I own BTC and I’m adding to my position. I’m NOT ADVOCATING buying BTC. BTC is a mathematical construct and a social compact. I believe it behaves as a volatile store of wealth as well. People often say it’s not “backed by anything”. I don’t see that as true. I bought it with dollars so it’s backed by my dollars. People say but but it has no government. In fact it has a massive totally transparent government. The algorithm is its government
BTC is not a tulip. You can’t just plant a field of BTC cover it with manure and wait for the dough to roll in. It is not a bubble because it is not financed by credit. It’s price discovery is in the open market completely transparent. It is not open to window dressing like share buy back. It’s WYSISWYG what you see is what you get. It is not open to FED manipulation and control by banks. No one skims anything off the top except for the exchange fee. The IRS treats it as property like real estate and stock gains and charges cap gains. Unlike stocks and real estate there are no government incentives to distort pricing. It settles instantly. You push the button and the deal is done permanently and anonymously. The IRS is likely going to force some accounting like a 1099 be reported by the exchange, so what? You get a 1099 on your stock sales as well. The law is the law and the government deserves their cut of capital gains.
BTC is closed ended. It is designed so only 21,000,000 BTC will ever be created, so again it is not like tulips. It is more like gold, another store of value. You mine gold. You also can mine BTC using a computer. There is a certain amount of gold in the world and there is a certain amount of BTC. BTC is created by calculating using an algorithm and as each “coin” is mined by successful calculation that coin is added to the ledger. Once in the ledger that coin can be traded just like gold can be mined assayed turned into bullion and traded. The price of gold is set by a market mechanism and the price of BTC is set by a market mechanism. You can store gold in a safe and you as well can store BTC on a thumb drive in a safe. Once your purchase is on the ledger it remains on the ledger. The algorithm is virtually uncrackable which is why its called crypto. The ledger is peer to peer meaning it’s not stored in one place but is stored everyplace. Since the ledger data is “everyplace” it can’t be stolen or falsified. The algorithm understands cheating and won’t allow it PERIOD. BTC can be stolen like a bar of gold can be lost or stolen. You can loose your thumb drive for example or throw away your computer and loose your account info. No account info no BTC. (not entirely true if your BTC is stored on an exchange). BTC is anonymous. It’s like a Swiss bank account on your phone. You are a number and your account value is a number and there is no way for the system to understand who you are. A brokerage understands but the algorithm does not and it’s perfectly legit to trade outside the exchange. There could be tax consequences for that however. The exchange of value in a transaction is instant. No clearing house or bank or regulators involved. The transactions are world wide, no exchange rates currency markets central bank or government manipulation allowed. This means I can be a sandal maker on a mountain in Peru, I can call NYC and sell a load of sandals to BillyBob’s sandal store for a price in BTC using a satellite phone and as soon as the button gets pressed value is subtracted from BillyBob and added to my account. The transfer is perfectly liquid and perfectly transparent to the ledger and permanent. All that’s left to do is ship the sandals.
This is a HUGE advantage. Consider the infrastructure required to transfer money from NYC to Peru to your bank and have funds become available consider import and export taxes consider the currency manipulation balance of payments etc. All of that is eliminated in peer to peer. The other thing is BTC remains liquid whether the banks freeze up or not. This is the reason I first purchased BTC in 2015. It was during the Greek banking crisis and some rich guy was vaca in the Greek islands. The banks froze up and he most you could get is $50 a day and you had to wait online for that. No credit cards, no checks. All you could spend is the money in your pocket. The guy wanted to go home but he couldn’t buy a ticket. He had BTC, bought a ticket and split for Cali. I had some spare money and decided I wanted some of that kind of liquidity and libertarian money.
Now I see BTC as a diversifier. It has a long enough history it is not going to zero. There is 180B of stored value in the system presently as well as the cost of the infrastructure, which is a world wide peer to peer computer network. The value of the network is probably trillions so there is inherently stored value in the system, and there is no government allowed to borrow against that value or just print money. In the future BTC maybe the reason the internet was invented and not just watching porn. Freedom is a very hard thing to keep in a box once you taste it. BTC is a little like owning BRK-A it’s value is what it’s value is. It is not manipulated by stock buyback or stock splits or leverage. It’s not really open to financial engineering and so doesn’t carry that risk. I read 19% of S&P value is due to financial engineering not productivity. If that’s true owning BTC is way safer than owning SPY for example. If SPY becomes un-engineered 19% of its value disappears. BTC is volatile but if you own a coin you own a coin. aka transparently. If you don’t want to own the vol of BTC, don’ buy it.
It turns out BTC is uncorrelated to stocks, bonds, gold. and cash. It is a fifth form of diversity
You can see its seriously non correlated with any other asset class. Given my understanding and strengthening conviction of a world wide recession on the horizon I want my portfolio to be spread across as many non correlated assets as possible. But I also don’t want to throw the baby out with the bath water. I’ve made a lot of money investing. In the last 25 years stocks and bonds have been the place to be. Stocks are volatile, bonds have steadily ground higher and continue to do so. The long bond hit 1.9 today and the yield curve once again inverted. It is what it is. So now is my time to re-balance percentages out of concentration, and into the safety of greater diversity. To me that means own all 5 non correlated asset classes by selling some (not all) of the most profitable (sell high) and spreading that loot around. This keeps me 100% invested just not 100% invested in stocks. Will I loose money? Relatively unclear. What is clear is if the stock market crashes I WILL loose money, a lot of money because the risk is concentrated. If the dough is better risked across classes I will loose less and maybe even make some in some categories because of the non correlation. People gotta keep their dough somewhere and one categories loss is often another categories gain.
As BTC has been mined initially it was very elastic in terms of supply and demand. In the beginning it was easy to mine, you could do it on a raspberry pi. As more coin is mined the computing horsepower needed has risen exponentially. There are now specific rigs that are dedicated to mining that are basically super computers in their architecture. In addition collaborations of mining computer owners join together to form a mining consortium of computing power and then split the coin according to some algorithm. About 80% of the 21M coin has been mined and as mining progresses it becomes asymptotic in terms of mining horse power vs return. This model in my opinion will inflate the price naturally as the cost of inputs grows. also I think as the number to be mined dwindles the price will become more inelastic and scarcity should drive price. After the crash I predicted the price would stabilize around 9 to 10K. BTC has never gone to zero. It has steadily risen but in a very volatile way so imagine climbing a mountain with a LOT of steep hills and valleys along the way. It’s not that different than the S&P 500 in some respects. There are all kinds of excesses and crashes but the climb is relentless. I expect BTC’s chart will have a similar look 50 years from now. I think the algorithm is designed to pretty much insure that with it’s ever increasing scarcity of new coins. Some predict 25x growth some 40x present value. I’ll be happy with 2-3x. If you own say 100K and in 5 or 10 years that becomes 300K, not a bad deal. In 10 years 100K to 300K @ 2% inflation is 10% return.
China Russia NK Iran and several other countries are proposing a members only crypto currency. This would allow the countries to trade directly without converting currencies or pegging to say the dollar. If China needs natural gas and Russia has some they merely deliver the NG and get paid in crypto and the US doesn’t have anything to say about it or any way to manipulate it. Sanctions smanchtions. The crypto in that system is backed by gold. Presently China has something like 13000 tons of gold and Russia about 10000 tons. US has 8000 used to have 20000. Russia is the second largest gold miner in the world. That crypto is not BTC but if it comes to pass will totally legitimize crypto as world wide concept
The worst month for markets is traditionally Sept. There are 3 days left in Aug and a hurricane is scheduled to arrive at my front door in 5. There’s a metaphor in there somewhere.