It is Time to Buy Bitcoin

Bitcoin risk versus reward is a solid bet

Introduction

I passed on Bitcoin once back when it was $50 a coin. I almost spent $1,000 on a credit card to get 20 Bitcoin, but couldn’t pull the trigger. I had lost $23,000 buying stocks on credit cards right before the dot com bust of 2000. My tech stocks went from something to nothing in about a year. Losing the $23,000 was a mistake of hubris from a 20 something year old who thought he knew it all. Unfortunately my caution borne out from life lessons would cost me big time. If I had bought 20 coins for $1,000 on a credit card, they today would be worth near $1M.

Where are We Today?

Some of the biggest risks for Bitcoin are now gone. It seemed likely the US government would ban it, but now it is so entrenched with billionaires, pension funds and other upstanding corporate citizens holding it that I find a ban very unlikely. In the early days I was concerned that another coin would become the de facto coin for store of value, but Bitcoin has won that battle. Bitcoin is the clear leader as a “digital gold”. Yes, the pace of progress is a snail’s pace, but that means the software is battle tested against hackers. The concern of a major hack bringing down Bitcoin is now very small with it being up for over ten years and still not breached.

Bitcoin as a Currency

Don’t worry about Bitcoin as a currency. It doesn’t need to be one. It is digital gold. A store of value with a finite supply. There will be other crypto coins used for commerce. Bitcoin is battle tested and assumed unhackable. It is “good enough” to dominate digital asset storage for the next 50 years.

What is the Potential?

Global currencies are at about $400 trillion and rapidly expanding with central banks printing money at an increasing pace. Gold accounts for about $10 trillion of assets. Bitcoin is still around $1 trillion if you count all 21M possible coins. However so many coins have been lost in Bitcoin infancy that the likely total coins that will ever be used is rather 13M to 14M. For valuation purposes I will be conservative and use 15M. coins To be equivalent the value of gold at $10 trillion, Bitcoin would need to get to $600,000 per coin per 15M coins, a more than 10X from today.

A Superior Gold

Bitcoin is superior to gold in many ways. Bitcoin supply is finite. At 21M coins on May 7, 2140, there will be no more coins mined. Gold continues to expand in supply by 2% a year. However if gold prices go up substantially, gold supply expansion could eventually reach a higher percentage per year as less economically friendly sources of gold are mined. Gold supply inflation would be real. Gold be can confiscated. Bitcoin held in a private wallet cannot. You have to pay money to store gold in a bank vault, but Bitcoin in a private wallet can be held for free. You could store gold at your house, but then you are at risk of a robbery.

Why Now?

I see the Bitcoin party as just getting started, with big names like Elon Musk endorsing it, but still not very many financial institutions owning it. Bitcoin has gone up in value some 200% per year for the last 10 years. I believe this trend can continue for a few more years at least. A stable store of value is going to be hard sought after as central banks continue to print their way through crisis after crisis, expanding the money supply. The money supply in the US expanded by 20% in 2020. If this doesn’t eventually result in some real world inflation at some point I will be surprised. Right now that money supply is mostly going to prop up of the value of limited, real world assets. Those are real estate, gold, stocks, bonds and Bitcoin. Eventually I believe inflation of those assets will start to trickle down into food, rent, and other commodities. As retirees want to store their money in a way central banks are constantly devaluing, Bitcoin is an option. As millennials who are Bitcoin friendly obtain more wealth over the next decade, Bitcoin will benefit. As access to Bitcoin through Paypal, Robinhood and other venues increases, Bitcoin will benefit.

Projections?

Max Keiser, who had the best Bitcoin price prediction for 2020, is predicting Bitcoin to reach $220,000 per coin in 2021. That is 4X+ today’s $48,000ish price. I believe a base case scenario as many a bank, pension fund, and corporation starts to store some of their cash in Bitcoin is that we will see it double in 2021 to $100,000+ per coin. I personally hold it in my 401k through GBTC, an ETF specially designed to allow investors a no-mess way to invest in Bitcoin without having to personally hold a Bitcoin wallet.

Bullish Bitcoin and GBTC.