news.
One of the worlds richest artists (Jeff Koons) is sending 125 miniature sculptures to the moon, on a rocket built by the world's richest person (Elon Musk).
The money needed to fund the project will be raised by the sale of the sculptures - and each sculpture will use NFTs as their 'certificate of ownership'.
Buyers will also get a photo of their sculpture's lunar location, as well as a 'take home' sculpture, sporting a gemstone that marks its extra-terrestrial counterpart's place on the moon.
And if you're thinking:
"That's a cool concept - it'd make one hell of a talking point".
We have a limited time offer for you...
Send us $5k, right now, and we'll come to your house and punch a hole in your dry wall.
Then, when your friends ask about it, you can tell them how the writers of that daily email you subscribe to, showed up and started throwing hay makers at your feature wall.
(Call it performance art if you need to).
You'll have a story to tell, we can pay off our student loans.
...deal?
Resource of the day
What is Monero?
(Learn in 12 mins)
How big brands should approach NFTs
If we know anything, it's this - Gary Vaynerchuk likes:
Talking fast
Garage sales
NFTs
(Recently, he's been heavily focused on the latter).
Last July, Gary and his team created ‘VaynerNFT’ - a Web3 consultancy firm focused on Fortune 1000 companies.
Gary and VaynerNFT President, Avery Akkineni, recently spoke about how big brands can ‘make it’ in Web3.
We collected the key insights, so you don't have to:
Long term planning is key.
While every company wished they launched an NFT project sooner, the key to success is a long-term strategy, not a short-term marketing campaign, gimmick or cash grab.
The aim should be to create an NFT project that will lead to ongoing or 'long-tail' engagement.
Make it do something.
In order to maintain long-term value, expanding utility or additional perks to NFT holders will keep things relevant and exciting.
Consumer education is super important (and in high demand).
The brands VaynerNFT work with are all looking for better onboarding tools. They don’t want to have to educate their existing customer base on how to get an NFT or hold a cryptocurrency.
If you want to win in the next bull run, start now.
In the interview, Akkineni was asked about her thoughts on the current bear market:
“If you do something that's free that allows your consumers to connect with you in a new way—even better if it has some type of specific utility—then this is going to let you be two laps ahead of the competition when the next bull market cycle happens.”
While VaynerNFT is focused on Fortune 1000 companies, this is solid advice for projects of all sizes.
Alright. That's it. That's everything!
Get outta here, you scamps.
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Alright, that’s it for today!
Love to the family,