In 2017 I was talking to a friend made $75,000 trading crypto and I just wouldn't have expected this from a Hollywood electrician. I'm endlessly curious so I read a few books and listen to a few podcasts and decide to push about $8,000 into several different crypto coins.
I'd summarized 2017 Crypto in general as focused on the technology, smart contracts, replacing currencies, avoiding currency devaluations, privacy, and decentralized financial transactions. Hyper Inflation (Venezuela) and currency devaluation (China's Yuan) are happening regularly across the globe. Smart contracts would create a world that eliminates chargebacks, reduce fees, and guarantee that contractors get paid because the money's escrowed in the contracts.
In the past two weeks, I jumped back into learning about where crypto are today. Overwhelmingly it seems the market seems to have shift its focus almost completely to Bitcoin. Massive price growth is almost certainly the reason it's so popular today. I watched interviews of Bitcoins biggest promoters: Cathie Wood CEO of Ark Invest, Winklevoss brothers of Gemini Capital, Chris Dixon General Partner at a16z, and Michael Saylor CEO Microstratgy.
There are two main points everyone makes:
1. Most are just bullish because for the last 10 years returns have been on average 230%.
2. Over the next 2 decades BTC will replace gold as a hedge against inflation.
There’s an expectation that corporations and institutional investors are beginning to move into BTC as a hedge. Many believe that central banks will start buying BTC. Much of the target valuation forecasts, such as BTC hitting $500k, are based on BTC matching the market cap of gold.
“the best-guess market cap of all mined gold — an estimated $10.6 trillion, per Gold.org (GoldHub) — dwarfs the market capitalization of bitcoin, which as of press time sits just below $708 billion.” source
People that promote the gold narrative seems to be obsessed that the US dropped the gold standard and it’s the reason the buying power of the dollar has declined 92% since.
Point #1 Growth
It's a weak ass reason to bet on Bitcoin, and I'm surprised people with 100x more experience in finance would say this.
Point #2 BTC replaces Gold
First I want to talk about the Gold Standard, because I strongly disagree that the US removing the Gold Standard is to blame for the long term health of the US Dollar and the US Economy. I'm attacking this point because it's what I consider lazy rationalization and it often goes hand in hand with bashing the US Federal Reserve.
- There isn't a single country in the world that still uses the Gold
- The year the US dropped the Gold Standard is also the same year President Dick Nixon dropped the trade embargo with China.
- Former Federal Reserve Chairman "Ben Bernanke, blame the gold standard of the 1920s for prolonging the economic depression which started in 1929 and lasted for about a decade." - Wikipedia
- There seems to be many more examples where a Gold Standard hurts an economy much more than it helps. If you want more info, checkout the great Wikipedia Gold Standard Pro/Cons breakdown.
Gold is still an important part of how countries manage economy crisis and protect against inflation. It's a Macro area that I need to personally learn more about.
Inflation
Buying Bitcoin to hedge against inflation is in my opinion the most reasonable reason to buy. There are tons of ways you might hedge against inflation such as buying stocks, index funds, real estate. Everyone who's heavily promoting Bitcoin's continued growth so desperately wants to be right that governments printing money during the pandemic is going to cause significant inflation.
As an investor, your main risk is the extreme volatility. So for you what's worse, extreme volatility or inflation?
Finally, fight inflation is a rational reason to invest in Bitcoin, and growth is about greed and FOMO. Its completely reasonable to buy small single digit portion of your investable dollars in Bitcoin, but do yourself a favor by identifying your bias for what they are.
I consider Bitcoin today to be a purely investment asset. The transaction fees are considerable starting at $2.99 for small transactions on Coinbase, but decrease with larger transaction sizes and paid plans. The Power Law seems to have chosen Bitcoin as the winner for now, which I think could change when Governments start issuing their own crypto coins.