Bitcoin is Sound Money

Age of Solo-Capitalists

We’re entering a new phase of capitalism, spurring the growth of individuals as business entities, which will bring a bevy of changes to the overall business world landscape, including emphasis on individual identity.

This societal shift is being fostered by:

• A steep decline in trust of large institutions, e.g. government, big-business, & religion.

• Software is eliminating the role of intermediaries and middlemen.

• Technological progress has gifted us more leisure time to focus on ourselves, and in the face of abundance, we’re more inclined to construct an individual identity.

As part of this societal transformation, I believe we’ll see the emergence of a new career and life path, what I’m labeling the “solo-capitalist”. This emerging group of people want to exercise sovereignty over their own financial success, health, and well-being. They're fiercely independent and opportunistic by nature. They choose not to be employable, and instead, put more emphasis on their individual identity.

I believe Bitcoin has the potential to help usher in this new age of solo-capitalism and will have massive societal ramifications beyond financial returns. The ideological nature of Bitcoin runs in-line with the solo-capitalist: independence and financial sovereignty.

In this post of Hidden Levers, we’ll dive into the both the societal narrative and Bitcoins potential as the digital currency of the future.

Bitcoin Jesus – The Saviour

Ideology

For those with an uncertain understanding of its history, Bitcoin entered the world on Jan. 3, 2009, when a person or group of people working under the name Satoshi Nakamoto released a string of computer code that established a system permitting people to transfer money to one another online, directly, anonymously and outside government control, in much the way that Napster once allowed the transfer of music files. In a short essay, Nakamoto suggested that the motive for creating Bitcoin stemmed from the 2008 financial crisis: “The root problem with conventional currencies is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”

That sounds awfully political to me, doesn’t it? Most of the early adopters got involved for philosophical reasons, they saw Bitcoin as a great idea, as a way to separate money from the state. What’s transpired over the last decade has been the becomings of a movement — a crusade in the mask of a currency. Depending on who you talk to, the goal of Bitcoin is to unleash repressed economies, to take down global banking or to wage a war against the Federal Reserve.

Social Phenomena

Whether you label Bitcoin as a cult, crusade, or movement, the fact is it’s a social phenomena.

According to a recent paper by Kraken on Bitcoins Intrinsic Value, a case could be made that Bitcoin will “succeed” not purely because of its underlying technology and value proposition, but because people believe it will succeed.

It's this belief that germinates a positive feedback loop; participants believe adoption, or the purchase/use of Bitcoin, will continue to accelerate and for this reason, they adopt themselves. This rationale ignites a wave of adoption that drives others to the same conclusion and the same action. As a social phenomenon that continues to attract new users despite weathering several boom and bust cycles, Bitcoin possesses the potential to rise to prominence due to its reflexive nature. We can turn to Reddit.com, the 19th most visited website in the world, as social proof of said phenomenon; the r/Bitcoin subreddit has amassed 1.65 million subscribers over the past eight years and is the 211th most popular subreddit among the some 1.2 million subreddits in existence.

This chart shows the correlation between number of reddit subscribers and the price of Bitcoin over time…wild!

Bitcoin – The Investment Case

Bitcoin has built its reputation as the most cryptographically secure, decentralized, and widely adopted digital asset that the world has ever seen, all of which is backed by billions of dollars in computational power and millions of participants. This ever increasing confidence in what Bitcoin can do today and could do tomorrow makes for an appealing form of money and/or a store of value. Let’s dive into that more below.

Store of Value

Bitcoin is primarily used as a hedge against expansive money printing. As a result, believers have deemed it to be a store of value, and Bitcoins long-term price movement strengthens this thesis. In order to be considered a store of value Bitcoin must have utility, be trustworthy, and have large-scale adoption. Bitcoin is on its way to checking off these three criteria. The biggest thing holding it back is price volatility, but even that has become more stable in recent years. To illustrate this point, the 200-week moving average and the consecutive days above $10,000 USD are both at all-time highs. If you’re still not satisfied, more than 60% of all Bitcoin in circulation today has not changed hands in the last 12 months. This means that majority of Bitcoin owners continued to hold the asset amidst double-digit price movement, both up and down.

Corporate Balance Sheets

We’re seeing a new trend emerge where public corporations are using Bitcoin as a reserve asset for part of their treasury. Recently, Microstrategy, an American public company purchased $425 million of Bitcoin to put on the company’s balance sheet. The company chose Bitcoin as a reserve currency because the US dollar is less attractive than ever.

Following Microstategy’s investment, Square announced it will add $50M of Bitcoin to diversify its liquid assets. "Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company's purpose," the company said in a statement.

Benefit from the Chaos

Anthony Pompliano, leading voice on all things finance and crypto, had a great take on the current environment: “make sure your portfolio is allocated in a way to benefit from the chaos, rather than suffer.”

Paul Tudor, billionaire fund manager who recently put 2% of their assets in Bitcoin, recently said, “We are witnessing the Great Monetary Inflation, an unprecedented expansion of every form of money unlike anything the developed world has ever seen.”

The Federal Reserve is the US Government's sugar daddy. The Fed balance sheet has skyrocketed to all time highs this year (~$7 trillion). There is a saying: "there’s no free lunch". There are more dollars in the world than ever before, and basic supply/demand principles tell us that increased supply of dollars will decrease the dollar's value.

So how can we benefit from the chaos, rather than suffer? My goal isn’t to try to convince you to buy Bitcoin – you have to do your own due diligence. Instead, I want you to become more educated in inflation-hedge assets like Bitcoin. For what it’s worth, I can tell you that I have a 5-10% concentration of Bitcoin in my portfolio.

Lastly, here’s a table showing portfolio returns to date by year, varied by portfolio allocation to Bitcoin. See for yourself…

So here's the Hidden Lever

Bitcoin has the potential to be the digital currency driving the web - but it also has massive societal ramifications.

Until next time,

Justin