Note: This article does not constitute financial advice.
Like many, when I first heard of bitcoin, my reaction was “Why would anyone invest real cash in magic internet money?” It was worth zero — backed by nothing. And, like a fool, I was keen to point this out to anyone who would listen. But still, I was curious what the buzz was about, so I continued to keep an eye on it until, in 2015, I had a mental breakthrough. I was listening to a podcast when Wences Casares made a statement that went something like this:
Bitten by the bug, I spent months reading anything bitcoin-related, talking with friends, developing an investment thesis and assessing probabilities that bitcoin could actually achieve these outcomes. Like any good MBA graduate, I quickly worked up a SWOT analysis (strengths, weaknesses, opportunities and threats) and a simple pricing model that compared the number of network wallets to price. At the end of this exercise, there was only one answer: It was prudent to invest a small percentage of my portfolio in bitcoin. For me, I chose 1 percent of investable assets. And now, like all other bitcoiners, I wish I had invested far more.
Below is my hopefully simple and concise explanation as to why I still believe bitcoin is a great investment, and quite possibly, the best investment opportunity there is right now. Let’s look at some key drivers of price, current macro trends and risks.
In my opinion, “printer go brrrr” is not exactly accurate as some of this is a swap of similar assets, but the Federal Reserve did effectively prevent wide-scale deleveraging during the COVID-19 pandemic by aggressively opening lines of credit, lowering rates and embarking on the most aggressive quantitative easing (QE) program we have ever seen.
Meanwhile, politicians are dropping cash on their constituents. Some of that stimulus will chase asset prices, and these actions have moved all markets to “risk on,” given that widespread deleveraging risk is off the table. In simple terms, deleveraging is the selling of assets by institutions or individuals to repair balance sheets and/or pay debt. This was a primary cause of the Great Financial Crisis. In my opinion, the risks today appear more tilted toward higher inflation, not deleveraging, and what better way to hedge inflation than with digital gold?
Millennials are the largest generation in the United States and are now entering their prime earning years (see the Fundstrat chart below). This generation watched during the Great Financial Crisis as their parents lost their jobs and homes. A Facebook survey showed that 92 percent of them mistrust banks, but that they love bitcoin. A survey has shown that 20 percent of them own bitcoin now, and more are…
Read more:The Macro Case For Investing In Bitcoin