Over the past few months, we are faced with the growing financial, commercial and political instability that has led to a growing concern about the onset of a major global economic downturn. Trade dispute between the US and China, Brexit and other European political turmoil, another sovereign default and the introduction of government control over the movement of capital in Argentina, as well as problems associated with the role of Central banks and their independence — all this excited the markets.
While you are trying to understand all these events, and myriad explanations and opinions on what various indicators, such as the inverted yield curve and negative interest rates on the mortgage loans may mean for the future of the economy, you will hear recommendations for the transfer of your investment portfolio in 'hard assets'.
And, not without reason, because hard assets such as gold, show good results in a period of economic and financial instability (figure 1).
Figure 1: the Price of gold often grow during economic downturns*
https://i.redd.it/lx9dvczwp0v31.png
But what is a solid asset? And why is Bitcoin (BTC), despite the fact that it is completely virtual, and transactions with it are made through the Internet, is perhaps the most \"solid\" asset in the world?
\"Solid\" (material) and \"soft\" (intangible) assets
Solid assets have traditionally been defined as tangible property or physical goods such as gold, which are valued for their reliably limited supply. They contrast with \"soft assets\" such as fiat currencies, stocks and bonds, whose offer can be quickly increased with just a click on a computer keyboard. Soft \"financial\" assets may also be subject to restructuring or default, dividend and profit reductions or other changes (sometimes arbitrary) that undermine long-term value.
Throughout history, experienced investors have relied on solid assets to manage risk and protect long-term value in the face of instability and economic downturns, when the supply of many soft assets has traditionally increased and thus puts downward pressure on their cost.
What makes Bitcoin more scarce than real estate or gold?
Solid assets are back in vogue as central banks in countries such as China, Russia, India and Turkey buy large amounts of gold. It is estimated that in the first quarter of this year alone, central banks purchased 145.5 metric tons of gold, which is 68% more than in the same period in 2018.
We have also seen legendary investors such as Ray Dalio, founder of the world's largest hedge fund, recently encouraged people to invest in gold (increase investment in gold). Not surprisingly, the price of gold has risen by 16% in the last five months.
We have centuries of data on the value of gold and its traditional role as a repository of values and a safe haven. Its physical nature and countless proven uses of gold, in addition to being a means of preserving value (e.g. jewelry, industrial products), make it, in our opinion, complementary to Bitcoin, and not competing with him.
In other words, we do not view bullish sentiments about gold and Bitcoin as mutually exclusive.
We do not consider bullish sentiments regarding gold and Bitcoin mutually exclusive.
However, it is important to emphasize the key difference between Bitcoin and gold, which is that the dynamics of the gold supply is not fixed.
If, for example, earlier gold production was unprofitable, then as the price of gold increases, the supply of gold to the market may increase. As a result, the increase in the supply of gold in the market can become a deterrent to the further growth of its price.
Traditional solid assets vulnerable to deflationary supply shocks
The same dynamics of the gold supply (the higher price of the increase in the supply of the lower impact on prices) affects both silver and any
https://i.redd.it/godq6qg7q0v31.png
Then, around May 2024, or about four years after the previous halving, the next one will occur. Again, the mining reward will be halved, this time to 3,125 new bitcoins mined every 10 minutes. And then again, around May 2028, to 1.5625 new bitcoins.
And so on, and so on...
Until about 2140, when the hard limit of 21 million will be reached. bitcoins and further mining of new bitcoins will become impossible.
The next \"halving\" when the supply of new bitcoins decreases every 4 years is due around May 2020.
While bitcoin mining will continue for about the next 100-plus years, more than 98% of all possible bitcoins will be mined over the next decade, by 2030. In other words, over time, new bitcoins will become smaller and smaller until the final limit of 21 million is eventually reached. coins, laid software in the protocol Bitcoin, and on this creation of the new bitcoins will completely stop.
More than just digital gold
For more than a decade, as an algorithmically defined bitcoin proposal has created the kind of predictability and clarity much desired and needed by investors to maintain value for a long period of time. Combine this dynamic with the portability, security and usefulness of Bitcoin as a payment mechanism, and you have an irresistible and attractive value proposition for investors seeking to manage a variety of macroeconomic, political and other forms of risk. Indeed, over the past decade, Bitcoin has already attracted tens of millions of owners and users, and its growth rate surpasses those of the Internet and personal computers combined (slide on page 94).
Although this post focused on the function of Bitcoin as a scarce and solid asset, it is worth noting its growing role as a broad technology platform for digital identification and other non-non-neonitarian uses. As we discuss in our recently published investment thesis, the notion that Bitcoin is only \"digital gold\" underestimates its full potential and the overall target market.
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