Without taking time (like 10 minutes) to understand Bitcoin, it looks like a digital pet rock that people “invest” in. Wipe that impression and let’s start from 0. Bitcoin is a social movement, best understood as “the separation of money and state.” Why is that important? In the case of “separation of church and state”, it is easy to imagine the abuses that would inevitably be carried out by a nation state with a monopoly on information and access to God. It’s easy because we can learn about it in historical context. But in the modern case of state-controlled money, we ought to ask what we might be missing as we live through it.
For those who know where to look, it is clear to see the adverse effects of nation state monopolies over money production.
Central banks are able to create money out of thin air to carry out their affiliated governments’ wishes. The era of central banking began in earnest in the early 20th century. In a world where money is scarce, and the government-central-bank partnership can’t just print more of it, government expenses must be covered by tax revenues or by issuing debt. In the case of war expenses, typically the citizens would purchase the debt if they favored the war. That is, citizens would lend to the government.
WW1 was not a popular war, and the British people did not buy their government’s bonds to fund the war. The solution for the government was for the central bank to print money and purchase the bonds. Eternal war enabled.
A money that can be created out of thin air by a privileged class leads to all kinds of negative consequences beyond eternal war.
Ultimately, paper certificates representing wealth can be created effortlessly, but wealth itself (ie purchasing power) cannot. Money printing is, therefore, is strictly a redistribution, and not a creation, of wealth. The natural consequence of more currency units is higher prices in the economy, so the purchasing power of savings declines. And how is the purchasing power redistributed?
Those price increases take time to play out, so those who get their hands on the new money get the benefit of buying things at their pre-inflation prices. This is known as the Cantillon Effect - those closest to the creation of the new money will benefit from the new money’s creation disproportionately. And that group is always going to be those working in the financial system and the government. Naturally, the Cantillon Effect produces societal wealth inequality over time.
With money losing value over time as more and more currency units are created, the wealthy will seek to preserve their purchasing power by investing in “store of value” assets, the most popular of which is, of course, real estate. This creates what is known as a “monetary premium” - money is meant to hold its value over time, and when it doesn’t (because of rampant new money generation), people will use other assets as savings vehicles, and those assets will appreciate in value not because of market demand for their usefulness, but because of demand for a savings vehicle. In the case of houses, prices will come to reflect demand for a store of wealth, rather than for a place to live. Of course, this ends up pricing out people who would like a house as a place to live, and rewards those who play the game with continued price appreciation, as more and more money flows into houses-turned-piggy-banks. More inequality.
The problem is central banking, and they’ll even admit that “mainstream economics” is simply running cover for their corrupt system. In a 2021 paper, Federal Reserve Board member Jeremy Rudd slipped the following into a footnote: “I leave aside the deeper concern that the primary role of mainstream economics in our society is to provide an apologetics for a criminally oppressive, unsustainable, and unjust social order.”
The solution is extremely simple, yet quite difficult to accomplish.
All that’s needed is a money that is scarce, such that more units can’t be easily created. So how would we get a government to adopt “hard” money, as this is called? Well… you wouldn’t, because they benefit so dramatically from having the ability to make more money for themselves. Think about the quote above… they know it’s “criminally oppressive” and “unjust” and they aren’t going to do anything about that.
As Friedrich Hayek said, “I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can't stop.”
Bitcoin is that sly, roundabout way.
What is needed is a money that is scarce and cannot be confiscated.
Bitcoin is undebasable, unconfiscatable, and uncensorable. At the most fundamental level, it is a network of computers enforcing rules for updating a shared ledger of transactions. Every computer that runs the Bitcoin software (tens of thousands around the world today!) keeps a list of every Bitcoin transaction, and uses the rules in the code to ensure that only legit transactions can be added.
It is the product of decades of attempts to create effective digital cash, where cryptographers tried and tried to develop a program that could maintain scarcity, resist being hacked (ie prevent double spending of a single unit), and work without a central coordinating authority (thus requiring no trust on the part of participants and leaving no target for opponents who would hope to shut it down). Bitcoin’s anonymous creator, who went by the pseudonym Satoshi Nakamoto, was the first to crack the code.
Bitcoin cannot be stopped by any government, because the network is supported by computers (referred to as “nodes”) around the world. It is global, neutral money.
Functionally, Bitcoin is superior savings technology and spending technology.
As a savings technology, Bitcoin is money that cannot be debased or confiscated.
As savings technology, dollars lose value over time, and the dollars that your bank tells you they hold for you have been lent out to someone else; houses are difficult to transact in, require management overhead, and are taxable; and investing in stocks requires stock selection, portfolio weighting, etc. These popular savings vehicles all have major drawbacks. Saving money and investing should be recognized as two different things. Saving should entail no action or skill at all - just setting money aside to spend later. You cannot do that today without accepting that your dollars will lose value in the time that you save them.
Bitcoin has a fixed supply of 21 million bitcoin, each divisible into 100 million “satoshis”, or “sats”, for spending. With its fixed supply and lack of central authority, more bitcoin cannot be created, and so it’s value cannot be debased.
And when you can hold it yourself, it is protected from confiscation.
Some Americans may think that government confiscation of money is extremely unlikely and the need to hold the asset yourself is unnecessary, that this feature of Bitcoin is not so important. It may be surprising to learn that private ownership of gold in the US was made illegal from 1933 to 1974. The government centralized the gold in banking institutions and confiscated it. It has been done, and it can be done again. Furthermore, Bitcoin is a global phenomenon, and savers in countries with far more corrupt governments depend on the ability to hold their own savings.
As a spending technology, Bitcoin is money that can be sent directly, without a bank
Bitcoin allows users to pay someone directly, using neutral, digital money. Every other online payment (eg Venmo) runs through at least one bank. Bitcoin is digital cash - you can pay someone directly. Many people in wealthy nations have no problem getting and using bank accounts, but this is not the case everywhere, and Bitcoin makes the magic of digital money accessible to all.
“Investing” in Bitcoin is the wrong way to think about it.
“Bitcoin is the exit strategy” is a phrase you might hear from a Bitcoiner. The point isn’t to end up selling your Bitcoin for more dollars than you bought it for. No, the point is to get a head start on moving to the money of the future. Bitcoin is superior to all other monies as savings and as spending technology, and people are starting to recognize that, and they’re opting to store their wealth in Bitcoin. As every national currency experiences unmanageable inflation, Bitcoin with its perfect scarcity stands as an attractive alternative.
So what am I buying when I buy Bitcoin? Why does it have any value?
You are buying an entry on the Bitcoin network’s shared ledger, which states that you are able to send Bitcoin to another Bitcoin address. Why does this have any value at all? In short, because the quality of money matters. What makes “money” money is the belief that others will accept it in trade in the future, and that it won’t lose its value in the mean time. Bitcoin maintains its integrity over time in a way that national currencies, which are continuously debased by money printing, cannot. For this reason, a growing number of people are coming to prefer Bitcoin as a wealth preservation instrument.
But isn’t it a “speculative” investment? Are we just speculating that more people will accept it in the future? Isn’t that “the greater fool” theory?
The greater fool theory is the idea that something has value because someone more foolish will come along in the future and estimate its value to be even higher. I would say Bitcoin is more a case of a “wiser fool” theory - that fools who have been using money that governments extract the value of will wise up and recognize the value of having better money.
While Bitcoiners can benefit today from its being undebasable, unconfiscatable, and uncensorable, the price continues to rise because people expect, or speculate, that more and more of the world will come to recognize Bitcoin’s superiority as a saving and spending technology over other currencies and assets.
In a sense, all forms of saving and investing are speculative - you are speculating that in the future, people will want what you are saving. In a world where everything everywhere is getting more expensive thanks to central banks printing money recklessly to cover their nations’ debts, do you want to speculate that people will prefer an undebasable, unconfiscatable, uncensorable digital money, or an IOU from a bank for a constantly debasing currency?
The current trend is that the dollar is getting worse, and Bitcoin is getting better. Would you expect that to change, or continue?
That being the case, the volatility does not faze most Bitcoiners.
In the grand scheme of things, the market for Bitcoin is small, and easy to transact in. As a comparison, the market for gold is about 14x as big, and to trade gold is very costly and takes a lot of time - buying and selling physical gold entails a lot of activity that trading Bitcoin on your phone does not. For that reason, Bitcoin invites much more trading activity in a market that is more easily moved by big trades.
In addition, money’s value in exchange is its acceptability. The dollar has high acceptability today, but is losing value at an increasing rate. Bitcoin is much less widely accepted, but its monetary qualities, in particular its scarcity, make it superior in the long term, and likely to be more widely accepted as more people recognize this fact. The value of the dollar is in the present, the value of Bitcoin is in the future. Naturally, expectations of the future are more volatile than of the present, so it is natural that while the Bitcoin network is relatively small, the dollar/Bitcoin exchange rate will be volatile, but as it grows and Bitcoin becomes more widely accepted, it will become less volatile.
Bitcoiners focus more on the long term trend than the short-term volatility.
Bitcoin stands completely alone amongst cryptocurrencies.
There’s Bitcoin and there’s shitcoins - Ethereum, Dogecoin, Solana, etc. Don’t buy shitcoins.
Bitcoin is the only cryptocurrency that does not have an organization backing it and is limited in supply. Others are backed by VC dollars looking for ROI and pushing their pre-mined coins (most of the coins allocated to the founders and early investors before releasing to the public) on the gullible masses. Bitcoin was invented by an anonymous creator who “disappeared” over 10 years ago; has no managing organization with investor backing, no product roadmap, and no marketing department; and its supply cannot be manipulated. No other cryptocurrency is truly decentralized, and without decentralization, there’s no separation of money and state - there’s only an adoption of a different “state” managing the money.
In this way, it stands alone as a viable alternative to national currencies and popular savings vehicles.
Adopting Bitcoin
Central banks are stealing from users of their currencies via inflation. They create more currency units to give to themselves, thereby devaluing your money. Nations across the world are running massive deficits, and their only hope for covering the debt payments is to print more money to pay it. Money printing is both counterfeiting and theft. You have the option to opt out. The cost is short-term volatility. It is impossible to imagine that a new form of money, thoroughly superior to its predecessors, could appear on the scene unpredictably, and instantly have a stable price. There is guaranteed to be a transition period, where most people are content using the inferior money. Gradually then suddenly, though, the truth becomes clear. There is no escaping this decision. You will either save in constantly debasing dollars, in overpriced assets like stocks and houses, or in perfectly scarce Bitcoin. The only wrong allocation to Bitcoin is 0, and you can get started at Swan with a purchase as small as $10.
If you want to get started, I have a short guide for you. If you’re chomping at the bit, Swan’s onboarding is best-in-class, and allows you to buy your first Bitcoin with a reliable institution in just minutes. https://swanbitcoin.com