Bitcoin is the new life insurance policy
Multigenerational wealth storage alters bitcoin's risk profile.
“I’m buying this for my kid.”
My bitcoin framework evolved after hearing this from a close friend, living in the Middle East with his wife and young son. At 32 years old, he regularly dedicates part of his well-paying corporate salary to bitcoin, explicitly to transfer wealth into the future. He’s not interested in the gains or even the technology, “It’ll be there for 20 years, and then he can have it.” Time travel.
We know bitcoin as a commodity behaving in a currency-like manner, but what if bitcoin was also a life insurance policy? It would then attract demand away from the massive, traditional fixed-income asset class. And that’s precisely what bitcoin will do over time. Bitcoin still exhibits many market characteristics of a risk asset, but the next generation is on the cusp of forever morphing its risk profile into a safe-haven asset.
Bitcoin is life insurance
Here is the general definition of life insurance:
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person. The policy holder typically pays a premium prior, either regularly or as one lump sum.
In other words, life insurance is an attempt for somebody with money today to give money to his or her loved ones in the future. This person achieves such an arrangement with a life insurance company, which promises to exchange money today (premiums) for money tomorrow. Now read it through a bitcoin lens:
Bitcoin is a contract between a bitcoin holder and the bitcoin protocol, where the protocol promises to pay a designated beneficiary bitcoin upon the request of a bitcoin holder. The bitcoin holder typically purchases bitcoin prior, either regularly or as one lump sum.
Bitcoin is a type of digital property that can be transferred through time to the next generation simply with its own mechanism, and without the assistance of any government or private company.
Liability Driven Investing and Fixed Income
The size of the fixed-income market is over $100 trillion worldwide. A major source of demand for all these bonds is a strategy called Liability Driven Investment (LDI). Pension plans, life insurance companies, and retirement accounts all employ LDI strategies to ensure a safe transfer of value over a long period of time. Basically, people buy 30-year maturity instruments to ensure either a steady stream of income or guarantee a lump sum in the distant future.
The 30-year bond does exactly that. I always hear the question, “why would anybody lend money to the US government for 30 years at less than 2% interest?” The answer is that a 30-year US Treasury principal payment is quite literally the safest way to transfer US dollars to oneself over a 30-year time horizon. And the market prices this as so. The yield on a 30-year US Treasury today is less than 1.75% because of a lack of guaranteed long-term cash flow elsewhere in the market, relative to demand. LDI is a permanent source of demand for long-duration assets. Corporate entities and governments around the world offer 30-year debt instruments as well.
Specifically, life insurance companies must purchase long-duration instruments for actuarial reasons. They have a statistical expectation that many of their young, healthy policy holders will not require any payout for decades—cashflow from investments along the way isn’t necessarily required or even helpful. This brought about a piece of financial engineering called bond stripping, in which principal and coupon cashflows are stripped apart and sold separately. Principal strips of 30-year US Treasuries, purchased by LDI asset managers, have a vibrant market and are essential in the price discovery of the zero-coupon yield curve—market prices of interest rates through time absent cashflow before maturity. Bitcoin is a new type of zero-coupon bond.
Bitcoin transfers value through time
Part of what makes bitcoin so unique is a public perception of its permanence. Investments in the new bitcoin asset class are being made with generation-spanning time horizons. This is part of what separates bitcoin from crypto, the fact that no other digital asset has achieved such neutrality and decentralization ensuring its survival for decades to come. For that, bitcoin has become the perfect tool to transfer value to oneself or to loved ones over time and can achieve duration far greater than the 30 years the US government can offer. Bitcoin’s protocol and mining industry are now a permanent fixture within the global economy, slicing off energy consumption for the survival of bitcoin and for the basic human right of people everywhere to use it as fair and open money.
My friend’s request from the bitcoin protocol is that the bitcoin software network will be operational in 60 years for his grandchildren, regardless of bitcoin’s price in government currency terms. He neither earns nor spends in US dollars, so to him, bitcoin fits a specific need, a long-term store of value for his family that isn’t issued by a bank or Middle Eastern nation. His generation fundamentally understands that bitcoin is the new life insurance policy, transferring value from today to the next generation in a secure, government-free, technology-embracing way. When compared to emerging-market currencies in particular, bitcoin is the superior allocation when thinking over a 20 to 30-year time horizon.
Bitcoin is about to turn 13 years old. And now, it’s a global, online life insurance policy to millions around the world (perfect opportunity to mention that Layered Money will be available in over 20 languages by the end of 2022). A perpetual obsession with its dollar price only acknowledges bitcoin’s value as a commodity but ignores its power to time travel by trusting software over governments, asset managers, and life insurance policy providers.