Hello guys, butter here. I made a pretty tongue in cheek post about shorting bitcoin here https://www.reddit.com/r/Buttcoin/comments/kktltr/if_bitcoin_is_going_to_drop_why_dont_you_guys/
But didn't expect some serious thoughtful responses so I'm going to write seriously about why I bought bitcoin when the price was ~13k earlier this year (a bit late and I put a small position then which I regret) and why I believe the bitcoin will continue to grow. The volatility will scare you and there will be ups and downs but I strongly believe this year cemented bitcoin as a viable asset that will continue to outperform for years to come. Many of you may dismiss me but I believe there are individuals here who are open-minded and will critically consider what I will say here. Now buckle down, make a cup of tea, and listen to my thought process.
Earlier this year, Paypal and Square announced that they will be allowing the purchase of cryptos. Paypal will also enable you to pay merchants directly using bitcoin by automatically converting the bitcoin into cash and paying the merchants with cash so the merchants don't even know that the other party paid using crypto. Ever since the announcement, their stocks have gone up drastically (over 100% for Paypal, over 200% for Square). At the same time, traditional banks are down (Citigroup -24%, JP Morgan -10.63%, Wells Fargo -44.98%). Now at this point, banks are wondering, what the hell is going on? And I believe they already know what's going on. They understand they'll have to convert a portion of their balance sheet into cryptocurrency. Square converted 50 million into crypto, Microstrategy converted over 1 billion which has generated over 500 million already, insurance giant Massmutual which is 169 years old and historically a pretty conservative company who do not usually take risks converted 100 million into bitcoin. And the reason for this is because the fed has printed several trillions of USD this year. The fed has decided to set inflation target at above 2% in order to salvage the unemployment rate which is of utmost concern right now. Almost 20% of the monetary supply has been printed this year alone. When the whole world is printing, investors flee to safe haven assets with a fixed supply such as gold. Noone can print more gold so its value will passively increase relative to fiat currency. This is the same for bitcoin, noone can print more as the maximum supply will always be 21 million.
Now if you're like Warren Buffett, who is investing in gold during this pandemic, fine. I am not saying that is wrong but here's why I believe bitcoin is a better asset:
Gold has been around for so long that everyone knows it's a stable safe haven asset which makes its volatility low. However, also because of this, the potential upside return of gold is greatly limited. Proponents such as Peter Schiff argue that gold has underlying uses that supports its value and bitcoin does not. However, this is a minuscule amount of value. 99.99999% of the value of gold comes from the fact that supply is limited, people decided it has value, and use it as a storage of their wealth in times of uncertainty. Otherwise, gold just looks pretty but doesn't do anything. Its intrinsic value is near zero since it doesn't produce anything, but just being rare enough to be a storage of value, its market cap is 10 trillion dollars while bitcoin is about 500 billion dollars right now (not even 1 trillion, you can see the asymmetrical potential upside bitcoin has if it just has a decent fraction of the market cap of gold).
Now the advantages of bitcoin compared to gold. Gold requires storage while bitcoin does not. Individuals will never keep gold in their basement while they can easily hold bitcoin, this makes mass adoption easier than gold. Sure, there are gold etfs and whatnot that will promise you the equivalent gold value while they keep the gold but all these options charge you fees over time and you are still losing a portion of your wealth in order to store it.
Bitcoin is easily divisible while gold is not. Sure, you can melt a bar of gold down and divide it but you can easily divide bitcoin down to one millionth of a coin.
Transferability, bitcoin is easily transferable while gold is heavy to transport (unless you have a contract for a certain amount of gold, in which case you still pay a fee that will end up to be greater than the transaction fee of bitcoin since it costs money to store gold no matter what).
Authenticity, when you exchange bitcoin, you know for sure that those numbers that you obtained are bitcoin and you can verify the amount. For gold, there are counterfeits and impurities such as copper mixed in. Sure, you can argue about exchanges scamming people but that is an argument towards the current infrastructure for bitcoin and not against bitcoin itself. Crypto is still in its early days and the infrastructure will improve over time.
The supply of gold is not perfectly inelastic. As the demand increases, there is incentive to mine more gold which creates about 2% each year. There is also no guarantee that we won't discover large amounts of gold in the future whether its through new technologies or through mining asteroids, etc. Bitcoin is the first engineered safe haven asset that has a open code with concrete rules that dictate the amount of bitcoin mined and the total supply cap. Noone can break that rule, no matter how many miners join, the amount of bitcoins obtained is set. Through halving events, the amount of bitcoins mined will continue to decrease by half every 4 years. A halving event happened this year which is also another reason we see this increase in price.
Traditionally bonds increase in value when stocks crash. With current US interest rate at zero, bonds have become a useless hedge. Hedge funds are beginning to see that bitcoin is a viable hedge against inflation but they can't straight up buy bitcoin as it is not regulated which is why they have to invest through ETF-like funds such as Grayscale Bitcoin Trust (GBTC) which now holds 16.27 billion dollars of value in bitcoin and have to pay a premium for it. Bitcoin is an asset that shields you from inflation which is uncorrelated with anything else and has been growing steadily and will continue to grow over the long term which makes it worthwhile to hold just a small percentage of. Next year, Dow Jones is planning to launch a cryptocurrency index. By the direction society is moving, crypto will soon become a widespread mainstream investment vehicle and will be added to our 401k's.
Previously, banks have warned against crypto but recently their tones have changed as Citibank, JP morgan, and others have extremely positive price targets for bitcoin. I believe they are already secretly buying up bitcoin but still haven't made it public yet. Later, they'll announce to the public that they were smart and buying bitcoin all along while it was still cheap. I totally foresee, Jamie Dimon, the ceo of JP Morgan doing such a thing. The same person who said bitcoin is only for crooks and criminals lies through his teeth like he's flossing. Dude paid 30 million for manipulating the precious metals market and paid 920 million for manipulating the commodity futures market. Once they announce that they hold a percentage of their balance sheet in bitcoin as a safe haven asset, there will be another round of FOMO the likes of which has never been seen before.
Now, over the short term there are risks. The price could drop drastically such as 30% or more. However, if you just dollar cost average and hold it for 5-10 years, this will give you greater returns compared to any other asset because we are so early in its adoption. If you are completely certain bitcoin will go to zero then fine. But if you are unsure, just hold 5% of your portfolio in bitcoin and you will thank me. The upside will be huge, I won't even give you an estimate because I'll look crazy doing it.
But here's also why I don't believe it'll ever go to zero. There are bitcoin fanatics that will hold on to their bitcoin NO MATTER WHAT. Literally, the world could be ending and when bitcoin price drops to 5000, they'll still buy it. There is a hard floor to the price of bitcoin as these supporters worship it like a religion and the amount of these supporters are increasing over time, not decreasing. This is way I think at most, you'll lose about 50% of your money while the potential gain is nearly unlimited.
Years ago, when the price of bitcoin was at $1,000, I thought it was too high and will come back down. I wanted to buy when it dipped, it never did. I regret it but now I don't try to time the market and regularly add to my holdingsHello guys, butter here. I made a pretty tongue in cheek post about shorting bitcoin here https://www.reddit.com/r/Buttcoin/comments/kktltr/if_bitcoin_is_going_to_drop_why_dont_you_guys/
But didn't expect some serious thoughtful responses so I'm going to write seriously about why I bought bitcoin when the price was ~13k earlier this year (a bit late and I put a small position then which I regret) and why I believe the bitcoin will continue to grow. The volatility will scare you and there will be ups and downs but I strongly believe this year cemented bitcoin as a viable asset that will continue to outperform for years to come. Many of you may dismiss me but I believe there are individuals here who are open-minded and will critically consider what I will say here. Now buckle down, make a cup of tea, and listen to my thought process.
Earlier this year, Paypal and Square announced that they will be allowing the purchase of cryptos. Paypal will also enable you to pay merchants directly using bitcoin by automatically converting the bitcoin into cash and paying the merchants with cash so the merchants don't even know that the other party paid using crypto. Ever since the announcement, their stocks have gone up drastically (over 100% for Paypal, over 200% for Square). At the same time, traditional banks are down (Citigroup -24%, JP Morgan -10.63%, Wells Fargo -44.98%). Now at this point, banks are wondering, what the hell is going on? And I believe they already know what's going on. They understand they'll have to convert a portion of their balance sheet into cryptocurrency. Square converted 50 million into crypto, Microstrategy converted over 1 billion which has generated over 500 million already, insurance giant Massmutual which is 169 years old and historically a pretty conservative company converted 100 million into bitcoin. And the reason for this is because the fed has printed several trillions of USD this year. The fed has decided to set inflation target at above 2% in order to salvage the unemployment rate which is of utmost concern right now. Almost 20% of the monetary supply has been printed this year alone. When the whole world is printing, investors flee to safe haven assets with a fixed supply such as gold. Noone can print more gold so its value will passively increase relative to fiat currency. This is the same for bitcoin, noone can print more as the maximum supply will always be 21 million.
Now if you're like Warren Buffett, who is investing in gold during this pandemic, fine. I am not saying that is wrong but here's why I believe bitcoin is a better asset:
Gold has been around for so long that everyone knows it's a stable safe haven asset which makes its volatility low. However, also because of this, the potential upside return of gold is greatly limited. Proponents such as Peter Schiff argue that gold has underlying uses that supports its value and bitcoin does not. However, this is a minuscule amount of value. 99.99999% of the value of gold comes from the fact that supply is limited, people decided it has value, and use it as a storage of their wealth in times of uncertainty. Otherwise, gold just looks pretty but doesn't do anything. Its intrinsic value is near zero since it doesn't produce anything, but just being rare enough to be a storage of value, its market cap is 10 trillion dollars while bitcoin is about 500 billion dollars right now (not even 1 trillion, you can see the asymmetrical potential upside bitcoin has if it just has a decent fraction of the market cap of gold).
Now the advantages of bitcoin compared to gold. Gold requires storage while bitcoin does not. Individuals will never keep gold in their basement while they can easily hold bitcoin, this makes mass adoption easier than gold. Sure, there are gold etfs and whatnot that will promise you the equivalent gold value while they keep the gold but all these options charge you fees over time and you are still losing a portion of your wealth in order to store it.
Bitcoin is easily divisible while gold is not. Sure, you can melt a bar of gold down and divide it but you can easily divide bitcoin down to one millionth of a coin.
Transferability, bitcoin is easily transferable while gold is heavy to transport (unless you have a contract for a certain amount of gold, in which case you still pay a fee that will end up to be greater than the transaction fee of bitcoin since it costs money to store gold no matter what).
Authenticity, when you exchange bitcoin, you know for sure that those numbers that you obtained are bitcoin and you can verify the amount. For gold, there are counterfeits and impurities such as copper mixed in. Sure, you can argue about exchanges scamming people but that is an argument towards the current infrastructure for bitcoin and not against bitcoin itself. Crypto is still in its early days and the infrastructure will improve over time.
The supply of gold is not perfectly inelastic. As the demand increases, there is incentive to mine more gold which creates about 2% each year. There is also no guarantee that we won't discover large amounts of gold in the future whether its through new technologies or through mining asteroids, etc. Bitcoin is the first engineered safe haven asset that has a open code with concrete rules that dictate the amount of bitcoin mined and the total supply cap. Noone can break that rule, no matter how many miners join, the amount of bitcoins obtained is set. Through halving events, the amount of bitcoins mined will continue to decrease by half every 4 years. A halving event happened this year which is also another reason we see this increase in price.
Traditionally bonds increase in value when stocks crash. With current US interest rate at zero, bonds have become a useless hedge. Hedge funds are beginning to see that bitcoin is a viable hedge against inflation but they can't straight up buy bitcoin as it is not regulated which is why they have to invest through ETF-like funds such as Grayscale Bitcoin Trust (GBTC) which now holds 16.27 billion dollars of value in bitcoin and have to pay a premium for it. Bitcoin is an asset that shields you from inflation which is uncorrelated with anything else and has been growing steadily and will continue to grow over the long term which makes it worthwhile to hold just a small percentage of. Next year, Dow Jones is planning to launch a cryptocurrency index. By the direction society is moving, crypto will soon become a widespread mainstream investment vehicle and will be added to our 401k's.
Previously, banks have warned against crypto but recently their tones have changed as Citibank, JP morgan, and others have extremely positive price targets for bitcoin. I believe they are already secretly buying up bitcoin but still haven't made it public yet. Later, they'll announce to the public that they were smart and buying bitcoin all along while it was still cheap. I totally foresee, Jamie Dimon, the ceo of JP Morgan doing such a thing. The same person who said bitcoin is only for crooks and criminals lies through his teeth like he's flossing. Dude paid 30 million for manipulating the precious metals market and paid 920 million for manipulating the commodity futures market. Once they announce that they hold a percentage of their balance sheet in bitcoin as a safe haven asset, there will be another round of FOMO the likes of which has never been seen before.
Now, over the short term there are risks. The price could drop drastically such as 30% or more. However, if you just dollar cost average and hold it for 5-10 years, this will give you greater returns compared to any other asset because we are so early in its adoption. If you are completely certain bitcoin will go to zero then fine. But if you are unsure, just hold 5% of your portfolio in bitcoin and you will thank me. The upside will be huge, I won't even give you an estimate because I'll look crazy doing it.
But here's also why I don't believe it'll ever go to zero. There are bitcoin fanatics that will hold on to their bitcoin NO MATTER WHAT. Literally, the world could be ending and when bitcoin price drops to 5000, they'll still buy it. There is a hard floor to the price of bitcoin as these supporters worship it like a religion and the amount of these supporters are increasing over time, not decreasing. This is why I think at most, you'll lose about 50% of your money while the potential gain is nearly unlimited.
Years ago, when the price of bitcoin was at $1,000, I thought it was too high and will come back down. I wanted to buy when it dipped, it never did. I regret it but now I don't try to time the market and regularly add to my holdings. Time in the market beats timing the market and based on the direction we're heading, bitcoin is here to stay.
I realized some of you are pretty intelligent in this subreddit, but at the same time, were not aware of some crucial current events happening around bitcoin and the reasons behind bitcoin's recent increase in price. Companies take months to get into bitcoin because they need the approval of their board and its a time consuming process. We get to move in much more quickly. I do not want these individuals to miss out because of these reasons. The rest of you can continue to shit on buttcoin and believe that you've already missed out. I just want you guys to make an informed decision and share my thoughts. Over the long term, the current peak won't matter as the upside is much more. :)
