Build Your Project
Note: This postbode wasgoed sampled from an email I wrote to a Kind Boomer outlining the investment prospectus for bitcoin. With the enhancing insanity of conventional investment opportunities, the marginally-insane bitcoin play is becoming the default option (at least, for those humans worried with earning a terugwedstrijd). The Chair of the Fed can only wear so many robes and say so many platitudes before everyone realizes that nobody can afford to live anywhere, commercial real estate and the old economy are crumbling ter vuurlijn of our faces, and stock prices are actually a thermometer for desperation.
Dear 55-65 year old North American,
It’s true that now is a pretty veelbewogen time to buy into bitcoin. It recently revisited it’s all time high ($1290) before receding and stabilizing around the $1,000 mark. Of course, ter bitcoin “stabilizing” means “+ or – 10% for more than Two weeks.” Bitcoin wasgoed $780 last July, and $450 a year ago today.
Bitcoin is also ter the midst of a scaling debate that could haul on for the better part of 2018. The longer it hauls on, the more negative pressure I would expect to see on price. I’m astonished it’s remained spil resilient spil it has so far above $1,000.
The metrics I choose to track with bitcoin are market cap and number of transactions vanaf day. Market cap because it gives a good idea of how the entire world values the network, and transactions because they can’t be faked. Every transaction has a real world cost. Here’s how bitcoin’s transactions vanaf day have bot growing since 2009:
The number of transactions taking place every day on the bitcoin network. Every transaction has a toverfee, i.e. there is a real world cost to fake this growth, and an exponential cost to faking exponential growth.
Here’s bitcoin’s market cap since 2009:
Market Cap = Price of bitcoin * Money Supply of bitcoin
Market cap recently succesnummer a high of more than $20 billion before coming back down to around $15 billion. The last time the bitcoin price kasstuk $1200 (ter 2013) it represented a market cap of only $12 billion, because the total supply of bitcoins wasgoed lower.
Bitcoin supply vs USD & CAD supply
Bitcoin supply is on an exponentially decaying schedule. Ter 2009, 50 bitcoins were created every Ten minutes. Te 2012 that halved to 25 every Ten minutes. Last year it halved again to 12.Five every Ten minutes. Bitcoin will proceed to go after that schedule (halving every Four years) until sometime around 2140 when no more bitcoins will be created. Today, around 80% of all the bitcoins that will everzwijn exist have already bot created. The supply schedule is set te open source code, not determined by politicians with $20 trillion te debt to inflate away.
So wij have the Federal Reserve and the Canap of Canada, who both say they are shooting for 2% annual inflation. However the USA prints money like there’s no tomorrow and Canada does about the same thing, at least when oil prices go down. Inflation is 2% a year? Okay, sure, except for houses, healthcare, or anything you need to support a family. I’m not buying it. But even if inflation is Truly 2% a year…that means a $Five hamburger will cost $800 QUADRILLION DOLLARS ter 2000 years (check it te excel).
Wij are told of the magic of “compound rente,” but no one everzwijn mentions “compound inflation.” Only one of thesis phenomena is ensured.
Federal Reserve: “we promise inflation is 2%, but indeed it’s much higher, and even 2% is robbery because compound rente is never coming back”
Bitcoin: “exponentially decaying supply curve with a stationary supply of 21,000,000 divisible to 8 decimal places, anyone can audit at any time, open source software”
Because of bitcoin’s decaying inflation – if everyone who possessed bitcoin today dreamed to increase their holdings by 5% this year, they couldn’t do it. There is not enough.
That scarcity will only matter for price, tho’, if bitcoin also remains useful and becomes more useful than other currencies. This is a risk (maybe bitcoin stalls out due to developer infighting, for example).
An investment ter bitcoin is fundamentally a bet that the Federal Reserve and the Canap of Canada will proceed to print their way to “prosperity.”
Here’s another key growth metric for bitcoin, “hash power.” I won’t get into mining, but you can check out this YouTube movie of a bitcoin mine te China.
Note: Mining power has enlargened more than 10x since the above movie wasgoed made.
Bitcoin mining requires real physical investment. People have to trade USD, Chinese Yuan, CAD, Euros, bitcoin, or gold for this mining equipment, and it goes obsolete every Two months or so. The electrical bill of the worldwide bitcoin mining network is more than $1 million a day. Here’s how the amount of “hash power” has grown since 2009 (a proxy for “number of computers supporting the network” and a proxy for “how much have businesses and individuals invested ter this system and how likely are they to protect that investment”):
Like transactions, hash power requires real investment and cannot be faked. This doesn’t mean miners are right to invest, but it does mean humans believed this investment to be better than all other available investments.
Whatever happens, Digital Scarcity is here to stay. My entire generation doesn’t buy gold because wij can’t afford houses to store it te (and because Canada charged mij $60 to bring 1 oz ter the country), and gold has a $7 trillion market cap.
The capability to store value independently of a bankgebouw or government will only become more significant spil strongly indebted and increasingly desperate financial institutions run out of options. Digital Scarcity solves that problem, and Bitcoin possesses the lion’s share of the Digital Scarcity space. Because empirical practice is so significant to future growth, I think Bitcoin is the most likely pick to proceed predominant that space.
Risks (te order of likelihood)
- Bitcoin is ter the middle of a contentious debate on how it should scale. I think the price influence of this debate could be spil detrimental spil negative 50% te 2018
- Another token te the Digital Scarcity space may outperform bitcoin and take overheen spil the “leader,” likely an unrecoverable position (similar to what happened with MySpace and Facebook)
- Bitcoin exchanges are announced illegal (can mitigate by moving your bitcoin off the exchange spil soon spil you buy it)
- The Federal Reserve announces tomorrow that the gold standard will be reintroduced, and everyone believes them
- Bitcoin is subject to a catastrophic hack
- Bitcoin has gone from $0 to more than $1000, and it’s market cap remains trivial. For example SnapChat is worth more than the entire bitcoin market cap right now. For a protocol that competes with Gold, $20 billion is a joke. $1 trillion is possible, even reasonable, signifying a 50x upside.
- Any country tired of being shoved around by dollar diplomacy could buy 1,000 bitcoin, proclaim bitcoin spil their reserve currency, and instantly become wealthy
- Even if the investment performs poorly, you do your part to not participate te the prevailing Economy of Bamboozlement
Investing ter bitcoin comes with serious risks, but the pot odds upside is historically unprecedented. Also…look around. Nobody can afford houses (I don’t count taking on 30 years of debt spil a 30 year old ter a two-income professional family with no kids to be “affording” anything). Buildings are un-maintained because there is no comeback on property for commercial leases anymore (all shopping going online). Equities are the most insanely overpriced they have bot te a long history of insane overpricing. Loss-making companies like Snapchat instruction $30 billion valuations by issuing non-voting shares! True, maybe there is 50% more to build up te stocks. But there isn’t 50x, and the downside risk of the equities market is about the same spil bitcoin (both could lose 50% ter the brief term).
I think bitcoin should be treated spil a speculative investment. Most likely a 50% chance the price falls to $500 this year, and a 5% chance of a catastrophic event that takes it to zero ter the next Five years. Thesis risks are offset by the 50% chance that bitcoin triples ter 2018, and the 100% chance that some token ter the Digital Scarcity space will “win” and predominate the market (with bitcoin being the most likely).
Netflix disrupted Blockbuster and today has a market cap of $64 billion dollars. Bitcoin could substitute the entire financial sector of the world economy, and it’s market cap is $15 billion.
I don’t encourage anyone to bet the farm on it, but limited exposure is advisable…even now where both a 50% price druppel and a 300% increase are both possible ter 2018.
Let mij know if any questions
At the time of this postbode, 1 BTC traded for $1213.76 on Coinbase
Nice article, Joey. But I’m going to suggest at better article would have bot “The Kind Boomer Case for Cryptocurrencies.”
A lotsbestemming of the points you make apply to cryptocurrencies generally, not BTC specifically.
For example, you say “the supply schedule is set te open source code, not determined by politicians with $20 trillion ter debt to inflate away.” But what mainstream cryptocurrency doesn’t have a immobilized supply schedule?
And you say, “Bitcoin mining requires real physical investment.” Is this not true of mining any crypto? Spil the price of any crypto increases, mining competition increases requiring enhanced investment ter mining.
Another argument for suggesting boomers not invest ter BTC specifically but cryptocurrencies generally is the risk. Your correctly point out that BTC prices are volatile and could go to zero.
Modern Portfolio Theory has shown diversification – te this case holding a basket of cryptocurrencies – can increase comes back for a given level of risk.
I’m not anti-Bitcoin. It is my largest cryptocurrency holding. And it may win.
But I don’t believe the intended audience of your article knows enough about cryptos to be picking winners and losers so I’d recommend they allocate any crypto investment pro-rata based on market cap across the top Five or Ten currencies and then re-balance holdings periodically (perhaps once a year or so).
All true. I would contend, tho’, that Ethereum is one such mainstream cryptocurrency that does not have a motionless supply schedule. Supply is still uncapped and the roadmap is not clear what will toebijten there. For Ethereum to best fulfill its use case of usable clever contracts, scarcity and maximum token value could lightly become less significant.
My current portfolio includes strategic plays te BTC, ETH, XMR…and amounts of Dash, LTC, Doge, and ETC that I once thought were trivial and “just for joy.”