This article was originally published on AAX Academy.
Investing in crypto is not like buying a stock.
It’s more like that moment when Morpheus offers Neo the choice between the red pill and the blue pill – once you enter, the world will never be the same.
Yes, it sounds dramatic and of course it doesn’t all happen at once.
However, the technology underlying Bitcoin and cryptocurrencies tap into a range of important fields of human activity and knowledge. As we learn more about crypto and think about how the world might be impacted by its adoption, our perception is gradually changed.
On Twitter and other social media, Bitcoiners can often be recognized by a certain glow in their eyes. For most people, this only indicates they are focused on the $100k target, but don’t be fooled. Those with laser eyes are predominantly HODLers. They think in logarithmic terms and are not as price obsessed as one might think.
Why is Bitcoin so complicated?
Actually Bitcoin is simple. But because it’s new, we end up imperfectly comparing it to things we know.
digital real estate
a bank in cyberspace
the currency of the Universe
a decentralized ledger
a commodified notion of justice
a giant clock – or timestamp server, as Satoshi Nakamoto called it once
Before Bitcoin, there were two ways of owning wealth.
You own the physical asset: basically you have some gold under your mattress (because you believe that there can be no place safer than right where you sleep at night). When you give it to someone else, no one needs to know about it, but the fact is -> you have transferred your wealth.
Source: Disney (or is it?)
2. Someone else you trust holds a record of your wealth, and then you have a claim to that physical asset: basically, the banks keep a tally on who owns what and how much, and you have the “guarantee” that you can withdraw or transfer the funds you own whenever you please.
Of course, in practice banks cannot always be trusted.
In the digital world, up until Bitcoin, you could not “own” and “transfer” an asset. By its very nature, if you send someone your “digital asset”, the system copies your asset (say, jpeg) to the recipient and you would then need to delete your version of it or the system does it for you. Obviously, before you know it, there are copies everywhere.
This can only be solved, once again, by trusting some centralized party, like a bank, to make sure that when the numbers are added to the recipient’s bank account, the numbers are subtracted on yours.
Bitcoin solves all of this. It cannot be copied and spent twice. It’s a decentralized tally that cannot be tampered with because thousands of eyes are on it.
Now you can own your own wealth, just like gold under a mattress, and you can send it to someone else without needing someone’s approval, and still the tally will be perfect.
The investment thesis is this:
It is attractive to own your own wealth
Owning and being able to freely transfer digital wealth to anyone anywhere is attractive over the long term
Bitcoin is perfectly scarce so the more people transition into Bitcoin by purchasing Bitcoin, the higher the price will go
Over time, the people that will own the most Bitcoin are the ones that don’t sell and consistently buy the dip, and so over the long term, there is less and less downside
No one can stop Bitcoin
Bitcoin will be eventually be so attractive that more and more wealth will flow into the network
It will outlive fiat currency and either exist as part of a duopoly it shares with government-issued stablecoins or it will rule as the unchallenged global reserve currency.
For this to play out, increasingly wealth will move from fiat and traditional assets like gold, silver, bonds and real estate, into Bitcoin. PlanB’s Stock-to-Flow Cross Asset model is instructive here.
What’s significant here is not just the chart, but also PlanB’s Twitter-handle @100TrillionUSD. It refers to the idea that Bitcoin’s market cap should logically reach $100 trillion USD, after which… all bets are off and who knows what happens.
But why is Bitcoin so complicated…
In order to learn about Bitcoin, and become a stronger investor as well as advocate, there are a number of key topics you’ll want to delve into.
The best way is to learn a little about one topic, move on to the next, and so on. This way, you’ll get a better overall picture of why this new technology is such a game changer.
Source: Blocktower, Understanding Cryptocurrency.
What’s further down the rabbit hole?
“Bitcoin is constant. All other assets are volatile against it.”
Investing in Bitcoin and cryptocurrency in general is opening up new ways of thinking about how to organize ourselves as a global digitalized society.
For some, it’s a way to protect oneself from state authorities and other institutions. Anyone can understand this. Even government officials will think carefully about where and how they store their wealth, in case they were ever in a situation where the state or an angry mob turned against them.
But in the very long term, and this is where it gets interesting, it’s really more about building a new type of foundation for a sustainable global economy. Of course, Bitcoin and crypto wont solve all our problems – there are a lot of things to think about. But, perhaps, as private individuals start to own their wealth, and states – especially those with emerging markets – will be able to reposition themselves on the global stage, we can see a different political dynamic play out.
We can think about different ways that Bitcoin can be mined – would we see communities build settlements around solar panel parks that generate mining rigs?
What happens when resource-rich countries such as Venezuela or Gabon start requiring Bitcoin in exchange for raw materials such as oil?
What would local economies look like on island-states and other small jurisdictions that adopt Bitcoin as their reserve currency?
What if governments ban everyone from buying and selling Bitcoin, is it even responsible to do so, now large corporations and sovereign wealth funds are starting to hold Bitcoin on their balance sheets?
What would our economy look like if humanity were to be dispersed across various planets and moons?
In 200 years time, how would people interact with each other and would they study the rise of digital assets, and learn about fiat just as we learn about shells, rocks and prehistoric coins today?
Will certain altcoin projects be the Googles, Facebooks and Morgan Stanleys of the future?