I was having a conversation with a relative over Christmas; and for once it wasn't about web design or website development. It was about Cryptocurrency and why she should invest in the protocol and ecosystem. Without conscientiously meaning to I found myself making the Bitcoin case. Normally around the new year we write a blog about doing some yearly maintenance of your website or app. What has been working? How is the SEO? Has the website's design aging well? Is there a new web development technology that is better suited for your business' needs? You get it. We sell what we do - website design and development. Well, lucky for you this year we are going to explain why Cryptocurrencies, and Bitcoin in particular, are the real deal and you should be buying it.
When I told her to invest in Bitcoin her response was simple and sent my thoughts deep into the innards of my mind looking for the answer. She said, "Why would I invest in a piece of metal that's not even real money?" The funny thing is, I had never really thought about why Bitcoin was a great investment. I knew why. I had read why. I have a better understanding of Blockchain than the average person. I was a stockbroker at Morgan Stanley and have a deep understanding of how equity and commodity markets move - supply, demand, and speculation. I could have used that knowledge to win her over, but instead while my thoughts were mining my brain for an intelligent response I said, "It's not metal, in fact it doesn't really exist - physically anyway.". Her response was expected, "That makes it even less attractive." It was about this time that I had collected my thoughts and found what I thought was, and is, the case for Bitcoin. Here it is.
Under Priced Store Of Value
A "store of value" is an investment or utility that holds value that we can easily access and exchange. Think of the US dollar or gold. They can both be used as a medium of exchange for valuable items and things. Medical operations, cars, weddings, food, rent, etc... they store value that we can use. There is nothing intrinsically valuable about the paper a dollar is made from...at least not compared to the hamburg one can buy with a dollar. Gold on the other hand does have a value in the real world. Useful things are made from gold. Beautiful things. There is one other major difference in the two. The US dollar is fiat and gold is a real world commodity. Simply put, gold gets and maintains a different value than the dollar because it is not infinite. Unlike the US dollar, it can't be printed and created out of thin air. There is only so much of it. How much is there? We don't know and will leave that for the speculators, but we do know the entire earth isn't made of the stuff. This is why it is considered a better store of value than fiat money.
Well guess what? There is a new kid on the block that is shaping up to be a much better store of value than gold. It is not printed out of thin air like the dollar and we don't have to speculate on how much really exists like gold, because we all ready know. There will only ever be 21 million Bitcoins. That's right. Sure, they are 'mined' daily and are coming into existence as I write this, but the number of coins that can be created get halved every four years until there are 21 million on earth. So, less and less are being 'mined' every year.
So, why am I calling it an Under Priced Store of Value? Well, gold currently has a worldwide market cap of 9 trillion dollars. Bitcoin is a much better store of value (I'll brilliantly make this case later in the article, just think ease of transactions and divisibility) and only has a market cap of 1/2 trillion. It is way under priced. Those market caps will meet somewhere in the middle in the near future. In fact it has already started. Bitcoins market cap has more than doubled in the last year.
Divisibility and Ease-of-Transfer/Use
In a transaction, be it buying something or giving it away, the smallest a dollar can be divided is a cent(.001) Gold's smallest divisor is an atom, but that ain't too practical. Bitcoin can be divided down to .00000001 BTC. Which is wonderfully efficient. You get it. Next stop is ease of use and transfer.
Your better half gets kidnapped while on vacation in Mexico City. The kidnappers are amateurs and at 11:54pm they surprise you with a unsolicited phone call demanding a $367 ransom due by midnight....or else. The problem is time, and even if you had more you wouldn't want to alert the FEDS or raise any suspicions by withdrawing bank funds. Why? We don't know why...just play along. Well, unfortunately you can't really break off $367 dollars worth of gold from the bar you hide in your closet and send it half way around the world in the next 7 milliseconds. But guess what? You can send $367 worth of Bitcoin from your wallet to their wallet in 7milliseconds and do it anonymously - keeping the FEDS in the dark...
During this pandemic, and in general, the world's government printed trillions of fiat dollars to keep our collective heads above water. This is horrible for you and your bank account. More dollars were created but more goods were not. This means more dollars are chasing the same number of goods and by god's law prices go up. Now you get less for each dollar you saved. It's called inflation. Think about this if you don't like economics...Monopoly. If you play the wrong way like we do, you are allowed to buy other people's property when they are dirt poor and losing. You might offer to take Park Place off of their hands for $300 if everyone sitting around the board had $1000 each, but what do you think would happen if there was a bigger bank with more money? More money to go around? I can tell you what would happen. The gal to your left would instantly say "I'll give you $400 for it". That's inflation.
Bitcoin has no such problem. It can't be inflated. Sure it's dollar equivalent price can go up and down. However, it will hedge against monetary inflation long term. That is why it was created. It's this the same inflationary pressure that raises bitcoins value.
Bitcoin and Crypto currencies were once the dream of big thinkers. Big banks and institutions saw it as a fad...a joke...a dream. Today they are flocking and pouring billions into the system. This wide acceptance coupled with the finite supply of bitcoin means one thing. The price will continue to rise and at a much faster rate than any other investment. Don't believe me? Look at a chart. It's price is $20,000+. 5 years ago a bitcoin could be bought for $7 dollars. Every bank is writing glowing memos about bitcoin, the cable finance shows talk about it 24/7, hedge funds are pouring money in, the US and world governments are treating it like they want their piece of it, and price projections of $1,000,000 in 3 to 5 years are everywhere.