Bitcoin As An Investment
I have been a proponent of digital assets since I graduated high school in 2017 and moved to the Bay Area. I was extremely lucky as I found a job at Tesla, and I was instantly surrounded by people older and smarter than me, many had been in and around the tech industry for years. I was given insight I had never been given before, from the investing space to the business space, and far beyond. With the rate of technical innovation around the world, especially in Silicon Valley, bitcoin caught my eye as an exciting opportunity. This was in late 2017, and I was not ready for what followed. I poured large portions of each paycheck into Bitcoin, not grasping the fundamentals, the timing, or even the full concept of what it was. In short, I got rekt. The first chunk I had bought was priced at $5,400 in early November, and I bought all the way up until around the $17,000 price point in early January. A few days later, it started a slow decline, and then a sudden decline. I was in shock, I was angry at myself, but I was still interested in the underlying technology and opportunity. I have spent the last few years reading, learning, and trying to become more involved in the crypto community. During the craziness of Covid-19, I have been able to dedicate a large portion of my time to learning and understanding more about Bitcoin and many projects and protocols on Ethereum, another decentralized platform. I have streamlined my thoughts on Bitcoin into a five-point personal investment and value accrual thesis. Enjoy!
1. Bitcoin is scarce, similar to gold. The anonymous person who created bitcoin made it so that only 21 million bitcoins will ever be created, no more no less. Bitcoin becomes increasingly more deflationary, as the incoming supply is cut in half every set amount of blocks on the blockchain are mined, until the year 2140, after which no more new bitcoins will ever be minted. It is more scarce than gold based on the fact that as the gold price goes up, more people are incentivized to mine for it, therefore more will be discovered.
2. Bitcoin is a hedge against inflation. The pre-pandemic economic landscape included a fair amount of quantitative easing (where central banks buy government bonds or other financial assets to inject the economy with cash) by the United States, but the pandemic has increased this activity exponentially. Since the start of the pandemic, the U.S. has printed somewhere around 5 trillion dollars. This has led to an immediate asset inflation case, where the poor who hold cash are constantly getting poorer, while the rich who hold assets, get richer. Bitcoin is a great hedge first because anyone can buy any portion of a bitcoin, there is 100,000,000 “satoshis” per coin, making it accessible to anyone. Secondly, there is great liquidity in bitcoin, meaning that there is a huge amount of people using it and it is in demand, you can sell it at any time for the market price with no hiccups.
3. Bitcoin is easy to transact in and very secure. As a store of value, bitcoin is exponentially easier to use than something like gold or cash. For example, when you want to travel and you want to bring your asset with you, you just keep your phone on you or bring your private keys. If someone wants to steal it from you they will have to get your password, instead of just looking around your house. Bitcoin is cheap to transact in, takes only a fraction of the time a bank transfer might, and is running 24/7, every single day of the year.
4. Bitcoin has a huge potential for growth. Currently, bitcoin sits at a 200 billion dollar market capitalization, meaning that the price of each individual coin multiplied by the total circulating supply sits at 200 billion. To compare to gold, gold has a 9 TRILLION dollar market capitalization. Bitcoin also has far more utilization than gold in the fact that applications can be built on top of its network, making it even more valuable. I believe bitcoin will be similar to the gold market capitalization if not more in due time.
5. We are still early to bitcoin. Bitcoin is seen as some weird internet money because people can’t comprehend it and its use cases in our ever-increasingly digital world. Amidst a pandemic accompanied by huge economic turmoil across the world where countries are devaluing currencies by printing trillions of dollars out of thin air, people want something scarce. Bitcoin is the best option in my eyes because it’s easily accessible, easily transportable, and has a small community. To this day there are only 800,000 wallets in total, showing a fairly small community.
Although there are many other reasons and narratives that make bitcoin important, I believe that these encompass the most important fundamentals. In years to come, I believe that institutional and retail investment will grow significantly, and bitcoin will be highlighted as the fastest growing asset of all time.