Why I Bitcoin
Am I 13 years late or 13 years early on bitcoin? Deadass wrong or totally right? Who knows. It's a risk, but one I now understand better and can't ignore anymore.
Readers of my blog know that I started dabbling in buying Bitcoin in late 2022.
In fact, it was the best performing asset out of any of the names I wrote that I was watching for 2023. Similarly, and not to give away the suspense, I added Bitcoin exposure once again to my list of 24 stocks I’m watching for 2024.
So, it may not have been that much of a surprise when my subscribers saw me on X yesterday proclaim that my days of disparaging Bitcoin were over. However, given that I have about 210,000 more Twitter followers than I do Substack subscribers, it is safe to say there were still plenty of people who were caught off guard by my mea culpa, and, somewhat alarmingly, even more people who were voraciously willing to immediately sing my praises and welcome me to the community.
As far as the welcome goes, all I can say is, I genuinely appreciate it. I’d be lying if I said that a large group of people proclaiming me to be making an intelligent decision didn’t make me somewhat nervous. However, as I said in my post on X yesterday, I know I am also surrounded by people who are much smarter than I am.
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As I also said in my post yesterday, I have been watching people that I know are much smarter than I am, specifically those in the sound money community, sing the praises of having exposure to bitcoin for years now. For me, that was the hardest thing to ignore. I felt like if I was looking to people like Lawrence Lepard, Luke Gromen and Lyn Alden for their incredible insights on the broken monetary system, why couldn’t I at least try to take them semi-seriously when it came to their take on Bitcoin? I knew deep down there was work they had done and an understanding they had achieved with Bitcoin that I wasn’t close to, despite understanding some of the basics.
I started to get a taste of this understanding while listening to my friend Lawrence Lepard describe Bitcoin as an invention all its own on this December 2022 podcast – comparing it as a parallel to the Internet, instead of just another Internet software application. This video is queued up to the first moment I changed my thinking about Bitcoin - Larry’s explanation starts at 36:00:
He referred to it in this interview as “the invention of digital scarcity”. Honestly, I had no idea what that meant, and the idea of “digital scarcity” didn’t seem too novel to me. I just shrugged and thought, "If Bitcoin can do it, other cryptocurrencies can do the same." I asked myself, "How can something be scarce when it doesn’t exist tangibly and definitely didn’t exist 15 years ago?"
Of course, like a key uses multiple teeth in concert to open a physical lock, Bitcoin only started to make sense to me once I understood it in the context of how the network works - all of the teeth of the key (the ideology, the network, the cryptographic invention) line up together, helping unlock its understanding. First, I had to understand how the cryptography of Bitcoin worked and why it is essentially unhackable and about as secure as something can be for the time being. I did that by watching this video:
Next, I had to understand the system of checks and balances that the network creates to ensure the integrity of itself. Sure, I understood the idea of a decentralized ledger that everybody could check – that was relatively simple. What I didn’t really understand was how having a majority of the nodes on the network, running the same code, essentially kept Bitcoin sacrosanct for as long as people decided they wanted it to be. I had heard about forks in the network, but now I understood them. They are points in time where people thought they knew best and should rewrite Bitcoin code. The majority of nodes rejected those ideas, in doing so protected the sanctity of the original Bitcoin code.
Once I understood the cryptography and the security of the network, it then became self-evident that the larger the network gets and the more adoption it gets, the more secure and indestructible it becomes. The idea of people "banning it" or, as my one friend put it, “Satoshi just coming back to change the supply of coins whenever he wants” simply doesn’t hold much water once you understand how it works. If the people want the Bitcoin network, and they have power and an Internet connection, they’re going to get it. The network is like a slippery fish someone tries to hold onto — the harder you hold it and the more you try to control it, the quicker it slips from your grasp. If Canada bans it, it will drift to Mexico. If Mexico bans it, nodes will drift to Mauritius. If Mauritius bans it, nodes will drift to Russia. There’s always going to be somewhere on the globe – at least for the short to mid-term right now – that is going to embrace Bitcoin.
For me, it was only once I understood how the cryptography worked and how the network functioned together, in tandem, that I started to assign the all-important intrinsic value to Bitcoin. I was, and in some degree still am, in the camp that sees gold as having intrinsic value that Bitcoin does not, because of its commodity bid and far superior and longer record as a store of value. This is why, despite coming around to the idea of Bitcoin, my gold position is still larger than my Bitcoin position.
But Bitcoin advocates make compelling arguments when they point out that Bitcoin is easier to transport and easier to verify than gold. I always found myself stuck when somebody would ask me how I would take $1 billion worth of gold over the border. You just can’t. With Bitcoin, you just can. Even as exchanges are subjected to more AML and KYC regulation, the Bitcoin itself still remains an offramp from having your wealth centralized. The idea, coupled with the transmissibility and the ability to verify it anywhere in the world at any time with just an internet connection and power really do make it truly unlike anything that has ever existed before.
For me, as I said in my tweet thread yesterday, I couldn’t always figure out exactly what I was buying when I was buying Bitcoin. I’ve had to talk myself into understanding it by describing to myself it as purchasing a spot on a bedrock decentralized ledger with the highest adoption worldwide, that will potentially - not definitively - serve as the foundation for a new way to think about money. In other words, it’s as much reserving a spot on the ledger as it is an investment in the invention of Bitcoin itself. It’s a really big idea — and my brain is really small — which is why it has taken me this long to wrap my head around it. But, as they say, “once you see it, you can’t unsee it”.
And, like any other investment I make in something new that has not been fully adopted, I accept the fact that there are significant risks, and that the value of Bitcoin could go much lower, or eventually, to zero. The thing is, I just don’t see that happening anytime soon. Even in a worst-case scenario where Bitcoin doesn’t make it 100 years from now, I think its adoption over the next 5 to 10 years is already a foregone conclusion.
Specifically, listening to Michael Saylor helped open my eyes to the fact that I was buying digital property. This interview was a lengthy, comprehensive listen that I enjoyed. Whether Saylor turns out to be Bitcoin Jesus or the most misguided person in history, it’s tough to argue that he’s not exceptionally intelligent and well spoken:
This is another another lengthy, complex interview I listened to in full and at length, which helped me understand the web of all components working together that make up the Bitcoin ecosystem:
And so, when Saylor asks a question like, “How long do you think it’ll be before all cell phones and computers are bundled with Bitcoin wallets?” the answer to me simply seems to be obvious: it won’t be long. So, from an adoption standpoint, whether or not it is around 100 years from now is, for the most part, beside the point right now. It’s like the potential impact of quantum computing—I’ve heard both sides of that case and have pretty much acquiesced to the position that it’s a bridge we will have to cross when we get to it. And hey, if that reasoning is good enough for Janet Yellen watching our debt/GDP explode toward some unknown breaking point of no return for the dollar, it’s good enough for me.
But the fact that regulatory agencies have blessed Bitcoin by allowing the spot ETFs, and that I can go on Twitter and literally see commercials from super serious asset managers like Franklin Templeton and Fidelity, talking about Bitcoin as a sound money hedge, and a way to step outside of the central bank-run global monetary system, is stunning.
It’s funny how, once there are fees involved, people are happy to make what I always thought to be the morally just case for railing against central banks — the case that I have been waiting for people to publicly make for gold for a long time. Regardless, I don’t really care about your motivation when you’re making great points.
Just last week, I heard somebody say that all Bitcoin buyers are speculators, not people looking to seriously opt out of the monetary system as it exists today for the long term — and I simply don’t think that’s the truth. I think there are a lot of people out there, like me, that are just looking to diversify their way out of a broken fiat system, and Bitcoin is just one of several ways to do that.
There’s no doubt there are going to be innumerable speculators and traders. There’s no doubt there is going to be scammers and endless shitty altcoins. There’s no doubt there’s going to be fraud and money laundering, just as there is with US dollars and registered securities. But to say that’s all there is in Bitcoin is a mistake, in my opinion.
There only needs to be a small group of people who continually buy and hold going forward to eventually whittle away at and reduce the space on the ledger. If the network's collective hash rate or adoption was falling, that'd be a concern. But for now, it isn’t. And you can’t tell me that a country like El Salvador adopting bitcoin as legal tender is “speculation.” To me, that falls closer to “adoption.” There’s a big difference between a couple of kids in a chat room trying to daytrade shitcoins and some of the world’s largest asset managers, and even some nation-states making the case for parking their digital property spot on the ledger, while millions of people globally are buying bitcoin simply to own it. The notion that everybody involved is a scammer or is trying to get rich is, in my opinion, misguided. To me, there’s a massive difference between “trying to get rich quick” and “trying to preserve wealth over the long-term”. Regardless of what Bitcoin does, my motivation will always be the latter.
The price will continue to be volatile, but it’s also pretty easy to make a case for why it will go up. If I pay $200,000 for a house tomorrow and do nothing to it, and there is no increase demand for it, but the purchasing power of the dollar falls 99% over the next 50 years, the price in dollars is still going to go up. With bitcoin, there is the tailwind of global adoption, the benefit of a limited supply, and a growing ideological awakening that supports its moral and ethical existence.
It’s been funny, listening to podcasts about bitcoin for the last few months, because everybody starts their explanation by laying out the horrors of the fiat money system. I was lucky in the sense that I already understand how the money system is, like the tides, ebbing and flowing, naturally eroding away at people's purchasing power and transferring it to the state. This has been one of my long-held arguments for owning gold. As bitcoin continues to be adopted, it becomes a great reason for owning bitcoin, too, in my opinion. One thing I have always said about bitcoin is that I appreciate how much it has opened the eyes of people who normally would not have understood the horrors of modern monetary theory and global monetary policy.
What will be even cooler to witness, in my opinion, is the FOMO when, and if, the price once again breaches all-time highs. If bitcoin's price continues to perform well, asset managers who now have precisely no excuse not to buy bitcoin (since there are now spot ETFs that work within the system they are allowed to play in) will be inundated with calls from their clients wondering why they don't have any exposure to the asset, even if they don't understand it.
And this isn't GameStop, meaning that once price FOMO starts, there is no at-the-money equity offering to come in and dilute at higher prices. If a rush to grab "all you can eat" on the ledger starts in earnest, there will be no new supply magically coming out of nowhere to meet it. With bitcoin's total market cap still under $1 trillion, to me, it just seems to make sense that super-rich Middle Eastern countries will likely be the next to adopt it and put it on their sovereign balance sheets.
A lot of the podcasts I've listened to talk about nation-states that are mining bitcoin but won't talk about it. I believe this is happening. At some point, the lights are likely going to flip on globally and everybody's going to see what everybody else is holding. My guess is that some oil-rich countries in the Middle East, even if they see it as simply a call option with the potential to go to zero, will dabble in putting bitcoin on their sovereign balance sheets to try and diversify themselves and make a bet on the future of money. These people drive Bugattis to work and keep tigers as pets. To say that they don't have enough money to "speculate" on the potential future of money is laughable.
And then, once again, we fall back to the shuffle between bitcoin and the network, and how they fall into place and work in tandem together. The more major adoption it sees, the more secure it becomes, the more people want to invest in it, the more it becomes viable and mainstream. Bitcoin, to me, essentially looks like the open-source code equivalent to a self-fulfilling prophecy. The way it functions, as I said yesterday, essentially makes it a freedom-money virus. It has been unleashed, and it has become big enough that it is near impossible to stop over a short or even medium-term period of time. I thought Michael Saylor's analogies of the network essentially being a swarm of wasps was apt. How do you stop a swarm? You may kill one or two wasps, but at the end of the day, you're simply outnumbered. And with bitcoin, the ideology, plus the network, plus the redundancy, plus the fact that anybody can adopt it, nearly ensures that it is going to overpower its critics both in nodes and in computing horsepower.
I really look forward to doing more research on the network's potential uses and pathways for bitcoin adoption going forward. Don't get me wrong, I still consider bitcoin a risk asset in the sense that if adoption slows or regresses, the network becomes weaker. But the trajectory that we're on now doesn't suggest that is going to be the case anytime soon. There are also significant risks if core developers decide to make drastic changes or if quantum computing eventually makes the cryptography easier to crack. There's also a risk of major western countries trying to ban, regulate, or tax bitcoin to death, and there are simply tons of unknown risks that come with the ideological adoption of a brand-new standard.
My weighting in bitcoin is at a level where I am fine with losing it all. I expect the price to fall 90% at a time more than once going forward. As several people have said, if you’re worrying about it that much, your weighting is too big. I manage the risk on owning bitcoin like I do owning call options or walking into a casino. I won’t be surprised or devastated if and when I lose it all.
But for me, ideologically, what bitcoin sets out to solve simply makes sense. I look at things through an Austrian lens and truly believe the system and the global economy is broken. I'm always going to be a gold and silver bull, but to say that I'm advocating for a different monetary system and that there's no room for the ideological call option of bitcoin at that table, simply no longer makes sense to me now that I understand it better.
One thing I used to ridicule but won't anymore is the idea that bitcoin is digital freedom. The nice thing about being decentralized, and peer-to-peer is that while it may phase in and out in certain jurisdictions, bitcoin works if people want it to work. And, philosophically, I can’t think of too many things I’d rather bet on than giving power to the people.
QTR’s Disclaimer: I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.
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