Why Bitcoin is Not That Stupid
Overall it’s a pretty bad argument. As I have said many times, there is a definite inverse correlation between the size of one’s personal brand/following versus accuracy/usefulness of said individual’s advice or skill. People who have 0-100 followers on Twitter, annons on 4chan, etc. are much more likely to be on the forefront and cutting edge than ppl who write books, go on the media, have thousands of social media followers, lots of subscribers, etc. So Cathie Wood: huge brand, terrible advice, terrible fund performance.
So back to the article, he gives “three main scenarios for upside” those being: ‘Boring bluechip, Hyperinflation, and Global reserve currency.’
There are various candidates for a replacement, but Bitcoin is certainly in the mix.
He just pulled this out of his butt. Bitcoin is a candidate in the same way Ron Paul was a candidate in 2012, I guess.
Regarding Bitcoin being a hedge against inflation:
Personally I think this gets way too much attention (Venezuelans or Zimbabweans might feel otherwise). Modest inflation or stagflation is a much bigger consideration, albeit not as spectacular in terms of upside.
Except the CPI is up 8% for 2022 and 4% for 2021, yes Bitcoin has done nothing since late 2020. Since late 2021, Bitcoin has fallen almost in half despite endless headlines and hype about inflation. For 2022, the Nasdaq was down as much as 30% and Bitcoin was down as much as 60%, showing that it’s very highly correlated with the stock market and not at all a hedge or protection against geopolitical uncertainty, recession, bear markets, or inflation.
He goes on:
For me, a modest upside would be anything up to a 10x return, i.e. the price hits ~$200,000. This is what happens if Bitcoin becomes the dominant digital store of value, takes some market share off gold, and becomes a ‘bluechip’ with lower levels of volatility in each subsequent cycle.
This is not going to happen. There main reason is that there is simply not enough capital in the world to make it happen. Bitcoin is already so huge…where is the additional $ going to come from, having already gone up so much? The reason why Google will be worth $10 trillion in the not-so-distant future is because its business generates so much profits. Bitcoin does not generate anything, so this means that its price is a function of only supply and demand, like all commodities, not retained earnings, cash, or anything like that.
So for Bitcoin to go to $100,000 or beyond requires a widespread certainty or conviction among market participants that Bitcoin is the best way to allocate their hundreds of billions of dollars of capital, compared to superior alternatives like Amazon, Facebook, S&P 500, Tesla, Google, etc. which strikes me as very improbable.
The author invokes a certain Pascalian argument that Bitcoin will either be worth a lot or worthless. Hence its expected value is positive.
Every universe in which none of the above three events happen, in which case, your bitcoin will be worth approximately zero dollars.
This argument is inane. It’s impossible to establish an expected value for something like Bitcoin, in which there is not nearly enough data to work with; second, it’s a false dichotomy; third, it fails to take into account the time value of money. I think it’s much more probable Bitcoin will underperform stocks, even though this does not require it go to zero. The third point is especially important because even if the expected value is positive, what good does it do if your money is tied up for a long time. Stocks also offer a positive expected value but without the uncertainty of Bitcoin.
The general consensus is that someone who is in a comfortable financial position might take a position of about 1-2% of their net worth—an amount of money you can afford to lose without changing your quality of life—and then hold it indefinitely. (This is what I’ve done.)
Okay, then if Bitcoin goes to $200,000, then you only increased your 1% by 600% or so, or 7% for your entire portfolio assuming everything else is unchanged. So what’s the point then.
In other words: there’s no way to get stinking rich here, without taking on an inappropriate level of risk through the aforementioned leverage, trading, large exposure and shitcoin gambling. The ship has already sailed; our upside is just not all that attractive.
Or just avoid crypto altogether and buy large cap tech, which since 2009 has delivered 20-30% compounded annual returns, or the S&P 500, which has delivered 15-20%, and with much less volatility compared to Bitcoin. That sounds much better, imho. Why does anyone even need to waste their time with crypto when there are safer, better alternatives? Given that Bitcoin does not hedge against inflation and is highly correlated with the stock market, especially on the downside, but with much more volatility, what is the point then? There is no diversification or hedging value with it.