The market is getting bulled up for a Fed pivot and rate cuts in 2024. It started off earlier this month with a string of bad US data, after which I noted that the US economy has reached an inflection point
Geo, do you have a core thesis on being a BTC and crypto bull? I understand the view that the USA national debt & deficits will spiral with no solution, and Fed will have to come back in with QE to buy UST. And the idea is this will lower the value of the dollar. Where BTC since it has limited supply will hold value better. Basically the "digital gold" thesis.
Is there anything else I'm missing about your long term view of crypto and BTC? Why we will need this?
I'm not very knowledgable on crypto as there is only so much time in a day and I haven't taken the time to do a deep dive. I know there are more "murky" bigger ideas of it being the underpinnings of a new financial system, DeFi. etc...
Stores of value have become necessary ever since governments went off the fixed Breton Woods exchange rate system to floating rates, allowing them to debase their currencies. When this happened in 1970, gold had its “Bitcoin moment”, going up by 20x over the next decade.
Today the world is modernizing at a rapid pace and gold has become a poor fit for today’s digital economy. You can’t send gold oversees, you can’t cut it in half and spend a small portion, and if someone gave you a gold coin today, you wouldn’t know how to convert it into something useful without spending the time to find a dealer and paying a large transaction cost. Bitcoin solves a lot of problems that gold can’t, especially for people living in countries like Argentina and Venezuela. Those countries may seem like extreme examples, but the overall direction of travel for many countries is towards more debasement, financial repression, and taxation over our lifetimes.
Bitcoin is not a perfect digital asset, as there are cheaper and faster ones. However what it does have is the biggest network effect out of any digital asset and a scarce supply, and that’s what makes it a strong store of value. Gold, by the way, built up its network effect hundreds of years ago, so Bitcoin is simply going through the same process. As more people join the network, the market cap will need to expand to accommodate all the additional users who buy and hold small and large amounts.
I don’t see a new financial system being built on bitcoin, and if it does happen, it won’t be for a long time. Perhaps once it matures and the volatility of its cycles decreases, it can be a viable backing for a financial system for some countries. The first step would have to be governments getting on board and holding btc as a reserve asset.
Thank you for your excellent response. You have to convert your BTC to a local currency to use it. Most places you would spend money still don't accept it. With gold you could hold a gold ETF or fund, and then sell it to convert it to currency to use it. I guess if you were in say Venezuela and needed to flee the country, maybe the gov't could seize those gold fund accounts and you couldn't sell the gold fund to convert it to currency? Where they would not be able to seize the BTC? Also I hear there are debit cards that can be linked to gold in a physical gold fund, where you can spend that money. I think once BTC is universally accepted as spendable money for everything, that would be a big deal.
I don't think goverments are going to allow people to evade taxes or hide their money with BTC.
And there is also the chance that BTC appreciates much more than gold. But no one knows for sure, its all speculaton where the price goes.
But I see that the overall goal here we are all trying to accomplish is what asset is the best as a store of value? That is going to hold its value despite fiat currency debasement via money printing by central banks.
When you hear these statistics of how "the dollar has lost 70% of its purchasing power since 1971" or whatever...they are talking about you lost 70% of its purchasing power if you kept your savings under the mattress. I think if you rolled Tbills and compounded % over those decades, you basically didn't lose any purchasing power vs the official CPI....or you lost a lot less.... Of course real inflaton could be much higher than official CPI.
Geo, do you have a core thesis on being a BTC and crypto bull? I understand the view that the USA national debt & deficits will spiral with no solution, and Fed will have to come back in with QE to buy UST. And the idea is this will lower the value of the dollar. Where BTC since it has limited supply will hold value better. Basically the "digital gold" thesis.
Is there anything else I'm missing about your long term view of crypto and BTC? Why we will need this?
I'm not very knowledgable on crypto as there is only so much time in a day and I haven't taken the time to do a deep dive. I know there are more "murky" bigger ideas of it being the underpinnings of a new financial system, DeFi. etc...
Stores of value have become necessary ever since governments went off the fixed Breton Woods exchange rate system to floating rates, allowing them to debase their currencies. When this happened in 1970, gold had its “Bitcoin moment”, going up by 20x over the next decade.
Today the world is modernizing at a rapid pace and gold has become a poor fit for today’s digital economy. You can’t send gold oversees, you can’t cut it in half and spend a small portion, and if someone gave you a gold coin today, you wouldn’t know how to convert it into something useful without spending the time to find a dealer and paying a large transaction cost. Bitcoin solves a lot of problems that gold can’t, especially for people living in countries like Argentina and Venezuela. Those countries may seem like extreme examples, but the overall direction of travel for many countries is towards more debasement, financial repression, and taxation over our lifetimes.
Bitcoin is not a perfect digital asset, as there are cheaper and faster ones. However what it does have is the biggest network effect out of any digital asset and a scarce supply, and that’s what makes it a strong store of value. Gold, by the way, built up its network effect hundreds of years ago, so Bitcoin is simply going through the same process. As more people join the network, the market cap will need to expand to accommodate all the additional users who buy and hold small and large amounts.
I don’t see a new financial system being built on bitcoin, and if it does happen, it won’t be for a long time. Perhaps once it matures and the volatility of its cycles decreases, it can be a viable backing for a financial system for some countries. The first step would have to be governments getting on board and holding btc as a reserve asset.
Thank you for your excellent response. You have to convert your BTC to a local currency to use it. Most places you would spend money still don't accept it. With gold you could hold a gold ETF or fund, and then sell it to convert it to currency to use it. I guess if you were in say Venezuela and needed to flee the country, maybe the gov't could seize those gold fund accounts and you couldn't sell the gold fund to convert it to currency? Where they would not be able to seize the BTC? Also I hear there are debit cards that can be linked to gold in a physical gold fund, where you can spend that money. I think once BTC is universally accepted as spendable money for everything, that would be a big deal.
I don't think goverments are going to allow people to evade taxes or hide their money with BTC.
And there is also the chance that BTC appreciates much more than gold. But no one knows for sure, its all speculaton where the price goes.
But I see that the overall goal here we are all trying to accomplish is what asset is the best as a store of value? That is going to hold its value despite fiat currency debasement via money printing by central banks.
When you hear these statistics of how "the dollar has lost 70% of its purchasing power since 1971" or whatever...they are talking about you lost 70% of its purchasing power if you kept your savings under the mattress. I think if you rolled Tbills and compounded % over those decades, you basically didn't lose any purchasing power vs the official CPI....or you lost a lot less.... Of course real inflaton could be much higher than official CPI.