Why I Hold Bitcoin — by Jaffer Ali
[The following is not investment advice. It is an overview of Bitcoin’s attributes and very personal reasons for my speculation on Bitcoin. JA]
Nature is the source of all true knowledge. She has her own logic, her own laws; she has no effect without cause or invention without necessity. — Leonardo da Vinci
Nothing has more strength than dire necessity. — Euripides
The above two quotations animates my “Bitcoin thesis”. I think it is NECESSARY for the world to have a store of value asset that cannot be seized by the government. Is Bitcoin that asset? I am speculating that it very well could emerge as that asset. Don’t get me wrong, I have an almost genetic desire to own gold and land.
But it is difficult to ignore that my family had a lot of land and property taken away, some say stolen in 1948 when the state of Israel was created. Ask any Native American or indigenous people about land dispossession. Plus, land is subject to property taxes and each government decides what tax to levy.
It is also reasonable to remember that in 1933 FDR made owning gold illegal and demanded all people turn it in for fiat. Gold has a long history of being a store of value but the market is so manipulated, I am not sure that this remains a great way to store value today.
Art has historically been a store of value for the wealthy. But this is not practical for non experts. Forgeries are common and it takes a lot of energy to understand this niche market. It is not realistic for 99% of the world to use art as a store of value asset.
It is reasonable to ask how we can store savings in a manner that is safe, secure and transportable. We live in chaotic times. Imagine yourself in the Ukraine and you wanted to seek safety from an invading army? Wouldn’t you want to have some of your wealth taken with you? Bitcoin makes self custody easy to transport effortlessly. A nice attribute of this emerging asset is that you could have a million dollars worth of value on a thumb drive.
Transportability is not a Bitcoin attribute that determines my ownership thesis. In fact, there is no single attribute that is determinative for me. Rather it is the collection of BTC attributes that reverberates for me. Individuals covet or value different attributes to justify or rationalize buying BTC. It is worthwhile to list a few.
** An almost religious cult of BTC maximalists who live and breathe Bitcoin
This group has been through the massive draw downs of 80% or more multiple times, but they still hold on. For them, BTC will revolutionize the world. They are true believers.
** Scarcity and a capped supply
This attribute of BTC appeals to many Bitcoiners. While I personally have issues of using scarcity to determine value, if a capped supply meets increased demand, prices *should* go up.
** Security attribute of BTC
Bitcoin has never been hacked. Its network utilizes energy in copious amounts and this is one source of its security. It would take hackers more energy to hack than to mine. This attribute appeals to cryptographers and techies.
** Decentralization Attribute of Bitcoin
There are estimated to be over 47,000 nodes in the worldwide network. Decentralization makes the network both more secure and egalitarian. This attribute appeals to a constituency unsatisfied with other more centralized digital assets.
** No top down authority
There is no central authority that backs or controls BTC. Related to decentralization, the *founder* Satoshi Nakamoto disappeared and it is true that nobody is in charge. This more than any attribute keeps BTC from being a Ponzi scheme. All frauds require a fraudster. Bitcoin is pure and this attribute appeals to a libertarian-minded constituency.
* Asymmetric potential returns
If BTC rotates from a retail investment opportunity to gaining institutional adoption, there is a tremendous potential for huge right tail returns.
** Bitcoin Network Rails
Most have heard of the Lightning Network. This uses the Bitcoin “layer” to send currencies around the world. This feature or attribute appeals to the “currency” constituency.
** Bitcoin has an immutable ledger
Transactions on the Bitcoin network are immutable, which means they cannot be changed. So what? It means all the records and transactions cannot be tampered with by any party. This attribute appeals to the more accounting minded constituency.
** Censorship resistant
Nation states could and have made BTC illegal. Some have made mining illegal. But Bitcoin is based on a protocol that is not subject to censorship. That appeals to many constituencies across the globe.
Bitcoin as a “Store of Value”
Coming full circle from where this missive started, BTC could emerge as a store of value to replace or augment gold’s role in the global monetary system. This attribute appeals to the more wealthy constituents. While a store of value is needed, it is still unresolved if Bitcoin will emerge as that kind of asset.
There are other attributes: BTC is permissionless; BTC is a global bearer asset; BTC is a global, non-political asset; BTC is fungible and BTC is open source. Hayek said that value was based upon individual buying decisions across the entire economic landscape. I am not an economist but essentially a salesman. I have always known that there may be many reasons NOT to buy something, but the real goal is to understand the one or more reasons that lead to each individual purchasing that thing.
I do not shill Bitcoin, but my personal thesis is that its value lies in the constituencies’ attraction to one or more of the attributes listed. There are a lot of people “voting” with their wallets. Bitcoin’s value proposition for me is assessing the various groups that covet the asset based upon their individual preferences. For me, owning Bitcoin is not based on any single, particular attribute.
