By Anonymous Guest Writer
Like most people who first discover Bitcoin, I learned about it as its rapidly inflating price was making the news. This was in 2017, and I was wrapping up my Neurology residency. The news proclaimed that “blockchain technology” would one day change the world but that Bitcoin itself was only part of that broader technology and not the technology itself. I assumed they were correct. I assumed that the bubble would eventually burst since Bitcoin was being portrayed in the news as the next “Tulip Mania.”
Sure enough, Bitcoin began a long decline in late 2017 in what has been called “crypto winter.” Bitcoin started around $1,000 in 2017 and hit a peak of $20,000 in December of that year. By February 2018, Bitcoin’s price had tumbled to around $8,500.
After the bubble popped, I gave Bitcoin no more thought for the next several years and assumed it would continue an inexorable decline toward $0. This is because I hadn’t done the work to learn about it. I assumed what I was told—that it was a bubble—was correct without giving it any more thought.
I next heard about Bitcoin again in late 2020 when all assets were on a stimulus-induced sugar high following the rapid COVID crash and the resulting trillions of dollars pumped into the money supply. To my surprise, Bitcoin had not died off, and it was actually rapidly approaching its prior all-time high.
This is when I first invested in Bitcoin.
I did not understand it yet, but speculation was plentiful at that time, including the birth of “meme stocks.” Investing in Bitcoin seemed like an easy way to make some money, given how all risk assets were booming with no end in sight. White coat investors don’t allocate high percentages of their income to these sorts of things, but I figured 5% or less as “play money” couldn’t hurt and was within reason. The rest of my portfolio was still all US and international market cap-weighted ETFs.
I now view my Bitcoin investment as much more than “play money” or mere speculation. I view it as a hedge against the fiat monetary system and a truly unique asset. I only developed this view gradually after a couple of years of careful analysis and thought.
Dr. Jim Dahle has argued that he is more or less neutral on crypto as an asset class, and he thinks we as high-income professionals do not need crypto in our portfolios. He also stated that even if crypto does thrive, Bitcoin is akin to AOL, and it will not be the winner when all is said and done. This guest post will hopefully provide you with some insight into my journey down the crypto rabbit hole and why I now view Bitcoin as NOT the next AOL but rather as the prime crypto asset with a chance to provide every individual with property rights and power over oppression from governments.
This is the story of why Bitcoin is now a core holding in my portfolio—and why I think Bitcoin also belongs in your portfolio.
Down the Rabbit Hole
Once I invested in Bitcoin, I quickly learned more and more about it, and I went fully down the crypto rabbit hole. It all seemed easy enough to pick up. Bitcoin was “digital gold” to be used as a store of value. All the rest were “altcoins.” Ethereum was “digital oil” to be used in the daily grind of processing smart contracts via its “Ethereum Virtual Machine” on the blockchain. And there were a host of other smaller cryptocurrencies—Solana, Polkadot, Cardano, Avalanche—that were the so-called Layer 1 protocols—which were faster, cheaper alternatives vying for Ethereum’s coveted No. 2 spot for total market cap in crypto. This was in addition to stablecoins like USDC, BUSD, and Tether (among others).
I figured that even though no ETF existed for cryptocurrencies, I would dollar-cost-average into some of them each month to create a roughly market-weighted collection. I could then be a part of a technology that seemed poised to have a bright future before “institutional investors” would pour their money into them and drive their prices soaring. My investment at this time was fully geared toward speculation.
More information here:
What’s the Future of Cryptocurrency? These Fanatics Say It’s Pretty Darn Bright
Altcoins, the Role of Venture Capitalists in Crypto, and ‘Sh*tcoin Casinos'
Spend any time on “crypto Twitter” or Reddit, and you’ll quickly run into the term “toxic Bitcoin maximalist.” This term refers to anyone who feels that Bitcoin is the only worthwhile cryptocurrency and that all others are scams—not “altcoins” but “sh*tcoins.” I didn’t understand this viewpoint at first. Surely, I thought, diversification made the most sense and that it was the most reasonable approach.
As I delved deeper into crypto, however, I began to see their point. I learned that pretty much every altcoin has a marketing team and a “foundation” that, in effect, acts like the board of a company and ultimately drives the direction of the development of the altcoin. Prior to “going public” and releasing their tokens for sale to the public, all of these altcoins already had made substantial numbers of the tokens available to venture capitalist insiders. See the figure below for percentages of insider allocations by various popular altcoins (it’s 0% for Bitcoin).
After everyone on the inside has their share of cheap coins, they then release the coins to the public, publicize them aggressively to pump up their price, and use retail investors as exit liquidity while the price often dumps.
These altcoins are all securities, and their founders and financial backers are selling these securities to the public without due disclosures. They all pass what’s known as the Howey Test used by the SEC to determine whether a transaction qualifies as a security. To pass the Howey Test, a transaction must involve: 1) an investment of money, 2) in a common enterprise, 3) for a reasonable expectation of profit, 4) and derived from the effort of others. Every altcoin is a security. The exception is possibly stablecoins which do not stand a reasonable expectation of profit, as they are expected to remain pegged 1:1 to the currency which they are designed to track.
In effect, every single altcoin on the market, with the exception of stablecoins, is a security. The good ones are essentially fledgling companies with no products of real utility that are committing securities fraud. The bad ones are Ponzi schemes committing security fraud. We saw this play out when the Luna altcoin famously imploded over almost 24 hours, evaporating almost $40 billion of wealth overnight. Before Luna, there have been countless rug pulls after rug pulls. Even several crypto “custodians” and exchanges such as Celsius, Voyager, BlockFi, and FTX—all funded by venture capital—went under due to a combination of abysmal risk management and outright fraud. As I write this, Binance, the largest crypto exchange in the world, has just been sued by the US government for fraudulently trading against its users for profit. The world of venture capital and altcoin is a cesspool.
Bitcoin maximalists call the companies that sell altcoins “sh*tcoin casinos,” and after following this industry for the last couple of years, boy do I ever agree with this sentiment. You might get lucky by buying these altcoins on their way up and make a huge gain, but more likely, you’ll only ever hear about them after a pump and you'd end up riding the losses down.
The odds are forever stacked in favor of the founders and against you and me. I personally made tens of thousands on altcoins, and as crypto crashed, I lost those tens of thousands. More and more, I began to view Bitcoin as the prime crypto asset and focused most of my attention on learning why Bitcoin maximalists think it’s so darn special. I eventually paused my investments in non-Bitcoin crypto in 2022, and in early 2023, I made the decision to close all of my non-Bitcoin positions and focus only on investing in Bitcoin as a crypto asset. More on this below.
More information here:
13 Lessons to Learn from Sam Bankman-Fried and the FTX Meltdown
Bitcoin Is Unique from Crypto
Bitcoin separates itself from all the altcoins not just because it “came first” and because it's the most well-known cryptocurrency. It stands out for many reasons. Its founder(s) are not known, only existing by a pseudonym known as Satoshi Nakamoto, whose identity was never discovered and who seemed to completely disappear early in the life of the project. No Bitcoins were ever dropped out of the air or “pre-mined” to the founders or any insiders for their benefit. Even Satoshi Nakamoto himself had to use electricity and his own CPU to mine the first Bitcoins. Anyone who knew about Bitcoin could do the same.
This is in direct contrast to other cryptos that allocate ample control and wealth to their founders and venture capital-backed investors before making it available to the public. Bitcoin has no CEO. Bitcoin has no marketing department. Bitcoin is not a security. Anyone with electricity and an ASIC machine can mine Bitcoin, just as anyone with electricity and heavy machinery can pull oil out of the ground or dig gold out of the earth. Bitcoin is a digital commodity—the first ever and only digital commodity. It’s the only cryptocurrency viewed by Gary Gensler and the SEC as a commodity, and he has made this point numerous times publicly. He’s also made the inverse point—that all other cryptocurrencies are securities—many times.
Bitcoin as a Store of Value
What really made me realize the importance of a good store of value was when I started listening to interviews with Michael Saylor—who is, in essence, a Bitcoin maximalist who famously has placed his company, MicroStrategy, on the “Bitcoin Standard” by converting all of its treasury to Bitcoin.
Let’s say you have $1 million and you want to pass it down so that 100 years from now, your great-great-grandchildren can receive it and have the same buying power that it has today. What do you do? You certainly wouldn’t keep it in cash. In the past 100 years, $1 million would have become around $40,000.
You could buy real estate, but then you’d have to keep up with maintenance costs while also paying property taxes. You could rent out the house, but you’d have to have a competent property manager and you’d be at the whim of the local real estate market. What if the house is in the next Detroit? And what if you live in the developing world and your chances of buying a house in the US are akin to the average American’s ability to buy a professional sports team as a store of value?
You could buy a basket of stocks. We take this for granted in the US, but there are 2 billion individuals across the world who are unbanked and who have no hope to partake in the returns that equities have to offer. Moreover, when times have gotten tough for countries or when governments have taken a hard turn, entire stock markets have been shut down and all the wealth “stored” in them evaporated overnight.
Next up is gold. Gold has been the most enduring store of value in human history. Why? Because it’s “hard money.” If your civilization uses seashells as a store of value because they take time and energy to collect but a technology is developed that allows for the extraction of unlimited amounts of seashells from the ocean, seashells will become valueless. Even for other metals such as copper and nickel, if their price goes up sufficiently, people will become incentivized to increase their production such that those who use these metals as a store of value will soon find themselves without any value left at all.
Gold, however, is remarkably hard to mine, and despite wild fluctuations in its price, its total supply increases relatively slowly each year. According to the CME group, from 1965 until 2020, the annual growth in the percentage of gold has been remarkably consistent between 1.1% to a max of 2.1% per year. Even with a meager 1.5% inflation rate, $1 million would be whittled down to only $220,000 over 100 years. And although gold has been the best store of value we’ve had as a society, it has its flaws. In a digital world, how can you transmit gold across the world to pay for a good or service? How do you easily divide it as needed to pay for small amounts of goods? And if war does break out, lugging around a large suitcase of gold certainly would not be inconspicuous.
With every area of weakness that gold has, Bitcoin shines. It is highly portable—all you must do is remember 12 words and you can take a lifetime’s worth of wealth anywhere in the world. It’s highly divisible—the smallest unit of Bitcoin, one Satoshi, is currently only 2 cents. It cannot be counterfeited. A bar of gold could be filled with various metals plated with gold making it hard to verify its authenticity quickly, but Bitcoin can be verified by your own node in your own home within seconds. It’s incredibly scarce—its current inflation rate is 1.8%, and this will be cut in half every four years. Ninety percent of the supply has already been mined. This means that the cumulative rate of inflation over the next 120 years will be 10%, or 0.08% per year over this period.
This next point is a very important one. History has shown that, over time, value flows from weak stores of value to strong ones. This is why societies no longer use seashells, glass beads, copper, nickel, or other similar metals as stores of value. Bitcoin has the best technical characteristics of any store of value that has existed in the history of man, and it’s readily available to anyone with an internet connection and a smartphone—in any amount from a fraction of a penny to billions of dollars. Billions of dollars can be transacted within minutes across the world with absolute finality in a non-censorable way with no need for trusted intermediaries. This is absolutely unprecedented in human history. There is no other technology that has done this. As time goes on, how much of the purported $400 trillion of global wealth will flow into it?
Bitcoin as a Weapon Against Tyranny: Proof of Work vs. Proof of Stake
Even more importantly than any of the above, Bitcoin, unlike any altcoin, is truly decentralized. This is its greatest strength. In early 2022, the government of Canada halted bank transactions that were sent to support participants in demonstrations against COVID mandates. The banks did not put up a fight. They had to comply. A democratic government took an autocratic turn, and the current banking system was absolutely inept and unwilling to fight for its customers.
Bitcoin transactions to the protestors, however, could not be stopped. Bitcoin has no CEO or board to “go to” to reverse a transaction or freeze an account. It is truly permissionless and uncensorable. Contrast this with Ethereum whose “Tornado Cash” app was effectively shut down by the US government. There are also several instances of the USDC stablecoin, which runs on Ethereum and several other Layer 1 chains, holding certain transactions from going through. This can happen because most protocols besides Bitcoin are “DINO”—decentralized in name only.
One of the biggest reasons people call Bitcoin “outdated technology” and argue it will be replaced by a cheaper, more energy-efficient crypto is that Bitcoin uses what's known as Proof of Work (POW). Most other cryptos, including Ethereum, use Proof of Stake (POS). In brief, POW requires “miners” to make guesses via a specific algorithm (SHA-256) that requires brute force to guess a specific number. Once guessed, it can be readily verified by any “node” within seconds. The computers that mine Bitcoin are making these guesses to the tune of about 350 quintillion guesses per second. As more miners exist to make guesses, the Bitcoin algorithm automatically adjusts to become harder. This is what guarantees that Bitcoin cannot inflate any more than it is programmed to do—the more people mine it, the harder it gets to mine. All of these machines require electricity. In today's world, with people's concern about electricity use and global warming, it's clear to see why some attack Bitcoin due to its electricity usage.
Most other cryptos use POS to be more energy efficient. This uses a “staked” or locked amount of crypto and much lower computational power—thus, much less electricity. “Bad actors” would lose their staked crypto, thus incentivizing good behavior by the transaction validators. Unfortunately, POS's fatal flaw is that those with larger amounts of crypto will see power accrue to them disproportionately over time, similar to what happens in systems with fiat currencies. In our economy, those with more starting capital make a profit much more easily on their capital over time, and the effects can be monumental over generations and contribute to income inequality and oligarchies.
Similarly, those with more Ethereum to start with (insiders and the Ethereum Foundation) will only gain more Ethereum and more power over the network in the long run. In contrast to this, Bitcoin's POW mechanism ensures that regardless of how much Bitcoin you may have, you do not get more control over the network. Anyone can stand to mine just as much Bitcoin as anyone else if they “do the work.”
It's this essential feature of POW that makes it absolutely necessary to have a truly decentralized cryptocurrency over time. Without proof of work, anyone’s control or power in the system can be changed at the click of a button by the foundation of an altcoin—a crucial hindrance to wide trust and adoption. It’s just numbers on a screen with every crypto besides Bitcoin. Once you understand this, you see that Bitcoin's “bug” of relying on “outdated” POW is its shining feature. And in the POW world of crypto, Bitcoin’s hash rate is 1 million times higher than the two next largest POW cryptos (Dogecoin and Litecoin).
Bitcoin is the 800-pound gorilla of truly decentralized cryptocurrencies, and the next two largest are the 0.0008-pound fleas on its back.
More information here:
Bitcoin Stands Alone: Why Bitcoin Belongs in Your Portfolio
Now, you may be telling yourself that all of the above is well and good, but why the heck should you care about it and why should you have Bitcoin in your portfolio? I recently decided to sell my other cryptos and go 100% Bitcoin for my portfolio’s 10% crypto allocation. I chose this percentage because I believe a reasonable price target will be at least $250,000 per Bitcoin if it becomes a global store of value protocol (more on this below), and this would represent a nice boost to my overall returns without risking too much capital.
I could retire just fine without this 10%, but I would get a meaningful boost in spending power if this 10% of my portfolio does a 10x. Even so, we, as physicians, would be just fine from an investment return standpoint never investing in Bitcoin. We could settle for market average returns. We don’t need home runs. However, as I tried to argue above, Bitcoin is not some hot stock. Its unique properties of decentralization and uncensorability make it a special asset to hold.
Consider this quote from Vladimir Lenin: “There are centuries when nothing happens, and there are weeks when centuries happen.” We all saw this play out firsthand in early 2020 when mask mandates were rapidly rolled out (and were welcomed by most), trillions of dollars were printed, and our day-to-day lives were completely upended. We saw it again when the relative post-Cold War peace between global powers abruptly ended as Russia started its treacherous campaign into Ukraine in early 2022.
The events of these last few years are not without consequence. Consider (figures below) the total US dollar money supply (M2), the total assets held by the federal reserve, and the total US public debt. It’s not a surprise to most people that the US has a tremendous debt of $31 trillion and an extra $60 trillion in unfunded Social Security and Medicare liabilities. How does the US pay off its bill? It can either raise taxes or continue to borrow and balloon the deficit further.
This is not a new problem. Since the time of the Roman Empire, largess in spending has led to hard decisions about how to reign in the deficit, and time and time again, it’s proven more politically expedient to debase the currency and cause a “soft default” over time rather than raise taxes. As for the Romans, they debased their currency by diluting their coins with cheaper metals. As for the US, Richard Nixon took the US off the gold standard and the US unofficially defaulted on its debt in 1971 with the ability to print more money as needed. We thankfully have remained the world’s global reserve currency despite this.
Unfortunately, the US government recently decided to weaponize the US dollar against Russia. This served our strategic interests in the short term, but undoubtedly in the long term, it will make all countries that store their wealth in the dollar question if their wealth, too, can be frozen as a political weapon. Ultimately, all fiat currencies have suffered the same fate in the end.
I highly recommend “Big Debt Crises” and “Principles for Dealing with the Changing World Order” by Ray Dalio for much more comprehensive information and background about what governments have historically done during these times. In short, if hyperinflation hits the US, it might be hard and it may be fast. Capital controls would likely be quickly enacted, and bank accounts and brokerages would possibly be frozen. Just as COVID mandates were not seen as overt intrusions by the government by most citizens—especially at the time—most will likely welcome these “necessary measures.” It would then become glaringly obvious that all of our portfolios were just numbers on a screen.
J.P. Morgan said before Congress in 1912, “Gold is money. Everything else is credit.” Governments began to seize gold from the populace at large around World War I in the case of Britain and in 1933 in the US with Executive Order 6102, making gold illegal to hold for 41 years and stripping the individual of power while giving vast amounts of it to the government. Consider also that in the not-so-distant future, global governments, including the US, will be rolling out Central Bank Digital Currencies (CBDCs) which will give governments and central banks unprecedented oversight into how we spend our money and what we are allowed to do with that money. Central bankers want to boost the economy? In the next recession, they could program your money to either be spent on goods or sit idly in your checking account, losing x% per year as a penalty for not spending, while simultaneously being programmed such that it can’t be sent to any brokerage. Buy too much carbon-positive beef this month? Your CBDC is turned off from buying more beef until next month.
I know all of the above must make it seem like I’m a raving Orwellian who sits in his basement clutching a shotgun waiting for the world to end. I promise I’m not! However, I am a realist and a student of history. As Jim has said many times to all white coat investors, the real risk to a portfolio is not volatility but rather it’s inflation, deflation, confiscation, and devastation. Holding Bitcoin won’t stop a bomb from dropping on my head, and stocks and real estate do well enough dealing with inflation over the long run. Holding Bitcoin does, however, provide me with true protection against confiscation in a way that stocks, bonds, and real estate do not. No one can take away my Bitcoin or dictate how I spend it. No one government can place capital controls on it. This property makes Bitcoin an invaluable part of any portfolio, even that of a white coat investor.
I invest 90% in stocks hoping for the best. I invest 10% in Bitcoin prepared for the worst.
In summary, Bitcoin is wonderfully unique. It’s a truly decentralized protocol that, unlike all other cryptocurrencies, is not a company or run by any organization or group.
-
- Bitcoin has no competition; any cryptocurrency that appears to compete with it crumbles away under any real analysis.
- Bitcoin is insurance. Bitcoin protects against currency debasement by providing an exit ramp from fiat currency if a global fiat debt crisis occurs. Like any insurance, it’s best bought before you need it.
- Bitcoin is freedom money—the separation of money and state. You don’t need anyone’s permission to spend it, and no one—not even the almighty government—can stop you from spending it when and how you like.
- Bitcoin is digital scarcity. No matter how valuable it becomes, it is programmed to only be produced in diminishing amounts each year; this is codified and cannot be changed in response to price or political pressure.
- Bitcoin is digital property. It gives every human on earth who has a smartphone and internet access to property that cannot be confiscated under coercion.
Bitcoin is not the next AOL. It’s a protocol growing stronger by the day with no competition, and it's already too big to be stopped. Bitcoin is the next TCP/IP upon which AOL and the internet were built, but for money. Bitcoin may well stand to be the future base layer protocol of the global monetary system.
More information here:
Appendix: Answers to Common Criticisms of Bitcoin
#1 Bitcoin Is Too Volatile to Hold
The least volatile asset to hold is the US dollar. It’s lost 88% of its purchasing power since 1971. For those who understand what they own and only allocate a responsible portion of their portfolio to it, it can be a wonderful complement to other assets in a portfolio. What I look at to value Bitcoin’s success is not its price. Instead, it's 1) the growth of the number of users in the network, 2) the growth of its security (ie., its hash rate), and 3) the growth of conviction of the users of the network.
1) The number of Bitcoin addresses with a non-zero balance has been steadily growing since its inception according to @IntoTheBlock.
2) Despite fluctuations in its price (black line in the chart below, via Blockchain.com), Bitcoin’s hash rate (blue line) has been up and to the right since its inception. The only hiccup was in 2021 when China banned Bitcoin mining, but it quickly recovered as miners relocated, demonstrating the resilience of the network.
3) Despite all of its price fluctuations, most of those who own Bitcoin understand it and know what they own—and they aren’t selling. Fifty percent of Bitcoin has not moved in more than two years, an all-time high. This only serves to increase its scarcity.
#2 You Can’t Actually Spend It
Approximately 15,000 businesses worldwide accept Bitcoin. Additionally, companies such as Strike exist that can convert Bitcoin to local currency, instantly allowing you to spend Bitcoin even where it’s not directly accepted.
#3 It Takes Too Long for Transactions to Settle
The Bitcoin block time is approximately every 10 minutes. However, the Lightning Network, which has been rapidly increasing in the number of transactions in the last couple of years, can settle transactions on top of the base Bitcoin network in seconds with finality.
#4 Bitcoin Can Only Handle a Limited Number of Transactions Per Second
This is a common argument made by the other so-called Layer 1 cryptocurrencies. There is a commonly cited “Trilemma” in cryptocurrency: speed, security, and scalability. You can only have two out of the three on the base layer. Bitcoin has opted for speed and security. However, this is not a real problem as Layer 2 solutions, like the Lightning Network, enable exponentially more transactions than the base layer allows, vastly increasing scalability and eliminating this problem.
#5 Bitcoin Is a Ponzi Scheme; It’s Not ‘Worth' Anything; There’s No Way to Know How Much Bitcoin Will Go Up or Down in Price
I hope I've proven how much value Bitcoin uniquely provides as an asset. If more and more people wish to save some of their wealth using Bitcoin due to its superior attributes as a store of value, this will drive up its price.
Let’s assume that Bitcoin is a better store of value than gold, and over time, its market cap comes to equal that of gold, which is currently around $13 trillion. This would make each Bitcoin worth $620,000 (13 trillion divided by 21 million, which is Bitcoin’s fixed cap). Consider that the total sum of all of the stores of value in the world is approximately $550 trillion at a minimum ($325 trillion in global real estate; $115 trillion in global bonds; $100 trillion in global stock; $10 trillion in gold; $10 trillion in antiques, cars, collectibles, art, etc.). Let’s assume 75% of these are necessities, and only 25% is true excess storage of wealth.
As we discussed, Bitcoin is a superior store of value to all of these. Bonds provide minimal returns above inflation. Real estate has property taxes and maintenance costs. Gold is difficult to store and to move around in large amounts, and it's hard to quickly verify its authenticity. Over time, value flows from weak stores of value to the strongest. If this 25% eventually (over the next several decades) makes its way into Bitcoin, it would place each Bitcoin at $5.5 million. So, are you still scared to buy Bitcoin at $20,000-$70,000? Also, consider that the price of any asset is determined at the margins. A bottle of water may cost $1-$3 dollars in normal times. But if it’s the only bottle of water in a desert with 100 millionaires on it, its price suddenly becomes the net worth of the richest millionaire who wants it. Similarly, if there is a shock to the legacy fiat systems, the price of Bitcoin may rapidly inflate as the ultra-wealthy scramble for the exits.
#6 But Bitcoin Doesn’t Have Any Smart Contracts
This is true for now. But consider this. Smart contracts are useful when you want the blockchain to automatically execute a function under a set condition. However, you could also just use a regular company to do this. For instance, if I want to have a smart contract that will pay me 5% interest if I loan out my “sh*tcoin” to someone else, there is something known as a bank that can facilitate this process. Now, the blockchain does remove the middleman and automates the process, which provides some value. However, if you’re talking about billions and billions of dollars at stake between large players, the security and immutability of the base settlement layer becomes of utmost importance. The only chain that is not reversible and under the control of any foundation is Bitcoin. It’s the only cryptocurrency that’s not a de facto company. A company that can be controlled is no better than a bank or any other company. Therefore, any smart contract network that will gain wide adoption by the “big players” will have to be built on top of the Bitcoin network if they are to be trusted for transactions of consequence.
#7 If It’s Such a Great Store of Value, Why Has Bitcoin Not Been an Inflation Hedge?
Bitcoin has had booms and busts due to excessive leverage, speculation, and greed. But all of that aside, it’s been the best-performing asset on the planet since its inception, and it keeps hitting higher lows. If you can stomach its early volatile phase, it stands to provide great future returns. If you wait to buy it once it’s become more of a globally established store of value, the volatility will be diminished. But so will future returns.
There is a saying among Bitcoin maximalists: Don’t wait to buy Bitcoin; buy Bitcoin and wait.
#8 Isn’t Bitcoin Supposed to Be Terrible for The Environment?
This is a common argument by the mainstream media. According to the Bitcoin Mining Council (BMC)—a global forum of mining companies that represents 48.4% of the worldwide Bitcoin mining network—renewable energy sources accounted for 58.9% of the electricity used to mine Bitcoin in Q4 2022. That's a significant improvement compared to the 36.8% estimated in Q1 2021. What’s more, Bitcoin actually incentivizes the use of renewable energy. If you develop a coal plant, you can burn more coal when needed to adjust to the demand on the energy grid. However, if you build solar panels or windmills, you have no use for that energy when the grid does not demand it, and you miss out on potential profits. If you can mine Bitcoin with the excess energy, you’ve effectively found a way to generate income even when there is no demand for your source of renewable energy, thereby helping to subsidize the cost of the investment.
This can be a boon to the development of more renewable sources of energy and can help provide further stability to the power grid. There are even companies that harness flared methane from natural gas operations and help decrease how much harmful methane gets into the atmosphere. The topic of Bitcoin and energy is much more complicated than it would appear at first glance. Furthermore, consider that clothes dryers use more energy on a yearly basis than Bitcoin mining. Where is the outcry about this and why is there not a push to ban them? We can all hang out our clothes to dry, but this use of electricity to secure the best store of value ever created and a means to escape government oppression cannot be achieved without the use of sufficient energy to secure the Bitcoin network and make it resistant to attacks.
[Founder's Note: I hate to add a lengthy note to an already lengthy post, but on a controversial topic such as crypto (and yes, Bitcoin is crypto even if the maximalists don't like the rest of the world saying so), it must be done. You need not assume that because you just read a lengthy, relatively positive article about Bitcoin on this website that I have somehow changed how I feel about it. I have not. I still think it is an optional asset class at best and not one that I have any plans to invest in. In fact, as time goes on and crypto still hasn't changed the world in a way meaningful to me, I lose more and more faith that it ever will. Unlike the author who admits he jumped in despite not understanding the investment mostly because the price was going up, I've known about Bitcoin from nearly the beginning, and I certainly understand the basics of how it works. Every couple of years, I look at it again to see if something has changed enough to make me want to own it. So far, no, and the arguments in this post are neither new nor convincing to me. I'm still content to stand on the sidelines and see what happens. I don't need to invest in everything I find interesting.
The author stated he would convince us that Bitcoin is essential to protecting our property rights. He wrote that it would prevent our oppression by the government and that it should be in all of our portfolios. I would argue he has failed to do so. He contends that Bitcoin is the best store of value ever invented, yet as much as 25% of it has completely disappeared as its owners have lost their keys. Not to mention the fact that its wild volatility makes stocks and precious metals look tame in comparison. The author feels that Bitcoin cannot be confiscated. Yet the very presence of the blockchain makes it relatively easy to track down criminals who have transacted with it, and the IRS now requires crypto traders to report that activity on their tax returns. When you're threatened with jail or have a gun held to your head, you'll find those Bitcoin keys pretty quickly.
At the end of his post, the author addresses my primary criticisms of Bitcoin. Although the Lightning Network and similar improvements have made strides in addressing a couple of them, the rest still stand. It is ridiculously volatile. I still can't spend it anywhere I'm interested in spending money (and would generate capital gains every time in order to do so). It has no underlying value, uses massive amounts of electricity, doesn't offer smart contracts, and doesn't seem to be particularly good during inflationary times. If it never gets better than this, I just don't see it changing the world. But my faith in humanity and technology is such that I still hold out hope that these problems can be addressed by a modified Bitcoin or, more likely in my opinion, an entirely new cryptocurrency as Bitcoin goes the way of AOL.
I truly am fascinated to see how the world might change as a result of Bitcoin and similar technology. But after 15 years, I'm no longer holding my breath. Bitcoin is a speculative instrument, and I don't put those in my portfolio. If you choose to, limit it to a single-digit percentage.]
What do you think? Do you have Bitcoin in your portfolio? If not, would you consider adding it? What other arguments for and against Bitcoin can you make? Comment below!
[Editor's Note: The author is a neurologist practicing in the Mid-Atlantic who is five years out of training. This article was submitted and approved according to our Guest Post Policy. We have no financial relationship.]
I think this article although factually accurate accidentally obscures what makes bitcoin so special.
The ONLY thing that makes bitcoin a revolutionary asset is it’s ability to function without a third party. It’s a non-custodial digital asset. The first of it’s kind. No bank or financial institution needed to secure, custody or transfer. Noting else on earth can do that.
The “AOL” debate. There may be other iterations that might replace btc but that’s a biased way of looking at it. Silicon Valley is always iterating so we assume the same for all tech. It’s been 15 years without a close competitor despite thousands of active protocols.
What else on earth that can be used as a monetary medium has absolute scarcity? Nothing that’s ever existed besides Bitcoin. That’s the most important quality of Bitcoin when it comes to store of value.
Censorship resistance which you are describing is also important, but not without absolute scarcity. Ie. If I bought Bitcoin to store value and its supply could 10x overnight, I would not use it to store my wealth.
Agreed. But many things have scarcity. Including a variety of monetary assets.
Which monetary assets? Bonds can be printed, driving down yields and hence value. Fiat can be printed. Stocks can be issued and current shares diluted. Gold has relative scarcity, but it’s being inflated at 1.5% per year, meaning there will be about 4-5 times as much gold in the world in 100 years. 90% of the Bitcoin that will EVER be in existence has already been produced. There is 19.4 million now and there will be about 21 million in 100 years. The stuff is incredibly, inconceivably scare.
Other than the fact that another Bitcoin can be made. No limits to how many.
Another Bitcoin has already been made, Jim. Many altcoins, such as Bitcoin Cash, Bitcoin SOV, Dogecoin are small modifications of Bitcoin’s code. None have succeeded. As mentioned in the article, Bitcoin’s hash rate is 1 million times higher than the two next largest POW cryptos combined. Bitcoin’s network effects will ensure no copies will ever take its place.
Ever/never is a long time. Hard to be real sure about it.
100% agree. But we have to place some bets in life based on the past and suspected future trends. Even stocks you could argue may not do as well in the future in light of demographic changes. Bitcoin is a sure enough bet for me, but everyone has to decide that on their own.
This is the dumbest sh!t I’ve ever seen in this website.
Original poster here. Since I wrote the article, Larry Fink, CEO of Blackrock–the world’s largest asset manager–has said publicly that Bitcoin “could revolutionize finance” and is in the process of bringing to market a Bitcoin ETF as of June 2023. This is after calling it a “index of money laundering” in 2017. Time spent studying Bitcoin has changed Blackrock’s mind. So too may it change yours.
If anything in the article has peaked anyone’s interest, I am happy to answer any questions.
Also, I’m not sure if you saw the recent documents that came out of Blackrock. A few of their quants did a significant amount of research. They found that from a purely mathematical perspective the “optimal” asset allocation when compared to the “classic” 60/40 portfolio…for risk adjusted returns moving forward is approx 85% Bitcoin, 9% stocks, 6% bonds. This was quite shocking since it is coming from the same company who’s CEO stated multiple times in the past that Bitcoin is for drug trade, illegal transactions, tax evasion and burning the earth.
I did see the report. I think it’s gonna be a long, long, long time before recommended allocation from Blackrock higher ups would look anything like that, I think, if ever.
Kudos for presenting alternative views, but initially I thought it was April 1, again.
I came to some of the same conclusions as the author. Only thing disagree with is how much a Satoshi is going for think math may be off on this. Kudos to WCI for posting this as I know he isn’t big proponent but gives people an idea of other side and let them decide. Bitcoin represents the only investment that with small amount say 1 to 5 percent in your portfolio could knock years off your retirement. It is an asymmetrical investment.
Is this in honor of Shark Week? WCI, you have jumped the shark.
I “invested” in a bunch of Pappy Van Winkle about 12-15 years ago. That has performed equally well without such crazy volatility. Plus I can drink it.
Hear hear!
Wellllllll, if Larry Fink likes it….
I started out neutral on Bitcoin but as he points out in the article, the Canadian government was able to stop some super wingnut creeps dead in their tracks and Bitcoin would have ursurped that, I think that is argument enough that Bitcoin is for criminals.
https://www.nytimes.com/2021/06/24/business/economy/fed-blackrock-pandemic-crisis.html
Hmm… The US government seems to listen to this Larry Fink guy for some reason. His opinion might matter more than mine or even yours…
I am a father, husband, and urologist. Not a criminal. And I use bitcoin.
Hello
I am a physician who purchased bitcoin and other crypto in 2017. I also have many Boglehead tendencies in investment although whenever I venture out to the “dangerous streets of the forum” mentioning the merits of bitcoin and crypto I am laughed out of the room. I have gone from net worth of near zero to high 7 figures since 2017 because of my investments in and outside of crypto , real estate, my conviction, and willingness to close my eyes and grit my teeth through the volatility.
This is a horribly misunderstood asset class and in the next few years traditional finance influencers will wise up and finally give their blessing that this is an OK investment. It will happen when Blackrock ETF is approved and it is not a risky career move for financial advisors to recommend bitcoin and crypto. Of course the price will reflect this reduced risk as well and you will pay more to have exposure.
I have learned that if you identify things that are horribly misunderstood yet incredibly valuable then you have everything you need for a wonderful investment.
You must respect anyone that has the guts to give this topic a shot—particularly on this forum. I don’t know a ton about Bitcoin. And, admittedly, I think it is a Ponzi scheme. I will go to my grave thinking that even if the overwhelming evidence someday shows otherwise. I don’t have an “open mind” because I’ve never seen a remotely convincing argument in the last decade. If you can’t sum up in a paragraph as to why I should buy Bitcoin, then you don’t understand it yourself sadly. That is just the hard truth.
Why should you buy the SP500? It is tethered to hard assets, has consistently performed for 100 years, and there are no alternatives that are consistently more stable with a similarly long track record. It is that simple. Then you can argue around the margins, but it “sells itself.” Swap in the Dow, Nasdaq, whatever. I don’t “like” it either—but it is objectively true.
My “thing” with Bitcoin is I think the governments around the world will at some point just outlaw it. It is that easy. If they perceive it as a threat to the sovereignty of the nation, they will just make it illegal. You can say “they can’t do that,” but we know they can. We also know it just takes a “narrative” to get it through Congress in this country. If a 2008 crash comes again, Bitcoin will go down a lot. Politicians can then just say Bitcoin is being used to “ruin people’s lives.” That’s the ball game. U.S. outlaws it. Europe follows. China, etc.
Now you are dealing in black market Bitcoin? At the risk of prison? You know what else has a consistent store of value: cocaine. Hedges nicely to inflation too. How many bricks do people have stored in their safe at home on this forum? The value of Bitcoin will be destroyed instantly if it is outlawed.
And, quite frankly, Bitcoin should be outlawed. Nobody should be allowed to compete with the currency of a sovereign nation. I know that is “old man” talk, but either we have a country, or we don’t. If we do, we must have one currency. It is central to our survival as a nation. The “laws” mean nothing if they cannot be enforced without physical force. Civil penalties are required for a civilized society.
Play this out. We do a deal. We sign a contract. You screw me over. I sue you. I win. I can’t collect because all your assets are hidden in the backyard on a hard drive. But, it is the future now—and these Bitcoin assets are actually usable (unlike today)? You can just swipe your bitcoin card and buy whatever you want anywhere in the world? No bank means no accountability. Blackrock goes under and they just “download” 500 billion to a hard drive and head to Mexico? It would instantly collapse the U.S. economy. It’s anarchy. And it is what causes war (it has happened throughout history over and over).
I know the “kids” these days love the idea of everything being “truly decentralized.” When that happens, it becomes survival of the fittest. Laws are not optional. They are what separate us from the animals. Without a stable currency, we devolve into chaos. Bitcoin cannot replace the dollar without a world war. Bitcoin can only rise from the ashes of a previous system that was burnt to the ground. It cannot “co-exist” with the dollar in any meaningful way because it is a SUPERIOR product. I agree with nearly everything you said about Bitcoin. That is precisely why governments will destroy it if it ever truly catches on. It literally threatens the world order. A universal currency would largely replace the need for individual governments. If the U.K., U.S., China cannot “reach” me—I care only about what they are willing to do by force. If the worldwide youth ban together around Bitcoin—governments are powerless.
So, a bet on Bitcoin long term, is a bet on the end of America in my view. I wish you the best, but I hope I’m long dead by the time Bitcoin “pays off.”
Dramatic? Maybe a bit. 😊
Thanks for the well thought out reply, B. I agree with you about governments likely feeling they will need to outlaw Bitcoin – probably more like in 10-20 years than right now. I would counter with a few points to consider:
1) If more and more powerful people gradually aquire Bitcoin over the next couple of decades, banning Bitcoin would be equal to banning the S&P. It would affect a lot of the savings of both the populace and more importantly politicians and the wealthy. China could do it, but in the US and other democracies it would be wildly unpopular and political suicide.
2) Likely some element of game theory will come into play as Bitcoin continues its ascent. How often do major world powers just magically agree on anything? Such would need to happen for a global Bitcoin ban. More likely they will try to be the first to jump into Bitcoin before other countries do and we’ll see game theory at play.
3) Unlike with Gold, if a country outlaws Bitcoin, one could just fly to a Bitcoin friendly country and use their Bitcoin there. Will the US just outlaw all citizens from leaving the country for any trip forever? Seems unlikely.
For the above reasons, I hope that the future will see the US embrace Bitcoin instead of ban it. This will be the escape hatch from oblivion for us. The US dollar WILL devalue significantly at some point in the future. Fiat currencies always do as nations take on excessive debt. It’s a matter of whether the US will embrace the future or turn away from it. I’m not betting against the US. I think we will eventually see the writing on the wall and take a turn for the better instead of the worse.
Regarding 1), I guess it depends on how widespread. The difference with the dollar is the rich have more of them, but the poor still have the “same” currency. Just a lot less. Your point made me think of something that I’ve never thought about before (and wish I hadn’t thought of). Bitcoin could become the currency of the rich only. So, if you want to buy a yacht, they only accept Bitcoin. If you want to stay at a fancy hotel, they only accept Bitcoin. The dollar could then be left for the povos to buy food, basic shelter, etc. Wages come in dollars–whereas luxury is traded in Bitcoin. So we end up with a split currency. That could send one skyrocketing and the other plummeting, but the governments don’t get involved because there is nobody to “protect.” That’s disturbing, I suppose that could be happening right now at the highest levels. I’ve seen at least one instance of that with a friend buying a boat in Turkey. Their currency is so jacked the seller wanted USD or Bitcoin only. Didn’t even want to take the risk of the currency changing in the three days it took the wire to clear.
Then if there were calls to outlaw Bitcoin there would be a legitimate argument to just say—”then don’t use it.” Nobody is forcing you to. Just use the dollar. Basically, the very reason it is not regulated today. I don’t see a way to hedge against this though. If you put 50% of your money into Bitcoin, you have a very real chance of losing 50%. You make the point that there is nothing else like Bitcoin. You leave out “yet.” You have no idea what is going to be invented in two years, ten years, twenty years…nor do you know what the adoption curve might be. The rich could scrap Bitcoin and make a Povocoin. What how this works:
“If more and more powerful people gradually aquire Povocoin over the next couple of decades, banning Povocoin would be equal to banning the S&P.” Baked into your argument is the rich make the rules—not you and me. They can (and often do) change the rules in the middle of the game. In fact, the smart move would be to flush out all you early adopters and start over—and this time not invite you to the party.
So, putting 50% of your money into it is very risky. Putting 5% of your money into it won’t make a significant difference unless Bitcoin goes parabolic AND only a small percentage get in before it does. That is no different than buying Tesla when it was $5 or something.
Regarding 2), you say “more likely they will try to be the first to jump into Bitcoin before other countries do and we’ll see game theory at play.” But, they could also jump into something else. The problem with a “confidence game” is it requires confidence. There is a blueprint for Bitcoin. It is not ACTUALLY unique. You can make Bitcoin 2 using the exact same principles and blueprint. All that you would be lacking is the adoption of millions upon millions of people that have already invested. If all the most powerful people in the world got together (illuminati style) and “blessed” Bitcoin 2, and said people should abandon Bitcoin, there could be a “bank run” on Bitcoin. Look how even you quoted one of the illuminati below as an argument. Bitcoin is not immune from human psychology (and things happen very fast these days with social media). Also, a new alien computer could be discovered (like the one Congress is investigating now!) that could crack the passwords and in a single night someone could wipe out all the Bitcoin being stored in digital banks. We don’t have the computing power to do it today—but it is arrogant as hell to think a breakthrough in mathematics couldn’t change all that in an instant.
Regarding 3), not really. Not if it is illegal. The U.S. has reach. If they truly outlawed it they can reach you in another country by seizing your assets in the U.S. You can’t put your house on a hard drive! Admittedly a bit extreme, but civilized people (like WCI’s audience) will not break the law knowingly. Even if they “could get away with it.” It is why we all pay way too much in taxes. We could all pool together, and all agree to cheat on our taxes, and just pay the penalties for the 3 out of 40,000 that get caught. There is an extremely low chance of getting caught. But, we don’t do it anyway. If Bitcoin was illegal, most people would not go to another country and use it. They would just dump it—and that would kill its value.
I don’t disagree with you that the country is on a collision course with disaster—for so many reasons. We’ve never hated each other more (outside of the civil war maybe). We can’t even discuss bitcoin without insulting each other (though in fairness I’m sure much of what I’m saying seems like an insult—it is not meant to be in case anyone is wondering). But, there are a lot of ways this could go. Bitcoin is one of thousands of paths forward. Real estate has many of the same qualities as Bitcoin—but with added utility. Real estate on the ocean for example is very scarce and has always throughout history gone up in value (speaking generally of course).
It’s a fascinating conversation either way. It is also fascinating how passionate people get on both sides. I guess because money is not just money. It is the very source of our security in life. It has implications for our family and loved ones. So, in that sense, what could be more important. I guess the idea of your life savings being wiped out because you didn’t get into Bitcoin in time is very upsetting for some people. Which makes sense. I just don’t want to see someone lose their life savings in the other direction either. As clear from my post below, the NFT thing really bothered me. I saw good people get seriously hurt. I’m not at all happy about being “right” about NFTs. I’m already set for life. So I don’t want to see anyone lose money—and I’m not at all upset by you knocking it out of the park on Bitcoin and making $100 million or more. I would genuinely be happy for you and your family. Hell, maybe you use the money to cure Alzheimer’s or something!
One way to sum up why people should consider bitcoin in less than a paragraph would go as follows:
Buy bitcoin to protect your family from people who think like you. End.
I believe I made that very point. But, I guess not everyone on this forum is a neurologist. 🙂
I’m not surprised to see the comments down here. OP – I think it is a very well written post. Thanks for breaking it down for people. A couple of comments:
1. This comment “It’s highly divisible—the smallest unit of Bitcoin, one Satoshi, is currently only 2 cents.” is factually incorrect. Bitcoin has not yet reached a price point of sat/cent parity. In fact right now one satoshi is about 1/100 of 1 cent. You may want to correct this error in the article.
2. This comment: ” I believe a reasonable price target will be at least $250,000 per Bitcoin” is actually quite bearish. Bitcoin price is very likely to far exceed this. The only question is when and whether or not you or I will be alive to see it.
3. You may or may not know that I started a thread on this in the forums in May of 2020. Had anyone DCA invested biweekly into Bitcoin since then they would have a 29.3% return. Had they done the exact same DCA investment into and S/P fund over the same period of time they would have an approx 25.9% return.
I agree with many of your takes and hope you keep studying Bitcoin. I am confident Jim is significantly in the wrong on this topic. But time will tell. The real question is how long will he dig in since he has written multiple posts on his position in the past. We all get the Bitcoin price we deserve. An open mind and a lot of studying took me down a similar path, although a little earlier than you. People with closed minds or that don’t have the desire to learn will continue to lose out on this asset from an investing perspective.
I actually did see that post back then in 2020! I saw your recommendation about Michael Saylor and went down the rabbit hole from there. So thank you for that.
I agree with 250k being bearish. In the appendix I give a bullish price target of 5+ million in today’s dollars. I am more bullish than bearish on that price target long term.
And thanks for the compliment on the post. I tried to state in a detailed way what I’ve learned since 2020 so hopefully it will benefit white coat investors who stumble upon it like I stumbled upon your post. Probably as Bitcoin makes fresh all time highs once again..
Jim was gracious to let this post. I think eventually he’ll come around to Bitcoin. Once we have multiple spot ETFs, more companies putting BTC on the balance sheets, more positive words from politicians and regulators, fresh all time highs for successive future cycles, lower volatility.. It’ll happen at some point 🙂
A couple of true believers there.
What’s the over-under on when Jim comes around on Bitcoin? If I were an oddsmaker, I’d say 10 years. If I were a betting man, I’d bet way over.
You guys have to define come around. I mean, if everyone else is using Bitcoin as our daily currency, I sure will too. I’m just skeptical that’s ever going to happen. As far as adding it to my portfolio as a speculative asset class, that would be a pretty big change to our investing plan which hasn’t really had a change that significant ever.
I would define “come around” as accepting that Bitcoin has a role in a portfolio as a store of value rather than a speculative instrument. Ie. similar to Gold.
Do you think there is a certain threshold/parameters you would set that Bitcoin could meet that you’d be willing to accept it in that role, Jim? And it can’t just be lower volatility alone of course because just look at USD. Curious as to your thoughts.
What percentage of your investable assets do you invest in Bitcoin?
Have you read with Ric Edelman (Edelman Financial Engines, and founder of DACFP ( Digital Asset Council for Financial Professionals)) says about Bitcoin? If so, what do you think about Edelman’s take?
I don’t understand why you care what I think. It’s not like my opinion on Bitcoin is going to affect yours in any way, shape, or form.
If Bitcoin becomes a stable store of value, its return would be at the rate of inflation, right? So that would be gold-like. No cash flow. No dividends, No profits. No interest. And a rate of return at inflation. So even if you got rid of the volatility, it wouldn’t be an attractive investment to me.
In fact, I would propose the only reason it is attractive to you is because you think it will rapidly rise in value in the future as it somehow becomes a stable store of value. That may be the case. It may not. I have no idea. But I don’t invest in stuff for that reason.
When would I use Bitcoin as my currency? When everyone else is. Let’s say the majority of transactions in the country are carried out in Bitcoin. I get paid in Bitcoin. I buy gas in Bitcoin etc. Yea, I’d use it. Just like I’d use Euros, Yen, Bancors, wampum, or stone wheels.
You’re right. Your opinion of Bitcoin does not affect my own. However, like it or not, your opinion on it does influence that of many physicians, and that’s why it matters.
Also, I understand you don’t have gold in your own portfolio. But it’s certainly in your “150 portfolios better than yours” post. And in many “well accepted” historical portfolios. My point regarding your acceptance of Bitcoin isn’t when YOU personally would add it to your portfolio, but when you’d tell a WCI it would be a reasonable part of theirs and not just because it’s speculative.
At 5% or less of portfolio, I think it’s fine and I’ve said that many times. Just like gold. Because it’s speculative. But there’s no point at which it is no longer speculative. Like every other currency, commodity etc that doesn’t produce profits, interest, dividends, rents etc.
Hey Josh,
I think it will be less than 10 years. But I am an optimist at heart. So I could be wrong.
As to defining what is “come around”…I would say admitting and recommending that holding some portion of Bitcoin in ones portfolio as part of their asset allocation would be “come around” in the short term. Over the long term, using it as a currency would be another form of “coming around”, although I think this will be less likely in Jim or my lifetimes unless we are traveling significantly outside the US where it will likely be adopted more rapidly as a currency.
This is what is keeping bitcoin worth something — millions of people with similar beliefs to the author. Something with no intrinsic value just belief (although one could say money is the same thing).
Gold at least has industrial and jewelry uses. If many people feel they should put even 1% of their assets in cryptocurrency/bitcoin that can keep the price up.
Still amazing to think of all the millions of hours of human effort involved with cryptocurrency companies, blog posts like this, etc for something that basically does nothing for the world.
Gold’s value would fall 90%+ if demand were only set by industrial uses. It’s belief that it has value that gives it it’s real value, and that belief has been hard earned through history since no matter how much the price has gone up, people can’t just mine more of the stuff that easily. As you mention, all value derives from belief. As the Bitcoin story keeps building and it keeps chugging along and doing its thing, it will continue to become more valuable.
Money is a human technology like fire or the wheel. Fair money facilitates human prosperity. The monetary system is currently rigged in favor of those close to the money printers. Bitcoin fixes this by returning the world to hard money. If it succeeds, which will take TIME–much longer than the less than 2 decades Bitcoin has been around–it will prove tremendously valuable to humanity.
“Money is a human technology like fire or the wheel.”
I would say money is less like a technology and more like a shared fiction. A fiction that allows us humans to cooperative flexibly, quickly, and in very large numbers with strangers.
The only value of money is in the widespread acceptance of that shared fiction. Clearly there are many people that currently accept the “fiction” of Bitcoin; enough that today you can trade it for real money. But… there are about 8 billion people that believe in gold (and USD for that matter) and humans have been believing in these for far longer. I am skeptical that the day will ever arrive that more people believe in Bitcoin than gold or USD, but I will happily accept my paychecks in Bitcoin if that day does come.
I agree that money derives its value from shared belief. And the fact that Bitcoin is a technically superior way to store value will eventually make people believe more and more in it, as has been the case since its inception.
Well… lots of people (like me) don’t share your belief that it is “technically superior” and you need enough of us to share that belief for it to actually become “money”. For one, it is by definition deflationary. The ability to inflate the money supply (modestly) is generally a good thing, particularly during times of economic expansion. For another, decentralized isn’t an unalloyed good; I’m not necessarily opposed to freezing the bank accounts of criminals.
I don’t deny there is demand for Bitcoin, but that isn’t the same as believing the shared fiction that Bitcoin is money. I might speculate in baseball cards or artwork and hope that the value rises, but I will never mistake those things for money itself. You’ll need to convince lots and lots of people that this is money for your predictions to come true. While I don’t own much of either, in the event of the apocalypse, I would bet on gold given its 5000 year track record of use as money (also of course ammo and canned goods as Jim likes to say).
Bitcoin is not deflationary. It will continue to inflate at a rate which decreases every 4 years.
The problem with being able to freeze the bank account of criminals is that it can become a slippery slope with regards to who is a “criminal.” We need laws, but also protections in place. Kanye West and Nigel Farange are not criminals. Their bank accounts were frozen in democratic countries because of politics. Read about this. It’s very concerning. Autocracies have been doing this for a long time, but now we’re seeing it in democracies. This is not right. It will continue to happen as long as we use money that can be censured.
The problem with using baseball cards or art as money is that more can always be produced, and they are not designed to be widely used as money, although art has certainly been used as a store of value for a long time now. Bitcoin can be a store of value AND a currency because of its absolute scarcity (store of value) and ability to be readily transmitted digitally between parties either next to each other or across the globe who have an internet connection.
If it is strictly finite, irreplaceable, and sometimes lost, how is not deflationary?
Most of the bitcoin lost was early on when it was quite a bit harder to store bitcoin and keep track of private and public keys. Now with hierarchical deterministic (HD) wallets with BIP-32 (Bitcoin Improvement Protocol), and neumonic seed phrase with BIP-39, it’s much easier to keep your bitcoin from getting lost compared with the earlier days.
However, even if it does become deflationary in the future, why would this be detrimental to economic progress? I know this is the Keynesian party line, but there are opposing economic schools such as that of Austrian Economics that would argue otherwise.
Bitcoin as of right now is technically disinflationary. In other words, it is inflating at decreasing rate. However, at some point (definitely after 2140) it becomes deflationary when less Bitcoin is being mined than is being lost. By that time, I expect an exceedingly small amount will be lost as protocols to care for it will improve and it’s value should encourage those to protect it much better than they currently do.
I will point out that on comments below this one you are advocating for keeping these 12-24 word seed phrases in your brain alone so that your Bitcoin can be safe from seizure. To me that sounds like a recipe for lots of lost Bitcoin.
I suppose you may be right about deflation though. As long as you don’t have a mortgage or student loans or car loans or a loan for your practice or business or other real estate holdings, and as long as you don’t invest in any of the public or privately traded companies that have business loans or the banks that give them out, then yes, you will likely do fine in a deflationary environment.
If you have concerns for losing your seed phrase/words, or have concerns for inheritance planning there are already great options and companies that help with this. Unchained Capital is a great resource that can help with multi sig cold storage, investing, and inheritance planning.
Josh – most storing Bitcoin use hardware wallets and physical copies of their private keys. The “brain wallet” would be for emergency use only, for obvious reasons.
Regarding deflation vs inflation, it’s all a game of egg shells. Everyone’s debt is someone else’s asset. One person/company’s debt decreasing in real terms due to inflation is another person/company’s asset decreasing in real terms due to inflation. There is no net good for the economy from this.
I don’t think it was so much a storage issue as it was that it was more of a cheap toy than a valuable asset. When a Bitcoin is only worth $20 how much effort are you going to put into it? But when it’s worth $5K, well, you’re going to spend a little more effort there to safeguard it. So I agree future losses will be lower than past losses. But they’ll still occur because people are people.
Jim – Exactly. You hit this nail exactly on the head. Well mostly. 12 years ago when people were just mining it on an old CPU it was a lot different. The average person would not have known how to set up “cold storage”. Now there are great devices that make cold storage relatively easy….even for technological idiots like myself.
Not a bad article, except you use the terms that most Bitcoin believes do as well, fiat currency (referring to Dollar and Euro), regimes and so on. Major turn off for any serious investor. None of this has anything to do with Bitcoin, it is just a passionate group of people, early adaptors who have decided to “promote” it or coin it under such claims.
Bitcoin can be shut down with a stroke of pen if “regime” chooses, also it will never reple Dollar or Euro for same reason as first. Again none of this has anything to do with Bitcoin, just “silly” talk from early adaptors.
Bitcoin is store of value, once ETF is up and running- which it will, it is just procedural at this point per WSJ, it will be open to all investors/masses.
Young investors all have money on it, these young investors one day will be “old” investors, value of anything is determined by “masses” and scarcity, nothing new.
There is a silent majority of us, white coat investors who have funds in BTC.
There are plenty individuals who are pretty high up in public life and Billionaires who have substantial amounts invested in BTC, they are not necessarily hiding it, all it takes it few key strokes. Inquiring minds would like to know, what do they know?
I’m sorry. What? Who is this omnipotent individual pressing buttons to shut down Bitcoin? That’s not possible, sir. That’s the whole point of decentralization of Bitcoin.
As far as using the term “fiat,” it is a well-accepted term for currency not backed by a physical commodity. Not sure what term you’d prefer I use. And it has EVERYTHING to do with Bitcoin. The entire value proposition of Bitcoin is that unlike fiat currency, it cannot be printed out of thin air.
That’s quite a claim that there is a silent majority of WCIers holding Bitcoin. I’m curious what data you’re looking at that makes you think that.
I’m a long time crypto skeptic who doesn’t like that it’s a speculative asset with no cash flows. I feel like we’re still waiting for a transformational use of blockchain. Maybe it will come, maybe it won’t. I’ve got to say though this is one of best written pro-bitcoin pieces I’ve read. The argument that the SEC considers bitcoin to be a commodity and most other crypto to be securities is the best case for bitcoin maximalists. However, it depends upon mass adoption of blockchain technology.
Here’s what I would need to change my mind on bitcoin:
1.) A real everyday use for bitcoin. Not its acceptance at a few novelty retailers or for illegal activities. An actual use where bitcoin is the best option.
2.) Even if bitcoin develops some use, there’s no good reason to put it in my portfolio. I don’t have any gold in my portfolio either because it doesn’t generate cash flow. The stock market has outpaced gold as a store of value so why would I want digital gold?
Thanks, Amphora. Bitcoin is THE use case for blockchain technology. This is what I didn’t understand before that I do now. Anything else done on blockchain can largely be done on a centralized server far faster and cheaper. What use case has come out of blockchain besides Bitcoin of any significance? As to your last 2 points:
1. A real everyday use for bitcoin: Bitcoin is the best store of value in the world, as I outlined in my article. It has the best technical characteristics of any store of value ever invented. The best stores of value win out over time. This is why gold won out over glass beads, sea shells, and silver. And now that we have something better than gold (Bitcoin) , it too will win out. Strong stores of value and strong currencies will eat the lunch of their weaker competitors in the long run.
2. Bitcoin added to a stock portfolio is a diversifier. Portfolio diversification is a free lunch. Bonds have historically been a good addition to stocks, but now with global debt-to-GDPs so high, bonds will have to lose value in real terms for governments to not collapse. I would argue that in the next 10-15 years, Bitcoin will be seen as a good diversifier that will improve the risk-adjusted returns of most portfolios.
I have a fixed number of quartzite tokens that I call “Umpits”, emblazoned with my personal emblem, a capital R . I’ve scattered these chits across the globe, and they can only be found with a stylus carved from the hardened ear wax of long dead Australopithecus.
Indeed, my R Umpits will also be worth millions due to their scarcity and arcane way of discovering them.
These would be scarce, indeed. But they would not be a viable medium of exchange. You need both.
If the anonymous neurologist was convinced that Bitcoin was going to revolutionize the global monetary system, why on earth would she/he tell anyone? He/She would be out there leveraging his/her house and selling off their kids to buy all the Bitcoin at the “low” price of 30k/coin. But she/he isn’t. Why? Because the only way his investment pays off is if he convinces everyone else it is worth more than what he paid for. Let’s say he convinces 50K doctors to buy 50K in bitcoin (conservative 10% of net worth of 500k) that’s billions of dollars. For a market cap of 500 billion, our anonymous friend here makes god knows how much money but I assure you it is a lot. Fine, that’s what speculation is. But what is the argument: that central banks fiat federal reserve notes are worthless and capriciously inflated. So every time he/she convinces someone to buy Bitcoin instead of invest in $, he is helping to participate in destabilizing the national currency and therefore the country itself. This directly affects me and my life and livelihood my family and my community. Does the government waste money? Of course. Does it drive me crazy? Yes. But I’m not out there try to accelerate its destruction for my personal gain. Why don’t you go out there and clamor for a return to a gold standard? Or write your senator? Or donate to a political action committee?
Another point: apocalypse time. Hyperinflation, country is on the brink. What do you think? The central government is going to roll over and just adopt Bitcoin? If they confiscated gold, they’re obviously going to outlaw crypto markets. That’s a no brainier. That would relegate bitcoin/sh*&Tcoin to what it has always been. Grease the gears of black markets. Help launder money around the world. Drugs, guns, death, destruction–>and some investors get some money while preaching some sort of very ironic egalitarian pseudo-Marxism. The US government is the largest financial institution in the history of the world and it has a monopoly on the money supply for a reason. It needs to collect taxes, fund a military, pay pensions, enormous payroll, finance debt. I can see Powell and Yellen saying, “yeah, let’s just let the crypto bros have the reins here of the money supply.” Right.
There isn’t enough push-back to these pernicious ideas. I want nothing to do with your escapist future. I’ll keep on investing in America (which is a lot more than financial investment) and continue supporting this less than perfect union. I hope Bitcoin drops to zero and people start trying to reform what we have.
Hamilton – I’m writing about Bitcoin because I DO care about America and want it to thrive. I want as many people to be aware of the predicament we’re in as a country as possible. We can’t just sweep the issue under the rug like a ticking time bomb until it explodes and destroys us. All fiat currencies have died when countries have overextended themselves into debt. We will be no different. If it doesn’t happen in your lifetime, then it will be your kids’ lifetime.
Bitcoin can save the country from the hubris of Central Bankers who think “this time is different” as they continue to inflate the money supply. It can do this by giving us predictable, sound money. We already tried a gold standard and it worked wonderfully until governments seized the gold. Bitcoin CANNOT be seized. It gives us power over the government. If it’s outlawed, people will simply leave the country with the Bitcoin keys in their brains – it’s impossible to place capital controls on it like you can with cash, gold, or other seizable assets. Thus, it wouldn’t make sense politically to just ban it. Money would flee the country and leave us poorer.
I thought the Department of Justice seized over 3 billion dollars worth of Bitcoin just a few months ago in north Georgia.
“Federal agents tracked down the stolen digital loot a year ago, when they searched Zhong’s house in Gainesville, Ga., and found devices storing the bitcoin in an underground floor safe and under blankets in a popcorn tin stashed in his bathroom closet, prosecutors said in an affidavit.”
Ultimately, what gives you access to your Bitcoin is your 12-24 word seed phrase. If you store your seed phrase on devices around your house, it can be seized. If you store it online, it can be seized. If you store it in various physical parts of your state or country, it makes it much harder to seize. If you store it in your head and leave the country, it cannot be seized.
Of course, there can always be extreme examples of individuals being tortured to get them to give up their Bitcoin seed phrase, but masses of people being tortured in a democracy seems unlikely.
I think that’s a reach to say the gold standard “worked wonderfully.” There’s a reason we left it. Here’s an article outlining some of the issues:
https://www.britannica.com/money/topic/international-payment/Problems-with-the-gold-standard
The adjustment process could be very painful, particularly for the deficit country. As its money stock automatically fell, aggregate demand fell. The result was not just deflation (a fall in prices) but also high unemployment. In other words, the deficit country could be pushed into a recession or depression by the gold standard. A related problem was one of instability. Under the gold standard, gold was the ultimate bank reserve. A withdrawal of gold from the banking system could not only have severe restrictive effects on the economy but could also lead to a run on banks by those who wanted their gold before the bank ran out.
These twin problems materialized during the Great Depression of the 1930s; the gold standard contributed to the instability and unemployment of that decade. Because of the strains caused by the gold standard, it was gradually abandoned. In 1931, faced with a run on its gold, Britain abandoned the gold standard; the British authorities were no longer committed to redeem their currency with gold. In early 1933 the United States followed suit. Although the tie of the dollar to gold was partially restored at a later date, one very important feature of the old gold standard was omitted. The public was not permitted to exchange dollars for gold; only foreign central banks were allowed to do so. In this way the U.S. authorities avoided the risk of a run on their gold stocks by a panicky public.
I would do some more reading on the topic.
https://www.forbes.com/sites/nathanlewis/2020/02/25/did-the-gold-standard-cause-the-great-depression/?sh=790ffa067c63
At the Bretton Woods conference in 1944, governments got together to create a new world gold standard system, with additional safeguards (the International Monetary Fund and the World Bank) to make sure that the sort of unilateral, unplanned devaluations and floating currencies of the 1930s would not take place again.
Obviously, if people thought the gold standard caused the Great Depression, they wouldn’t get together in 1944 to make a new world gold standard that was even more safe and secure (they thought) than the 1930s version. This was the consensus of the people that actually lived through the Great Depression and World War II. And it worked great: the Bretton Woods years, the 1950s and 1960s, are today considered the best decades for economic abundance worldwide since the Classical Gold Standard disintegrated in 1914.
Correlation is not causation. And ask some people of color what they thought of their economic opportunities in the 50s and 60s for another perspective.
At any rate, there’s broad agreement among economists that the gold standard wasn’t so great.
The gold standard was largely abandoned during the Great Depression before being re-instated in a limited form as part of the post-World War II Bretton Woods system. The gold standard was abandoned due to its propensity for volatility, as well as the constraints it imposed on governments: by retaining a fixed exchange rate, governments were hamstrung in engaging in expansionary policies to, for example, reduce unemployment during economic recessions.[9][10]
According to a survey of 39 economists, the vast majority (93 percent) agreed that a return to the gold standard would not improve price-stability and employment outcomes,[11] and two-thirds of economic historians reject the idea that the gold standard “was effective in stabilizing prices and moderating business-cycle fluctuations during the nineteenth century.”
https://en.wikipedia.org/wiki/Gold_standard#:~:text=The%20gold%20standard%20was%20abandoned,reduce%20unemployment%20during%20economic%20recessions.
Why are you conflating racism at the time with economic theory? Should we deride American Democracy because the Founding Fathers were slave owners?
“Why isn’t the gold standard more popular with current‐day economists? Milton Friedman once hypothesized that monetary economists are loath to criticize central banks because central banks are by far their largest employer…. Career incentives give monetary economists a status‐quo bias. Most understandably focus their expertise on serving the current regime and disregard alternative regimes that would dispense with their services. They face negative payoffs to considering whether the current regime is the best monetary regime… Many mainstream economists today instinctively oppose the idea of the self‐regulating gold standard because they have been trained as social engineers. They consider the aim of scientific economics, as of engineering, to be prediction and control of phenomena (not just explanation). They are experts, and an automatically self‐governing gold standard does not make use of their expertise. They prefer a regime that values them. They avert their eyes from the possibility that they are trying to optimize a Ptolemaic system, and so prefer not to study its alternatives.”
In the same way a Communist central planner has the hubris to tell you he alone can calculate the true cost of wheat, oil, copper, so too modern central Bankers and economists have the hubris to think they know more than the collective hive mind of the Market.
https://www.cato.org/blog/experts-gold-standard
It would have been very interesting to see what would have have happened in 2008 and 2020 if we had been on the gold standard.
My point about the 50s and 60s is that it is often idealized inappropriately. Aside from the racism stuff, the average standard of living was pretty crummy compared to today.
Standard of living is better today because of technological advancement, not coming off the gold standard. Correlation is not causation.
https://www.forbes.com/sites/nathanlewis/2012/08/30/would-a-gold-standard-have-worsened-the-2008-financial-crisis/?sh=1c57cb6317dc
The dollar did not remain at an even value throughout the crisis period. Nor was it devalued, as the Keynesians like to imply. No, the dollar went up! In October of 2008, the dollar hit a high of $712.50/oz. (London PM fix basis). It then fell back. This spike in dollar value was reflected also in exchange rates with other currencies. The Federal Reserve’s broad trade-weighted dollar index went from 95.76 at the end of June 2008 to a high of 112.49 in November 2008, before falling back to 105.35 at the end of June 2009.
The basic reason for the financial crisis of 2008 was bank insolvency. Many banks had made too many loans to borrowers who could not pay them back. The prospect of widespread and chaotic bank default loomed. This spike in dollar value, in the middle of the crisis, just added a new problem to an already problematic scenario.
A gold standard system would have prevented this spike in dollar value. The value of the dollar would have remained at a stable $1000/oz. throughout the crisis period. If other countries were also using gold standard systems, then the exchange rates between their currencies and the dollar would have remained fixed and predictable, instead of varying wildly.
I don’t own any bitcoin or any other crypto and never have. That said, I appreciate Jim giving the space for this detailed post. I especially appreciate the discussions in the comments. Reading WCI over the years has helped me cement my financial future (for which I am very grateful), and now it is helping to educate me about subjects that I may not look into on my own. Thanks!
Bowell,
I have done the same since about 2011 when Jim started the blog. I have learned a lot. I have also learned to keep an open mind and the dogmatic opinions I once held, are often proven wrong. I would encourage you to always keep learning. It will return great dividends not only financially, but spiritually and emotionally as well. Cheers.
Loved, loved this article. Thanks for posting. I have been grappling with the same issue, thinking about getting rid of Altcoins except a little Ethereum. This article helped give me clarification in seeing how much the insiders hold in the Altcoins, and explain how companies can perform what smart contracts can do.
Hope you will post again in the future. This article was very helpful.
Zero chance Jim ever “comes around.” He has already won the game. That’s the funniest part of this “debate.” Those who haven’t won the game are telling those who have how short-sighted they are. I get it though. I had to drag my parents into the world of the “internets.” You all view it as old people that are out of touch with the new “reality.” You may well end up being right, but the Bitcoin bros do not have the same “open mind” they expect others to have. They think those that disagree are delusional—or worse—stupid.
In fairness, I admitted right up front I didn’t have an open mind! But, like Jim, if everyone starts spending in Bitcoin, so too will I and I will have a ton of it to spend. In fact, I own a ton of Bitcoin already (or will right before it becomes important). How’s that? Because there is zero chance Apple, JP Morgan, BlackRock, Microsoft, Google, Meta, Oracle, [fill in the rest of the SP500 here] all miss the “window.” They make markets–not the other way around. And I own all of them in significant amounts. I own little pieces of their current Bitcoin stockpile. If they are ahead of the curve on Bitcoin, they will drag me up the ladder with them.
I like a good debate, but it is outright delusional to think you are ahead of the curve compared to JP Morgan, BlackRock, etc. That just isn’t reality sadly.
This reminds me of the iPhone/Android debate. All the Android pushers always say “that new feature on the iPhone has been out for years on Android.” Cool. My response is always the same: when Apple is ready for me to have that feature, they will let me know. I don’t need to be a trendsetter in every aspect of life. Sometimes you just let others drive that have a great proven track record. When BlackRock, JP Morgan, Fidelity… decide it is time for me to have significant Bitcoin holdings—I will. Is it not true that if you own the SP500, and the SP500 owns Bitcoin, you own Bitcoin? Problem solved.
The Bitcoin folks real argument is they are going to make more than others because they are in the know. And, again, they may be right. But, I was 100% convinced JP Morgan was going to buy First Republic recently. I told everyone in my network it was a mortal lock. You know what—I was right. And I lost $100,000 being an absolute moron and not listening to Jim about individual stocks. I lost $100,000 being right! Actually, to be fair, I made $50,000 a few weeks prior buying the dip in First Republic. So, I was right, wrong, right… 😊 Didn’t matter—I got outflanked by JP Morgan that bought First Republic and legally tanked the stock to zero at the very same moment. The house always wins. That is why you buy the house!
Now, luckily I have a small account I use for “gambling” like this just to resist the urge of putting real money into these situations. I literally view it as a form of therapy. If everyone is limiting their exposure to 5% or less to Bitcoin then you are certainly doing the right thing. Bitcoin is no worse an investment than First Republic (actually turns out to be much better!).
Here is what I don’t like though. I have a neighbor that put $800,000 into NFTs. It was about 25% of his whole portfolio. He put another 25% of his retirement savings in Bitcoin at $40,000 or so. He lost all his NFT money because he had major FOMO (and I do mean zero—just like First Republic). There were articles just like the one above about NFTs not very long ago. And everyone that wrote them deleted them from the internet because they were dead wrong. They screwed real flesh and blood people that trusted them. And they did it by being so convincing. They were smart people—and they convinced smart people (my neighbor is an extremely well credentialed lawyer). Even one of the most stable NFT dealers just recently screwed everyone over by making NFTs nearly identical to the ones they were famous for. It tanked the value of all of them. Where are the news articles? I only know about it because my neighbor is so mad and ashamed he is trying to sue them now!
The believers in Bitcoin will say: “yeah, NFTs were a scam and I knew that all along.” But, that is utter B.S. Of course you can find a random case or two of that. There are always exceptions.
There was a huge crossover in those promoting NFTs to those promoting Bitcoin—and we all know it because we lived it. But, there is no accountability. Everyone just stopped talking about NFTs all at once and they are all pretending like it never happened. Anyone heard of a celebrity promoting NFTs lately?
For anyone on this forum promoting Bitcoin, please post a verifiable public place where you banged the drum to tell everyone NFTs were a scam. Better yet, be honest with us—tell us if you bought any—and what their value is today if you did? Be a man. I’ll be the first to admit I don’t know jack—and that is why I lost $100k on First Republic. If not for Jim putting me on the right path so many years ago, I wouldn’t have 95% of all my wealth in VTI, VXUS, VNQ and treasury notes. So trust me—I get it.
There is no reason to believe Bitcoin won’t end up the same as NFTs in a few years. If you are 100% sure that isn’t going to happen, you are not being an honest broker in the conversation. I cannot tell you how many times my neighbor told me I was “an idiot” for not getting into NFTs. He had my wife bothering me constantly to buy some NFTs or I was going to miss out! Well, I was right about NFTs and many of you have been right so far about Bitcoin (except for the significant number of people that bought at the peak and lost 50% of their life savings so far). This article above should end with “but, who knows, it is as likely I’m wrong as I am right!.” Because that is the truth.
Anyway, just another viewpoint. And, if anyone ever feels they are being pressured into Bitcoin (or whatever they will come up with next)—and they feel they are missing out—just ask a Bitcoin bro to explain what happened to NFTs and watch them twist themselves into a pretzel. For once I would like to see one of them man up and say the following: “yeah, I was dead wrong about NFTs, and I damn sure may be about Bitcoin too.”
I rarely criticize Jim—as I owe him millions of dollars at this point. But, before this article got posted I think Jim should have asked the author to incorporate into the article an explanation as to what happened to NFTs. It is an obvious elephant in the room, no? No fair conversation about Bitcoin can take place without an explanation as to what the heck happened to everyone’s investment in NFTs. They are related—no matter what anyone says today (with hindsight). Their “value” was sold to everyone using the same logic behind Bitcoin (certainly at a broad level). It’s all blockchain baby—we are going to be rich! Sure, I have a smoking monkey to sell you for $5,000,000 if you are interested.
Here is the bottom line: be careful my friends. You are some of the smartest people in America. People trust you with life and death decisions. If you speak—others will listen. If I die tomorrow, any of you could easily convince my wife to put millions of dollars into an NFT. She has spent her life in a bubble because she has me. This may well be true of Jim’s oldest daughter, for example, as well. She has always had the smartest guy in the room to protect her. Promote your ideas to those that have the mental horsepower, wealth, and most importantly the experience to keep up. Please be extra careful with your patients, your family, your friends, etc. Do you have any idea the level of arrogance, confidence, whatever….you have to have to disagree with a neurologist?
Nobody in the history of the stock market has ever been responsible for someone being completely wiped out for advising them to buy low-cost index funds. So, please, please, please add the part that says “do not put more than 5% of your money into Bitcoin” to anyone that isn’t as smart as you. So, basically that is to everyone!
But, what do I know? I’m just a guy that never has to work another day in his life. Hence all the free time to write nonsense like I just did above! 😊
P.S. Jim, all joking around aside, …and my guess is you didn’t even notice…but to the “common man/woman” the title of this article says a brain surgeon thinks you should buy Bitcoin. I know that isn’t what it says (nor does it say anything about being a surgeon)—but I promise you that is how it is going to be read by a ton of people. All the evidence I need is my wife in the other room right now as I’m typing this saying “you are so arrogant, what makes you think your smarter than a brain surgeon.” 😊 She never read past the title!
Sorry, but I have to post again. My wife is annoyed that there is a typo in the quote from her at the end. Somehow it makes her look stupid–and not me. I couldn’t make this up if I tried. Your–>you’re. She is even more convinced now that the “brain surgeon” is right about Bitcoin and I’m an idiot. That certainly backfired on me. What do you all do on a Saturday night with your wife? This may be an all time low for me. In fairness though we are also watching the Witcher. 🙂
B – I am sorry to hear what happened to your neighbor.
Regarding being “ahead of the curve” compared to the big banks, don’t short change us, B. The average investor can beat most mutual funds and hedge funds! How? Active funds have to ACTIVELY invest to justify their fees. And they can’t beat the market 90% of the time. We just have to hold the S&P and we match the market. We win. With Bitcoin, they have been hesitant to own it yet due to lack of regularity clarity and lack of wide acceptance with associated career risk. Once clarity and acceptance comes, they will invest. But you and I? We can invest now. We win.
Of course you’re right that once S&P companies start buying bitcoin, you will indirectly own bitcoin and ride the wave up. You won’t be “ahead of the curve” but you’ll protect your purchasing power. That’s not really the point, though. Because owning Bitcoin isn’t about “being ahead of the curve” and just making money. It’s about so much more. It’s about the freedom to transact freely with anyone in the world without a central intermediary and without anyone’s permission. All the bitcoin on Apple’s books won’t give you that power, B. You need to own the stuff yourself to have that power.
Did you read my part of the article about altcoins being scams? I am not sweeping it under the rug. I am directly addressing it. I admit I did not buy any NFTs personally, but I certainly owned the sh*tcoin tokens for the blockchains upon which they were built (ethereum, Solana, avalanche, etc…). Why will Bitcoin not suffer the same fate as NFTs? Read the article. Everything I said about Bitcoin – none of it applies to NFTs. They are NOT the same thing.
You are 100% right that many who “promoted” Bitcoin also promoted NFTs and sh*tcoins. In hindsight, they were scammers and/or unethical. You will however find MANY Bitcoiners who were yelling “SCAM!” the whole f’n time.
@saylor
@lopp
@DylanLeClair_
@adam3us
@coryklippsten
@mikealfred
@mattkrater
These are just some of the true Bitcoiners who were yelling scam all through the last bull market. Read through their post histories.
PS: Congratulations! You have married wisely 🙂
“True Bitcoiners”
“We win”
“That power”
The quasi-religious belief of this stuff is a huge turnoff to lots of investors. It’s almost more a world view than an investment.
Winning is religious now, Jim?
Power is very, very important in the dynamics of human society. The right to bear arms is a bedrock of American rights. Why do so many Americans feel so strongly about it? Is it for religious reasons? No. It’s because it gives We the People power over the government should it overstep its bounds. I am originally from a middle eastern country. The people have been trying to overthrow the government for multiple decades now. I wish they had the right to bear arms. Instead, they are slaughtered in large numbers each time by their government.
Bitcoin IS more than just an investment, Jim. I said as much in my article. You can think of Bitcoin as the digital, financial right to bear arms. It gives people power over financial transgressions by governments world wide. People can use it to escape currency devaluations and hyperinflation in Lebanon, Turkey, Argentina, etc… People can use it should our governments start to ban finances of political enemies or people who say “the wrong thing.” Look at what happened to Kanye West. Look at what happened to Nigel Farange. Look at what’s happening in China with the CBDC. People are passionate about Bitcoin because their eyes are wide open and they want to bear financial arms. It’s not religion. It’s human rights.
I rest my case.
“I rest my privileged case.”
“The quasi-religious belief of this stuff is a huge turnoff to lots of investors. It’s almost more a world view than an investment.”
That’s actually the part I find endearing about the bitcoiners (not the obnoxious ones obviously). If the world was filled with people like me there would be no real change. The old system worked out really well for me–so why would I want to flip it on its head. On some levels we all advocate in our self interest (and that of our loved ones). This is why wall street loves a deadlocked and split congress. But, on a human level, we should all hope the system would make changes that would benefit real people.
I thought occupy Wall Street was awesome–until it got crushed. I thought BLM was good (to a point) until it died on the vine. Real long term change (for good) almost always comes from technology–not slogans or a quasi-religious belief. These crazy kids want to use technology to bring down the entire system. I love the concept. I wish I believed in it. We all want to be part of change that helps lift people up or levels the playing field. Index investing isn’t “cool” — it is betting that the house wins. That sucks. I don’t want the house to win. I want individuals to win!
But, those of us that have been around for a bit have noticed a pattern–and it doesn’t end well for the revolutionaries usually. There are always exceptions of course.
Yea, I do worry about that. People don’t read my entire articles either. Nuance is lost on many. But without it, integrity is hard. Kind of like whole life. Yea, there are a few reasonable uses for it. But saying that means it gets sold inappropriately to whole bunch more doctors who don’t need it.
What I thought was weird about this article is I thought that you usually give your thoughts upfront in an “editor’s note” of sorts. So, it is like, “read below, but know I disagree as you are reading.” Here you don’t disagree until the very end. Way way past the point most stopped reading. 🙂 I think it was very kind of you to give the OP the platform to voice his views as you knew it would piss off some of your most loyal followers. We should hear from both sides. But, I’ve read every one of your blog posts and listened to everyone of your podcasts. And even I was like…”wait…has Jim changed his mind on this?” There are like three or four people in the world that could turn me around on Bitcoin–you are one of them. So it freaked me out for a moment. It is basically you and/or Rick Ferri. 🙂
Maybe the right answer would have been to put Dr. Malkiel’s opinion in the article. That podcast interview you did with him was brutal for Bitcoin in my view. You have got to have serious confidence to disagree with Dr. Malkiel on a subject like this. He literally wrote the book–13 times!
I bet this article took a bit out of you while you grabbled with whether to run it or not. So, if nobody has thanked you today yet, thanks for what you do! It is stressful and it is not easy to engage with the public on hot topics.
“There are like three or four people in the world that could turn me around on Bitcoin–you are one of them.”
You were asking me why your opinion matters, Jim?
Take what you find useful and leave the rest. Guru based investing has its downsides. Turns out their crystal balls are just as cloudy as everyone else’s.
OP, thank you for posting. I have posted about bitcoin with similar thoughts in years past in comments, and I’m glad to see someone took the time to write a bitcoin article for the WCI audience.
Jim, thank you for allowing this alternative viewpoint to be shared on your site. Even though you don’t agree, there is at least a significant minority of your readership who do, and like to see pro-bitcoin information made available to other high income professionals.
For those who are interested after reading this article, I would encourage you to put a small allocation of your portfolio to bitcoin, if not for the mission of “better money, better world”, do it for the best risk-adjusted return you’ll likely have in your lifetime. As Jim’s newsletter shows, bitcoin has provided the highest CAGR over the last 5 years, decade, etc. and we are currently in the depths of a crypto bear market. The next halving is coming next April 2024, and with it likely another bull market, as the bitcoin cycle continues, bringing in an influx of new investors/speculators, and rip roaring returns. A 1-5% allocation is negligible to your overall portfolio in the extremely unlikely event that bitcoin goes to zero, however it’s asymmetric upside is incredible if it simply demonitizes some small portion of gold, bonds, and real estate as stores of value.
The odds of bitcoin going to zero get more and more unlikely with each passing day, and with that tail risk becoming negligible, but the majority of the population and institutions of the world still not being invested, this is a great time to get started! Bitcoin will not be banned in the US; sitting congressmen/women, current presidential candidates, fortune 500 companies, Ivy League endowments, etc. all hold and support bitcoin. It’s not going away, and when growing demand meets inelastic supply… you can figure out the rest.
For those interested in learning more, my favorite intro article to bitcoin is this (written in 2018, so prices, etc aren’t current but the ideas hold true): https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdecc1. So many people don’t understand the reality of money, fiat currency, and what makes bitcoin the best/hardest money ever made, and this article really highlights those basics.
I hope this article helps some other high income professionals go down the bitcoin rabbit hole.
Cheers,
R
I don’t think the tail risk of BTC going to zero is all that low nor do I necessarily believe it is getting any lower over time. I think it’s a very real risk.
I also disagree that BTC is the “best money ever”. In fact, it’s not even money right now in the sense of a useful currency or a stable store of value. It’s just a speculative instrument with some unique properties that might be useful as money in the future. Maybe.
Your comments are interesting given that we KNOW that all fiat goes to zero. It’s funny when someone like Munger also points this out, then ignores something that is known – it’s called legacy bias, which is combined with “old man I don’t care” luxury.
People who are in their 40s and younger, for example, don’t have that luxury. They also have a system that is stacked against them to a tremendous degree, a system that if it still stands will only increase in wealth disparity. I’m glad I’m a doctor too, but that doesn’t change the fact that the USD system/hegemony is changing much sooner than anyone wants (stress this point, they are invested in it, it is a desire) to realize.
Sorry, I was out traveling the world and I missed this article. I have said similar things about BTC, so I’ll keep this shorter – the topic is profoundly moral. You don’t get the type of wealth disparity and abuse from a stealth authoritarian gov’t, replete with nonsense body mandates, propaganda, and media/cancel culture unless they control the money and have the Cantillon Effect to the max. Is it true that Dr. Jimbo has won the game and thus is indifferent? Yes, for now. The problem is that his standard of living can change overnight if he doesn’t see what we see. Does that mean he’ll starve? No. But it means his kids won’t inherit nearly as much.
“BTC” doesn’t produce cash flows.” Yes it does, since the USD devalues at 100% every ten years, and that will only get worse. This is the fundamental misunderstanding; mathematically it produces greatly given the fiat scam that’s been going on forever, and Hayek’s dream is realized with BTC, if you pay any attention. People with current “dollar luxury” sadly are clueless to how important BTC is to most people in the world. But they soon will be forced to understand it, and sooner than they believe.
I’ve been early on the board with predictions, and it looks like my BTC predictions for 2023 will not come true. But my whole point is that holding for the long term will make you one of a small number of people with a top world asset. For that reason, I’m hoping for what I think will happen, which is a downturn here with the market in the next 3-4 months, so I can buy more. The best part about all of this is that by understanding what BTC is, and the disruptive nature it has, my net worth will be greater than Jim’s by the time we die.
USD devalues at 100% every 10 years? Sure about that math?
Not surprised your extreme predictions didn’t come true. Again.
Congrats on your future high net worth. I’m sorry you haven’t yet learned that investing is a single player game though.
I’m honest and open about the bold calls I make, which are harder to make, not easier (most people don’t make predictions for a reason). All I ask is for someone like Dr. Jimbo to make sure he comes back if and when things go awry, because I fully agree “early” can be wrong but it’s only wrong when the opportunity cost is large. If you are positioned to be careful and take advantage of a larger drop, early becomes a great call – but yes it depends on the drop or drawdown. One has to be early by definition to make a call, that’s what a prediction is. Therefore, all I’m asking is that you come back if the end of this year and 2024 are major bumps in the road, or sequential episodes of crisis that are attempted to be papered over by the fake monetary system we currently have.
Don’t hold your breath. I can’t keep track of all of the predictions people make in blog comments, the forum, the FB group etc to later come back an acknowledge some small percentage turned out to be true in retrospect. You’ll have to remind us yourself which I’m sure won’t be a problem.