The black hole asset. The asset that gave us number go up technology. Bitcoin is quite literally a financial black hole. And for those of you who understand the importance of sound money-this will make sense. Bitcoin was designed to be the hardest money ever (hard money- is money that cannot be inflated and holds its value over space and time) and in a world where fiat rules, hard money wins. Examine the traditional stores of value assets: Precious metals, bonds, and cash in positive yielding bank accounts. However, in a world where our currency debasement is — 84% a decade, there is no other asset that can truly protect you from inflation other than the best sound money.
Price Discovery
This is a super important concept that pertains immensely to bitcoin. Price discovery is pretty simple: it is when an asset has yet to truly discover its "price"and mature into its future potential as a store of value. This is precisely what is happening with bitcoin right now. Bitcoin is unbelievably young: 12 years old. As we speak bitcoin is hovering above a 1 trillion dollar market cap. This is a remarkable first step in bitcoin's goal: a universal store of value. But, think about it this way, let's say bitcoin is bound to reach a 100 trillion dollar market cap by 2030. Bitcoin would need to appreciate from a young child, with much growth left, into an aged and well established adult with little growth to discover. It will slowly mature, in an overall upward trend, until it reaches a universal store of value.
At a 100 trillion dollar cap, bitcoin will be the obvious and go to choice as a store of value. It has already appreciated the most of any asset in history, simply because it is the purest and most desirable form of money ever created by man. And that's why it's important to note the extraordinary velocity at which bitcoin has moved. No asset has discovered so much price in such a short time frame, with so much more to go. The free market chooses the best option available, and bitcoin is being chosen. But, before it's fully validated, it needs to appreciate higher highs and higher lows. Volatility is required for an asset that is to be used as a store of value, it must be volatile in its younger days, in order for it to be stable and reliable in its older days. However, this also guarantees tremendous price discovery along the way.
Bitcoin has yet to even slightly mature as an asset, it has much price discovery to obtain. On the framed "product life cycle chart," bitcoin is still in the early adopters phase, this is the 3rd inning in a baseball game. Bitcoin holds less than 1% of wealth in the world. Imagine once it reaches 5%, 10%, 20%, 40%. We are early. There is so much room for bitcoin to grow and mature, especially in terms of price. We are going on a trip to the new world, about to discover the tobacco industry. Prices not thought of will be discovered regularly.
"The Fed is trying to affect policy. It’s trying to influence the economy, stimulate the economy, prop up the stock market. That is the purpose of the Fed buying Treasury bonds. So, the Fed is not looking at Treasury bonds yielding under 1% and thinking, ‘Wow, this is a lousy buy. Why do I want to buy these bonds at less than 1% and hold them for 10 years? We’re going to take a big loss.’ The Fed doesn’t care about losses. The Fed doesn’t have to work for its money. It creates it out of thin air. What do the guys at the Fed give a damn how much they lose by buying these low-yielding bonds? And so when you have the Fed in the market, the whole thing is distorted.”
A Return to the Reality
We reside in a false reality; a reality in which the lies of fiat money have been accepted by the masses. Money flows from wall-street like it's a river. Stocks trade higher than their earnings, and market derived prices. The stock market's never ending bull market has yet to cease, simply because the Fed continues to inject QE every time it corrects. Bonds - something once used as a store of value — are yielding sub 2%. Cash in savings accounts are yielding 0%, and in some cases negative yields. Both cash and bonds are being devalued as interest rates plummet and inflation skyrockets. If cash is yielding 0% in a savings account, yet there is a 35% inflation rate each year, savings accounts are no longer an attractive solution to hold value. Same goes for bonds, as bonds have a sub 2% yield. One must also consider the inevitable downward slide of the dollar. Why would someone hold dollar denominated debt if the dollar is on a steady decline. As the bond matures, its lender will be cheated by the inflation rate. If I lend you 100 million dollars and the bond matures to a 102 million payout, but in the interim period, the inflation rate reduces purchasing power by 35%, then didn't I lose out big on that trade? Yes, I lost out huge. At the time of issuance for the debt, compared to when the bond matured, inflation destroyed your trade. Take in consideration: this trade was once seen as a no brainer when in search for a store of value. It is now impossible to store value in either bonds or cash, both of which hold a +$100 trillion dollar market cap. I think you can guess my next line of thought.
“Sound money is money that gains in value slightly over time, meaning that holding onto it is likely to offer an increase in purchasing power. Unsound money, being controlled by central banks whose express mission is to keep inflation positive, will offer little incentive for holders to keep it” (Bitcoin standard)
Bitcoin as a Superior Store of Value
Bitcoin is the best store of value to have ever existed, and while bitcoin approaches its true price, there is much opportunity to gain. Bitcoin's store of value properties are like nothing else. Sound money is required to maintain value across time and space. As time goes on, sound money produces a deflationary environment (prices go down). In the case of bitcoin: many will be lost, and taken out of circulation as a result of human error. There will be less and less bitcoin as time continues. The bitcoin that remains, will give its owner more purchasing power, as the total scarcity of the asset is reduced. Bitcoin's supply can never increase, only decrease. Bitcoin's decentralized protocol protects it from those who wish to tamper with its value. Unlike bonds and cash, the system cannot be controlled and destroyed by a single entity. Owners of the store of value will not be subjected to government devaluation. Total sacristy is ensured. There is no asset to the likes of bitcoin.
Bitcoin is Eating the Financial World
Now let's connect the dots. The three biggest stores of value — cash in positive earning saving's accounts, bonds, and gold will lose market cap to bitcoin. Because cash and bonds are directly affected by the inflationary money printing, those seeking a store of value will avoid these two assets. Gold - a manipulated rock - is simply too outdated and slow for the modern era (also remembering there is no price discovery left in gold, as it has been around for 4000 years). Gold is also not hard money. Gold can be mined at higher rates when demand is higher. Look how much more gold was produced in years when demand was higher. This is called stock to flow. The amount already existing vs the incoming flow. Gold can be inflated in an unpredictable way, unlike bitcoin which has a set amount of coin that can be mined per a 4 year frame.
These three assets are dying in the old world. Bitcoin is part of the new world. Tell me what generation — besides the boomers and older — who are buying bonds, holding their money in savings accounts, or HODLING gold? None. On top of being horrible stores of value, due for a collapse, these are outdated analog methods for holding value. Bitcoin is betting on the future of technology and human advancement, which has been a straight parabolic upward trend since the industrial revolution. Bitcoin is holding value in the cyberspace — the modern frontier. Those who are willing to take a bet on bitcoin now, will have the benefit of enormous price discovery. They will be the early adopters of the technology. Those who wait until bitcoin has 100% proved itself as a store of value, will come for the amazing sound money properties. The only difference is bitcoin will reward its early supporters, for enduring the immense volatility on its way as a recognized store of value. People will flood to the hardest money in sight, as our macro economy punishes those holding in dollars, bonds, or gold. People will have no choice, but to opt into bitcoin. Their life savings will be wiped out from inflation, negative yielding interest accounts, and zero sum bonds. The riskiest place you can hold money is in those assets. Bitcoin is not speculation. Believing the dollar, bonds, and gold can continue as universal stores of value is a highly speculative thought. Look at those who played off the internet, as a silly fantasy. The internet rules the world now. Do you think it was speculative for amazon to build itself as a store in cyberspace? Yes, it was for those who didn't understand the value proposition of the internet. For those who did understand the internet, it was a simple bet on human ingenuity and advancement. This is a world changing opportunity, will you bet on the future or the past?
