Lyn Alden, whose name has become a shorthand for quality macroeconomic analysis, is cautiously bullish on Bitcoin. For the short term, she continues to expect very strong relative outperformance. Hiding under her rosy projection are some deeply troubling foreshadowings. It's not just about the halving anymore. It's about liquidity, liquidity, liquidity. It’s these liquidity worries that would prove catastrophic, particularly for UK investors exposed to our difficult home economic conditions.

Black Swans Love Illiquid Assets

Alden gets this cause for concern right, flagging the “Black Swan” event as a major risk. What does that really mean for you, sitting in your flat in London, considering adding Bitcoin to your portfolio? It means this: when the unexpected hits – a sudden geopolitical crisis, a banking collapse, or even a regulatory shock – everyone runs for the exits. And in a market that’s as up-and-down as crypto, that exit can turn into a very restrictive bottleneck, real fast.

Think about it. The UK market is a new market to navigate in soaring inflation and stagnant growth. Our regulatory environment for crypto, to put it mildly, is a work in progress. Now, picture a Black Swan event pouring gasoline on that fire. All of a sudden, everybody is panicking trying to cash their crypto back into pounds. What about when the buyers dry up? Prices plummet. Liquidity dries up. Except now you’re stuck with an asset that’s tanking in value by the hour, and you can’t sell it for anything close to a fair price. It’s more akin to running out of a packed movie house when someone shouts “fire!” The door’s wide open, but everyone’s just rushing to get through the door all at once.

Bitcoin up to $85,002, Hodl Daily. That number is meaningless if you can’t actually achieve it in practice when it matters.

Halving Hype Masks Deeper Problems

You’ve probably heard about the Bitcoin halving and how it drives up price. Supply squeeze! Price go up! Alden is correct to call out the fact that this narrative is becoming less relevant as Bitcoin grows up. The truth is, the halving is only a small part of a much bigger, more complicated puzzle.

What really drives Bitcoin's price now? It’s the current of cash coming in and going out of the market. It’s the availability of liquidity. And that liquidity is massively driven by macroeconomic trends that are usually 100% disconnected from Bitcoin’s internal dynamics.

Remember the 2008 financial crisis? Banks were once considered highly regulated, safe havens for public deposits. A risk of illiquidity, obscured by opaque derivatives around the world, was enough to send the entire system crashing down. In many ways, bitcoin is in the same boat. The hype of the halving can easily fool investors into thinking they can get complacent. This distraction can make them blind to the true dangers of illiquidity. So all this halving hype aside, don’t get fooled – there are some serious risks out there!

This, in my opinion, is the biggest reason why the halving pulls many investors away from focusing on what is really impacting Bitcoin’s price.

Central Bank Shenanigans Skew the Field

Here is where Alden’s analysis gets really interesting, and why it really shines. She emphasizes the complexity of liquidity. What really matters isn’t how many buyers or sellers are on the market. It's about the source of that liquidity. Increasingly, that source is central banks.

Central banks, like the Bank of England, can inject liquidity into the financial system through quantitative easing (QE). This can create a short-term asset-price exuberance, extending even to Bitcoin. But this is artificial liquidity. It’s completely divorced from any real economic fundamentals or true underlying investor demand. It's created out of thin air.

What happens when the music stops? But then what occurs when central banks begin monetary tightening in earnest and withdrawing liquidity from the system? The most speculative of assets, such as crypto, prospered during the era of quantitative easing. Instead, they’re the ones who are dealing with the hardest impacts.

This is an immensely important and perilous moment for investors in the UK. Our government's response to economic challenges, combined with the Bank of England's monetary policy, can have a significant impact on Bitcoin's liquidity. If the Bank of England continues to raise interest rates to fight inflation, this would trigger a liquidity crisis. Without a change in policy this could result in a catastrophic depreciation of Bitcoin’s value. Caution against assumptions with regards to central bank policy.

Ultimately, Lyn Alden's warning is a call for caution, a reminder that Bitcoin's future is not guaranteed. It’s always a volatile asset, easily rocked by the caprice of global markets and gambles on what central banks will do next. Here’s why knowing about these liquidity traps is important for would-be Bitcoin investors, particularly with regards to the current economic environment in the UK. Don’t be a crypto lamb to the slaughter. Stay tuned, stay safe, and stay extremely vigilant.

  • Black Swan Vulnerability: How resilient is your portfolio to unexpected events?
  • Halving Hype Check: Are you overly focused on the halving narrative?
  • Central Bank Dependency: How exposed are you to shifts in monetary policy?

Ultimately, Lyn Alden's warning is a call for caution, a reminder that Bitcoin's future is not guaranteed. It's a complex asset, subject to the whims of global markets and the unpredictable actions of central banks. Understanding these liquidity traps is crucial for anyone considering investing in Bitcoin, especially in the UK's current economic climate. Don't be a lamb to the crypto slaughter. Be informed, be prepared, and be very careful.