A few months ago, after the first so called "crash" of Bitcoin, I bought one. I bought one Bitcoin primarily because I wanted to have a hands on understanding of how the thing worked. People are inherently afraid of what they don't understand, and when you mix money with math and technology-- three things very few people understand individually, let alone all together-- it's bound to scare the crap out of just about everyone.
I have, up until now, restrained myself from commenting here about Bitcoin, largely because I wanted time to really understand what was going on before sharing my views. I'll be the first to admit that I still don't understand a good portion of what is taking place, and I'm likely to be wrong about the future, but probably less wrong than just about everyone else though. Over the past few months, an understanding of what is going on and what may take place has solidified in my mind.
Understanding what may take place in the future is about three things: pattern matching, behavioral psychology, and being able to think in a non linear way. It takes time for each of these things to go from being real fuzzy in your mind, to having a clear picture. It's like stew, you mix up the ingredients with a lot of heat, then you let it sit in the refrigerator for a while and it just gets better.
So this is my thesis based on the ruminating I've done recently. Bitcoin is either the next global reserve currency, or a complete zero, there will be no in between down the road. There are many different crypto-currencies right now, but there will be room for only one to be the standard at scale down the road. For this reason, buying a few Bitcoins seems like it has very positive optionality to it. You are basically risking a limited amount of money for the potential of hitting one of the-- if not the biggest investment home run of all time. I'll take that bet. The math on the price of Bitcoin is pretty easy to do.
Why will it be the biggest investment home run of all time? Because the law of supply and demand rules supreme here. There is a finite amount of supply, and the price of Bitcoin will continue to rise until everyone on earth who wants to use Bitcoin as a means of transfer or holding of value is doing so. And even after that, the price of Bitcoin will continue to rise as global economic activity expands.
Many things you will read over the next few years, maybe even few decades, will be from very smart people who make arguments against why Bitcoin will succeed and fulfill what I just laid out above. These are extremely smart people, don't get me wrong, and it is particularly because they are smart that they will make salient arguments for all the reasons why Bitcoin may fail and be a zero. They will say that it is a bubble that will eventually burst, and they may be correct. They will also tell you that it would take forever for this outcome to take place.
This brings us to the two really important things I've learned about being both an entrepreneur and investor. Life and adoption curves do not take place on a linear scale, and major trends are like tsunamis, they don't stop for roadblocks.
You will hear all the reasons why the government will kill Bitcoin, why some hacker will kill Bitcoin, why the adoption of Bitcoin will never take place because of X, Y, and Z. Yes, there are many mortal threats to this system, just as there are to any new technology or societal trend. There are a million reasons to believe it won't work, because it hasn't worked yet. And it is the smart people who will present these reasons.
But the people who truly see the future can see beyond those roadblocks. They see an eventuality, they seem a destiny, they see the inevitability of the outcome regardless of the roadblocks. I saw this very early on in Airbnb and the collaborative consumption economy in general. Oh all those people who railed against these platforms will say they were on board now, but in the beginning 99.99% of people only see why it won't work. That is the case with every technology, and god knows-- I'm more often on that side with everyone else than I am on the right one, the eventuality.
It is inevitable that a crypto-currency takes the place of government backed or commodity backed currency. It is the natural evolution of money onto the internet. Less friction, more anonymity, a free flow of value around the world. This will happen no matter how many roadblocks you place in front of it, just as the sharing of most of our assets in order to increase capacity utilization will happen as well. It is the path of least resistance.
And it will happen far faster than you think. Adoption curves are not linear, they are exponential. There are tipping points, there is a chasm that must be crossed, but it will be crossed.
Don't get me wrong, Bitcoin may not be THE crypto-currency that becomes the global reserve. It may end up being the Altavista to someone's Google (NASDAQ:GOOG). But I like its chances from what I see right now, and I like the risk / reward on that trade. As with any other trade, establishing that first position is the hardest, scaling into the trade from there is easy. You need to remove the fear that is associated with not understanding something, and that means getting your hands a little dirty. I feel like as things progress I will have the opportunity to take advantage of them better now that I'm involved. I'm following the Bitcoin price Twitter feed which tweets out the price every hour. I'm getting really good at reading that tape.
I won't tell any of you to go out and buy Bitcoins because that would be foolish of me. What I will say is this. Any time you have the ability to not fear something by understanding it better, you should put some effort into making that happen. The best investment opportunities come from inefficiencies in markets created by new things that people don't understand and often fear. There is a lot of fear to go around regarding Bitcoin right now. It has the potential to topple governments by making taxation difficult and money printing useless. It has the potential for the free trade of illicit goods. It is a massive money laundering tool. There are a lot of people who want this thing to die and go away because it threatens the system.
But systems come and go, new systems take their place, don't be one of those people that believes we live in a time where any system we have today will reign supreme forever. Social and economic pacts between people have changed throughout history, and I believe Bitcoin as the expression of crypto-currency on the internet will change many of these systems. We are witness to the inception of that change, and that's an incredible thing.
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