Bitcoin is often compared to gold, due to its' property as a store of value and whilst this is an easy to understand comparison, I believe this undersells the real value of bitcoin
About me and disclaimer: My background is in Investment Banking, and I now work as a Strategy Consultant to some of the biggest Banks, Hedge Funds, Private Equity Houses and Asset Managers in the world. I am a qualified (though not practicing) financial advisor, but please be clear, this is not financial advice, this is my opinion and like anyone I can be wrong. Please know your own risks and personal circumstances and do not take advice from strangers on the internet.
Overview: I will be going first through Gold as an asset and its' comparison to bitcoin, why it has been valued and a very brief section on layered monetary systems. This is very high level so please do bear that in mind. Please skip to the end for why you shouldn't sell your bitcoin.
Bitcoin as digital gold?
To understand the comparison, let's first look at what makes gold valuable:
Gold is a store of value for the following reasons:
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It is durable, it can't be destroyed
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it is fungible, pure gold holds the same value no matter what bullion you possess
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it is divisible (self explanatory)
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it's transferable, it is reasonably easy to transport
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Most importantly - it is scarce
Looking through this list it becomes easy to see where Bitcoin already outperforms gold:
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It holds all the same properties - durability, fungibility, scarcity, transportability etc.
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But most importantly, Bitcoin's scarcity is not only high, but it is known and easily predictable. This is massive for people speculating into assets as a store of value. It is based on maths, no commodity could ever compete with this consistency and reliability of supply
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It is also not able to be faked, unlike gold, it can't be damaged in the same way gold can be, and it is even easier to transport, to prove ownership of and it is increasingly easy for anyone to obtain and truly global.
Gold's Cultural Relevance
Gold has served as the backbone of the monetary system for almost two thousand years, ahead of any other commodity, largely for the reasons outlined above, but crucially it has done so because of one thing, belief. Gold is steeped in our history as a planet, stories of greed and plunder and wealth are based on it. It runs so deep through our consciousness that it has out competed all other commodities as a store of value.
At any level, something only has value because we decide it has value.
Bitcoin is no different to this, when people tell you it is speculation and a bubble, so is any store of value commodity. It has value because we choose to assign value to it.
The intrinsic value of gold as an aesthetic good, is something brought up quite often, but this is also simply a cultural construct of our historical attachment to gold. Why do people like gold? Because of what it represents: wealth, power and lavishness. It has a deep feedback loop within our society that ensures this value.
Layered Monetary Systems
Layered monetary systems are nothing new - Gold has served as this for centuries. It is the backbone to currencies and bank deposits - from Rome, to Amsterdam, to Florence and London - Gold has been the reserve currency of the world. Layer 2 monetary systems have been built on top of this - Gold coins to bank issued gold certificates.
The layering of monetary systems are as follows: Gold and related gold banking products, Government Currencies, Deposits.
As you can see, with the evolution of digital currency, a huge leap forward in society is possible. To move from centrally controlled stores of value, built on ideas of hierarchies of power, to a belief in a system which relies on person to person interaction and is governed by mathematics rather than the will of kings.
Digital currencies are coming. CBDCs will be the future, I hope for decentralisation, but what we will likely see is a competing landscape of centralised banking digital currencies and decentralised finance, a new world order may not be the outcome - but there is a paradigm shift.
What does this mean for me?
Now the question is, where does it end, who do you back? Well if you have been following so far, whilst there will be competition over the decentralised markets, regulation and centralised currencies - bans from governments - whatever you can imagine. There is one thing that is certain. The evolution of monetary policy and monetary systems is here.
If you can't pick the right horse to back, what do you do? You back the house. Gold was a huge leap forward in human history allowing us to move from bartering to paper transactions and a functioning monetary system. It is the backbone of this system and has underpinned the global currency for hundreds of years.
We haven't moved forward that far since then - even the shift to electronic from paper, is a relatively small leap. What bitcoin presents is the new paradigm of digital currency. It is the reserve currency for these new systems, and the belief in it is growing. Now the question is, where does it end, who do you back? Well if you have been following so far, whilst there will be competition over the decentralised markets, regulation and centralised currencies - bans from governments - whatever you can imagine. There is one thing that is certain. The evolution of monetary policy and monetary systems is here.
Why I won't sell my bitcoin and you shouldn't either
If you have read this far, hopefully you can understand the reasons behind why, as we continue to move toward digital monetary systems, bitcoin will continue to grow. Now let's look at why you, me and all of us shouldn't sell.
A casestudy in GME: To use the recent crude example of GME, why did it work (at least before the system was fucked)? Because people with money, wanted what you held. They held overly leveraged short positions and were forced to buy back the original shares in order to close their losses. That is all, it went up because of two reasons:
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people saw the opportunity and believed in what they were doing.
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The other side were forced to engage and they wanted what you held.
So we have a belief in cryptocurrency, and a huge market who believes incredibly strongly in the potential of it and decentralisation. This has been further fuelled by dissatisfaction with the current system. Secondly, we have people who want it - people see its value. Like him or loathe him, Elon Musk just bought $1.5 billion, Other huge investors are in, banks are adding crypto products and custody for their clients all the time. Family wealth funds are looking at it and whether its this year or 10 years, the market will follow.
This may take time, it may not happen overnight, we may have another bear market. But I ask you this, if I offered you an asset that returned on average 300% every year over the last decade, would you sell it?
I strongly believe Bitcoin is hugely undervalued. It has a limited supply, and you hold some of it. Who wants it? Hedge funds, billionaires, institutions. If you hold it, keep it. Keep it until the amount changes your life for the better. Everytime you sell, or you panic - you are handing over your money back to the people bitcoin was seeking to escape from. Now, unfortunately, these people will get their hands on it - we may not recreate the world, but you may as well take them for all they are worth whilst you can. I attended an event for Quant and MIT yesterday, in attendance were 200 other people. These people were some of the leading execs of the world's central banks. They are looking at this. And you got in first.
TLDR: Buy bitcoin, hold it, and don't sell it until it changes your life. Bitcoin, Gold, and any store of value is built on cultural phenomenon and a belief in its' value. So believe in it, the richest man on the planet does.
Invest, speculate and take profits on your other crypto - that's great. Please do, no profit is real until it is realised and this change is still years off. Please do not limit your life or run into debt over this. But I believe a portion of everyone's portfolio should be bitcoin and they should never sell it. Just like a portion of a country's wealth is gold and they didn't sell it.
CAVEAT: The caveat is of course, to please take profits if you need to and it is a personal decision about your own goals. Crypto may be maturing into the adoption phase, it may not. Please do not buy bitcoin with money you may need in a year or two, be smart with your money still. Only hold what you can afford to lose, then all you have to do is wait.
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