Bitcoin could be one of the greatest public investment opportunities in all of recorded history. That’s not hyperbole. We are serious about this — and we come to that view having studied Bitcoin intently for more than two years, and global markets overall for more than 20.
There are venture-capital opportunities and private-investment opportunities that can deliver multi-thousand-percent returns. But these opportunities are not public in the sense of being widely available and easily accessible for any investor at any account size.
Because every Bitcoin is divisible into 100 million Satoshis, you could purchase less than $5 worth if you wanted to. The headline price of Bitcoin is no barrier in this regard, and still wouldn’t matter even if Bitcoin reached $1 million per coin.
There are also stocks that can deliver multi-thousand-percent returns over the course of a decade or more — like Amazon.com, for example. But needless to say, to see that kind of price appreciation you have to get in very, very early, and “hundred-baggers” — investments that deliver a 100-fold gain, which translates to a 10,000% return — are incredibly rare.
And yet, even from current levels in the $8,000 to $10,000 range, Bitcoin looks like a ten-bagger. And it might even be a hundred-bagger.
Most investors still don’t understand why Bitcoin is such a compelling opportunity.
But little by little, more investors are starting to “get it.” And as the compelling nature of Bitcoin’s value proposition dawns on them, more investors could start accumulating Bitcoin, including institutional investors. This is how the price of BTC goes from $10,000 eventually to $100,000 — and from there possibly to $1 million and beyond.
Again, this possibility isn’t hype or silliness or fluff. It’s real.
And the possibility exists because Bitcoin has the potential to fulfill not just any “use case,” but one of the most profoundly valuable use-case propositions in all of human history.
Bitcoin is the purest form of “hard money” ever created.
Many investors are familiar with the concept of hard money. But they aren’t aware of the most accurate and profound definition (in our view) of what “hard money” truly is.
Here are some general examples of how “hard money” is used as a financial term:
- “Hard-money loans” are backed by real estate or tangible assets. If a business needs money badly, it can sometimes get a hard-money loan — typically in a private transaction, rather than with a bank — by pledging real estate or some other asset as collateral. In this instance, a “hard-money loan” refers to the fact that something real, some type of hard asset, is backing the loan.
- “Hard-money funding” represents a reliable and permanent income stream. If a nonprofit organization receives a grant, that is a one-time thing. But if the nonprofit has a regular stream of payments written into the funding organization’s budget, that is “hard-money funding” because it is perpetual and fixed.
- “Hard-money policy” represents currency backed by specie (typically gold or silver). In the age of the gold standard, which lasted from 1870 to 1914, international trade was facilitated by gold-backed exchange rates. Some financial historians consider it the most prosperous period in human history, in part due to widespread adherence to the gold standard. This period ended with the onset of World War I, when various nations abandoned fiscal discipline to pay for the war.
- “Hard-money coins” were gold coins tested for authenticity. In the 19th century, a common method of counterfeiting gold coins was to make a coin out of lead and paint it with a gold coating. Because lead is softer than gold, the receiver could literally bite the coin to judge its hardness. If the coin was too soft, it was probably made of lead beneath the gold coating. If deemed sufficiently hard, it was more likely to pass muster as the real thing.
All those definitions are logical and legitimate. But we would argue there is a better way to define the essence of what “hard money” is.
Our definition applies to gold as well as Bitcoin. It explains the attraction of both — and also explains why Bitcoin is “hard money” even more so than gold. Here it is:
“Hard money” is a medium of exchange that is literally hard to produce.
Ask yourself why gold is the current hard-money standard and not, say, copper or tin.
Gold is the world’s foremost monetary metal not just because it is stable, long-lasting, and attractive. There is far less gold in the earth’s crust, by volume, than there are quantities of the other base metals. As such, it takes far more work to pull gold out of the ground. There is just less of the stuff to be had per cubic ton of earth. This means producing more is hard, especially relative to the stock of gold that already exists.
There is a very big pile of gold in the world, thanks to above-ground gold stores that have been accumulating for thousands of years.
When gold gets dug up, it sticks around. Gold does not get used up like most commodities. This is important because the available quantity of gold in the world is very stable relative to the comparatively miniscule amounts of gold being dug up each year.
There is so much gold in the world that even if the gold miners go flat out, they will not be able to contribute more than, say, 2% a year or so to the world’s total gold reserves.
As such, gold is attractive as a monetary metal for two juxtaposed reasons: The general amount of gold available is very stable — it doesn’t swing around — and the new gold produced each year is a very small amount relative to global reserves.
That “small amount of production” part comes back to how “hard” it is to produce gold. Again, if gold were more like copper or tin, it would be a totally different story. The value of “hard money” in this sense relates to the fact that, any time a medium of exchange starts to increase in value, humans will find a way to make more of it.
Let us say, for hypothetical example, that the rare earth metal Ytterbium was declared to be money. Let us further say that Ytterbium was deemed extremely valuable as a medium of exchange.
What would happen next? Enterprising geologists and miners would go out and produce as much Ytterbium as they could.
If there was an opportunity to inflate the money supply with vast new quantities of Ytterbium, someone would seize it, because doing so would be highly profitable.
The same applies to any form of money, and thus to any medium of exchange that is deemed to be money. If it’s easy to make more of the stuff, humans will figure out how via profit motive.
This is why the ancient forms of money — cattle, seashells, glass beads, and so on — all went by the wayside. The process for a failed form of money generally goes something like this:
- Hard-to-produce item X is dubbed a medium of exchange.
- Someone figures out how to produce large quantities of X.
- Unwieldy quantities of X enter the monetary system.
- The value of X is inflated away via oversupply.
Now think about our “hard money” definition — a medium of exchange that is hard to make or produce — in the context of fiat currency.
Fiat currency, as controlled by governments, is the literal opposite of hard money. It is the softest money in the entire world, in terms of the ease with which it gets created.
One of the things 2020 has shown us is how Jerome Powell, Chairman of the Federal Reserve, can literally call a press conference and create hundreds of billions of dollars, on the spot, on a Sunday night.
Now that is some non-hard money. For every central bank, it’s the same. Fiat money issued by governments can be created in mass amounts at the touch of a button. Central Bank Digital Currencies (CBDCs) will have the same characteristic, which is why they will never qualify as “hard money” either, and never function as reliable stores of value.
Getting back to Bitcoin: The reason Bitcoin is the purest form of “hard money” ever created is because the elasticity of Bitcoin is zero. This is a feature built directly into Bitcoin’s immutable mathematical programming. And eventually Bitcoin will become so “hard” to produce that the new amount of Bitcoins produced will be zero — forever.
Elasticity is a measure of how much supply or demand changes in response to price swings. Let’s say gold goes to $4,000 an ounce as a result of fiat currency printing, for example.
If that happens, the rate of gold miner production will expand. It won’t expand by a huge amount relative to the above-ground gold supply, but the supply of gold will still go up, at least a little bit, in response to upward price pressures.
But Bitcoin’s elasticity is zero because the rate of Bitcoin creation will never expand, no matter what the price does.
Even if Bitcoin shoots up to $50,000 or $100,000 per coin, the rate of creation for new coins will stay the same, and not budge one bit, because the whole structure is algorithmic and pre-determined.
Then, too, Bitcoin is designed so that the rate of production will steadily fall over time, and that rate of production will eventually hit zero. Once there are 21 million Bitcoins in the world, no more Bitcoins will be created, ever. The existing supply will be the defining amount for all time.
That is what makes Bitcoin a form of “hard money” that is even more pure than gold.
The hard-money properties we are describing make gold attractive as a long-term store of value.
Bitcoin has those same properties, but even moreso, with the added advantage of existing entirely in the digital world.
And because Bitcoin’s historical record is distributed via digital ledgers across servers all around the planet, Bitcoin is also as immutable and unchangeable as gold.
The one existential threat to Bitcoin is quantum computing, and the possibility that a quantum computer could somehow hack the blockchain. But this threat is on par with the threat of nano-scale 3D printers gaining the ability to assemble gold at the molecular level.
Both quantum computing and nano-molecular assembly are theoretical risks — one to Bitcoin and the other to gold — but neither are likely to happen within decades, if at all within our lifetimes.
And even as the quantum computing threat looms in the medium-term future, brilliant minds the world over are working on counterbalancing quantum cryptography solutions (which will be vital for protecting the world’s secrets, not to mention the world’s global financial transactions).
When quantum security exists, you can be sure it will be layered into the Bitcoin blockchain. There are already big brains thinking about it.
The upshot here is that, as the ultimate form of hard money, Bitcoin’s ultimate use case is serving as a store of value even more reliable and immutable than the store of value represented by gold.
Gold is valuable because the new supply in relation to existing supply — known as the “stock to flow ratio” — is reliably small.
Bitcoin has those same characteristics, with the added benefit of an elasticity of zero and a new supply rate that is both algorithmically fixed and heading to zero by design.
Some might ask, what about a new version of Bitcoin? Can’t somebody else just make a Bitcoin 2.0?
The answer there is no, or rather, anyone can make a hypothetical copy of Bitcoin, but nobody can make a true Bitcoin competitor. It is too late for that. This is because of network effects and the compound advantage of 10 years’ worth of head start on the store-of-value front. Consider the following:
- Bitcoin’s ultimate use case is serving as a digital store of value.
- Investors who buy Bitcoin long-term bolster this store-of-value case.
- The more Bitcoin is used as a store of value, the more its value increases.
- The bigger the network becomes, the stronger the network becomes.
- The higher Bitcoin’s value rises, the safer the network becomes.
What you have here is a flywheel where value begets value and strength begets strength. The more that investors perceive Bitcoin as a hard-money store of value, the more that additional investors will add funds based on the same perception, to the point where no other contender has a chance to compete.
At the same time, the bigger the network becomes, and the higher the value of Bitcoin rises, the more “mining power” is attracted to the Bitcoin mining and transaction network. This strengthens and safeguards the system yet further, making it even harder to break.
Bitcoin is digital gold. It has taken the “hard money” properties of gold, and made them even harder — and it has crossed the hurdles of global recognition and infrastructure, at a time when no other cryptocurrency comes close.
And now Bitcoin is poised to show its true worth in the aftermath of a post-pandemic world, with global debt levels exploding and fiat currency regimes heading for debt-induced meltdowns.
No other asset — anywhere, ever — has done anything remotely like this.
Before Bitcoin, only gold had served as a reliable and immutable store of value for the entire world. Bitcoin has taken that use case and gone digital with it.
In our view, that level of value-add to the world — acting as a store of value that is truly digital, truly trustable, and accessible to everyone — is potentially worth more than all the FANG stocks put together. We also suspect that, in due time, the world will figure this out.