This Halloween, my daughter is dressing up as a rainbow ghost. Our family is spending most of November in India visiting family for the first time since the pandemic, and before you know it, the clock will strike 2022.
Entering the holiday season, we close out an incredible year for bitcoin (a year in which bitcoin went mainstream). Now that bitcoin is mainstream, flush with a full suite of ETFs around the world, next year is sure to bring an onslaught of fear, uncertainty, and doubt (FUD) from all directions. Our 24-hour media cycle is filled with uninformed takes on bitcoin, and I believe that we need some mantras to keep our inner peace amidst the cacophony.
I borrowed some inspiration for my solution. I recently subscribed to a publication called Energy Talking Points from fellow Substacker Alex Epstein—his work is informative and importantly dispels false information circulating around the energy debate. The layman is constantly assaulted by politicians and publications pushing narratives that are more propaganda than information. The same is true for bitcoin: people outside the arena are victims of horrendous mainstream coverage. Those in bitcoin are all its PR, and today I’d like to borrow from Alex’s playbook by dishing six bitcoin talking points that address some of its most frequent sources of FUD. Use them for your own conviction and at holiday gatherings. And don’t forget to give the gift of Layered Money and The Bitcoin Layer!
A 100% allocation to BTC in your cryptocurrency is risk averse. While you’re welcome to do your own research into which altcoin project is the next big thing, a “diversified crypto portfolio” is a risk position (trader way of saying, “a position with risk”). Using the layered framework, bitcoin is akin to US Treasuries as a first-layer money. US Treasuries are not risk-free—they decline in price when interest rates rise. What they lack, relative to other fixed-income securities, is counterparty risk. The US government, despite recurring debt-ceiling dramatics, is not a counterparty capable of explicit default. Companies are. The difference between the two types of instruments in the eyes of capital markets is stark—credit doesn’t trade at absolute interest rates, only relative to US Treasuries. Altcoins are no different. They are measured in dollars to the naked eye, but to the cryptocurrency portfolio manager, they are measured against bitcoin. I am not saying that bitcoin cannot be outperformed—active traders can outperform bitcoin by employing the correct strategy, timing, and selection. The point is that a diversified allocation is sure to include altcoins that will die or carry company/centralization risk. Ethereum has amassed half of $1 trillion in market cap and is likely to continue growing, but I still view it as a risk position from a portfolio management perspective. Said differently, bitcoin is the only “cash” position attainable in crypto-land. Risk-averse buyers beware.
There is no altcoin, stablecoin, or central bank digital currency (CBDC) that poses a threat to bitcoin’s adoption path. These new digital instruments and securities orbit bitcoin but in no way threaten it. The private sector issues CBDCs and stablecoins as liabilities—China’s CBDC is a central banking liability, and Facebook’s Diem will be a corporate liability much like a share in a mutual fund or money market fund. Neither of these two instruments offer buyers an asset without counterparty risk, and neither will work in an open way. They are lower-layer forms of money (make sure you understand the difference between layers of money to quickly dismiss comparisons of bitcoin to PayPal). Don’t be distracted by launches of new projects during this bull market; there will be plenty of them. Focus on the innovation here: a rise of a currency for everybody, controlled by nobody. The adoption cycle is still early. Based on past technology adoption cycles, bitcoin will attract a billion new users over the next few years. Eyes on the prize. Or have fun at the slot machines.
Volatility won’t slow down. While to the statistician, bitcoin’s standard deviation of returns is in decline, to the naked eye it appears the opposite. And to our emotions, bitcoin’s price movements will continue to be magnificent in size. I am expecting weekly moves over $20,000 each way as we close out the year, and such moves will trigger the typical cries of why a currency so volatile can never achieve adoption. The opposite ends up happening each time, and this time will be no different. Stay the course throughout this volatility, and you’ll be rewarded over the long term.
It’s ok to reallocate, you won’t be the only one. When bitcoin’s price rises to $100,000, early bitcoin adopters that mined over a thousand BTC on their laptops will be sitting on fortunes of $100 million each. While these OGs are rare, they exist. For every bitcoin advocate that claims he or she will never sell, we are able to see from bitcoin’s on-chain data that long-time holders sell to retail buyers during bull-markets as they reallocate into other assets. Bitcoin’s price rises will always bring sellers to part ways with their holdings—behavioral finance teaches us that investors cannot always do the rational thing, which in this situation would be to hold bitcoin permanently and on a multigenerational basis. This is also why on-chain analysts are so wildly popular: if we know bitcoin has astronomical rises followed by deep bear markets, it’s only in our nature to try to sell tops and buy bottoms.
Bitcoin is a serious contender for world reserve currency, but not any time soon. The dollar will be the world’s reserve currency until bitcoin replaces it, sometime over the next few decades. Part of my conviction about bitcoin is that its rise will take decades, not years or months. The internet has been mainstream for over 20 years and is still slaying industries. The dollar won’t succumb to bitcoin over the next ten years because it is far too entrenched in every aspect of the global economy. Bitcoin will eclipse the dollar not strictly because of those who cross over, but more because of a generation that will have a bitcoin wallet on its phone instead of a commercial-banking checking account. This takes time. It’ll also take time for bitcoin’s price to surpass $1 million.
Everybody’s inflation rate is different. Thankfully, we don’t have to wait for the government to publish inflation statistics in order to determine our own changing price levels. Too many people around the world are fed up with the declining value of their fiat currency to purchase goods, services, and assets. People buy bitcoin to express a fear of long-term inflation. This is now an unstoppable trend. It’ll strongly continue, whether or not inflation statistics reflect it.
Bull markets can be very emotional. In bitcoin, they happen fiercely, rapidly, and end before you’re able to catch your breath. I am buckled up for a wild ride, and you should too. Arm yourself with talking points, even if they are just to repeat to yourself.