December 8, 2020

The Bitcoin rationale

My wife asked me what we should do with our cash assets in 2021 and my idea is to go all in Bitcoin with whatever we have sitting in index funds and stocks right now. Here is why:

  1. Bitcoin is the best performing asset in the past ten years. The price appreciated by around 80% every year. Past performance is no guarantee for future results, it can however be a helpful metric to choose an investment.

  2. Digitization is eating the world and the adoption curve for Bitcoin is faster than any other global infrastructure rollout before. It’s growing faster than the rollout of the internet, mobile phones and easily faster than virtual banking’ players like PayPal.

  3. If Bitcoin is a Bubble and has no real advantage it should pop. After existing for a decade and coming back after the 2017 peak and ensuing capitulation, this view is not valid any longer. BTC has caught on with Paul Tudor Jones, Steve Druckenmiller and the CEO of Blackrock, the biggest money manager in the world. Even Ray Dalio wondered whether he is missing something” about Bitcoin.

  4. If Bitcoin is a new monetary technology whose appeal is largely limited to technologically savvy and libertarian minded nerds who tolerate the volatility, it’s long term target is $10.000 - $100.000.

  5. If Bitcoin is a new monetary good that will primarily disrupt its closest monetary cousin, gold, while being significantly superior to gold in divisibility, mobility and scarcity, then it’s long term target is $300.000 - $1.000.000

  6. If Bitcoin is the ultimate world reserve currency and the superior collateral asset to anything ever created and sucking store of value premiums out of bonds, stocks, real estate, precious metals and rare arts, it’s long term target is $10.000.000.

  7. The simplest way to think of Bitcoin is in supply and demand. That’s it. The supply won’t ever change, it’s fixed at 21 Million. Bitcoins inception and distribution is meticulous1 and won’t ever be rivaled by other monies, forks or coins. Demand will continue to rise with money printing, political chaos in the west, and digitization. Bitcoins stock to flow will make it the rarest asset class in the world, rarer than Gold or Silver which will show in price.

  8. A beautiful way to think of Bitcoin is that its value comes from energy conserved into information. Energy can only be converted in form, but not created or destroyed. With Bitcoin information truly is ownership, there is no difference between knowing and owning. Everything is energy, Bitcoin is energy, and therefore everything is Bitcoin.

Now we just need to answer this question: in 20 years, is Bitcoin worth:

  1. nothing

  2. roughly the same

  3. a lot more

My rationale is a) and b) are very unlikely and therefore it must be c). Buy Bitcoin!

  1. TLDR: Bitcoin benefited from an extremely rare set of circumstances. Because it launched in a world where digital cash had no established value, they circulated freely. That can’t be recaptured today since everyone expects coins to have value. Not only was it fair, but it was historically unique in its fairness. The immaculate conception.” Nic Carter


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