Yesterday, Nic Carter wrote a deeply informative article about the Efficient Market Hypothesis (EMH) which dispels many erroneous conceptions of EMH that investors leverage to support their bitcoin price predictions. We highly recommend the article for any market participant - whether they be in crypto, equity or bonds.
The article takes a clinical approach to give a detailed review of what EMH means and how it relates to other economic models such as the Adaptive Market Hypothesis by Andrew Lo. Nic dedicates about 25% of the article responding to common objections of the application of EMH to BTC pricing.
Though it's difficult to preserve the nuance of all thoughts in a 29-min read via a summarization, here's the rough distillation of a few of Nic's key points:
Efficient Market Model simply indicates that free markets with enough liquidity which are big enough for influential players to care for are, by definition, efficient in incorporating and pricing-in well-known and available information.
Bitcoin meets the requirements of an efficient market. This means it is safe to assume that the next halving of the Bitcoin supply rate is pretty much priced in by influential market players.
EMH doesn't contradict with the emergence of new information or global economic changes that could affect BTC price. It also doesn't discount that some information is not yet available for the general market.
EMH doesn't necessarily change the positive outlook for BTC price but instead explains that other factors, in addition to the halving, could be the causes of positive price action.
Directionally, we agree with Nic's points. Specifically, it is possible to think that the halving information is priced in, and at the same time, predict positive price action due to the emergence of new information. Let's mull over the following questions:
1. What major traditional hedge funds or institutional investors have already invested in Bitcoin? The retail market would react in a strong way if it becomes commonly known that the likes of Bridgewater or Blackrock have invested substantial capital into Bitcoin.
2. What geopolitical changes in 2020 or 2021 can significantly affect Bitcoin adoption and price?
3. Is the possible reduction of the Bitcoin security budget fully priced in given how difficult it is to evaluate it? A great question raised by Spencer Noon - though we don't think it's relevant to this halving, in two or three halvings this question will become more important as the model becomes more reliant on transaction fees.
Thinking about questions similar to these is a better way of assessing future BTC price, instead of expecting the halving to suddenly and independently lead to favorable price action.
🔮 The Token Daily 2020 Crystal Ball
ICYMI: We compiled predictions on what to expect in crypto during the new year from some of your favorite builders and investors in the space. Read their takes in our 2020 Token Daily Crystal Ball post.
⚡️ Everything You Need To Know About Bitcoins 11th Year By The Numbers
This Bitcoin Magazine article does a great job of breaking down changes in almost every relevant number related to Bitcoin from 2019 to 2020. It covers Bitcoins price change, dominance change, supply change, transaction data, hash rate, mining difficulty, and the increase of contributors and commits to the Bitcoin Core Github in the calendar year.
⚡️ Bitcoin 2019 Annual Review
Lopp released his Bitcoin 2019 Annual Review which shows statistical measurements of Bitcoin’s growth. While voicing that 2019 was a quiet year for Bitcoin and was a year of building, he breaks down a bunch of data, from measuring general and academic interest to on-chain transaction. Lopp even breaks down Lightning Network as well as overall network security and health. Take a look at the breakdown of all of these different categories here.
🔹 A Troubled End of 2019
The last few days of 2019 were not fun for Ethereum. The project initially lost the support of Parity, a major company in the ecosystem, that announced a complete shift of focus into the Polkadot project. Soon after, the network closely survived a network-wide attack exploiting a bug in the nodes running the Parity client. Finally, the network had to hard fork again, less than a month after the Istanbul hard fork, to deactivate the network difficulty bomb and bring down the block time to the normal rate. As these issues failed to kill Ethereum, they have validated Ethereum's current level of antifragility.
🔹 Ethereum 2.0 in 2020
Jim McDonald wrote an interesting summary of the work being done on Ethereum 2.0 along with a logical timeline of when the different phases are expected. Jim's expectations match ours: specifically, that Phase 0 mainnet will probably arrive after Q1 2020. The article also discusses other ecosystem pieces, such as wallets, withdrawal key custody, and staking infrastructure, that need to launch in 2020 to make the phase 0 launch complete.
🔹 MakerDAO Governance Security Module Fails to Make The Cut
In our last newsletter, we discussed a post that detailed a government attack against MakerDAO and how the Maker Foundation responded by pushing forward a vote to enable a 24H delay before any governance executive votes are enacted to protect against the discussed attack.
Initially, the proposal enjoyed overwhelming support to bring the issue into an executive vote. However, in the executive vote stage, the proposal failed to convince enough MKR holders to move their voting power from the previous executive vote into the new one (activating the governance delay). This is what led to the proposal's failure according to Maker's continuous voting rules.
Balaji Srinivasan, former Coinbase CTO, just launched a new crypto publishing platform with a great list of contributors including Token Daily founder Soona Amhaz. The platform is open to contribution from anyone with experience and interest in the space.
Disclosure: Token Daily Capital and/or its partners may have exposure to some of the cryptocurrencies mentioned in this newsletter.