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Bitcoin: Addressing Misconceptions

Nov. 12, 2020 12:00 PM ETGBTC, MSTR, PYPL, SQ, V641 Comments


  • This article addresses common questions, risks, and misconceptions about Bitcoin.
  • Although it has gained a lot since my original recommendation, I remain bullish on Bitcoin into 2021 as part of a diversified portfolio.
  • It's looking a bit like a break-out here, when talking in terms of months.
  • Looking for a helping hand in the market? Members of Stock Waves get exclusive ideas and guidance to navigate any climate. Get started today »

I initially covered Bitcoin in an article in autumn 2017, and was neutral-to-mildly-bearish for the intermediate term, and took no position.

The technology was well-conceived, but I had concerns about euphoric sentiment and market dilution. I neither claimed that it had to go lower, nor viewed it bullishly, and merely stepped aside to keep watching.

However, I turned bullish on Bitcoin in April 2020 in my research services including Stock Waves at about $6,900/BTC and went long. It had indeed underperformed many other asset classes from autumn 2017 into spring 2020, but from that point, a variety of factors turned strongly in its favor. I then wrote a public article about it in July when it was at $9,200/BTC, further elaborating on why I am bullish on Bitcoin.

That July article received a lot of press, and the CEO of MicroStrategy (MSTR), the first publicly-traded company to put part of its cash position into Bitcoin, stated that he sent that article among other key resources to his board of directors as part of his team education process. It's written with institutional readers in mind, in other words, in addition to retail investors.

With a price tag of over $15,000/BTC today, Bitcoin is up over 120% from the initial price at my April pivot point, and is up over 60% from July, but I continue to be bullish through 2021. From there, I would expect a period of correction and consolidation, and I'll re-assess its forward prospects from that point.

Naturally, I've received many emails about Bitcoin over this summer and autumn. I've answered several of them via email, but figured I would summarize the most popular ones into a quick article on the subject. These are common misconceptions, risks, or questions. All of which make sense to ask, so I do my best here to address them as

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This article was written by

Lyn Alden Schwartzer profile picture
Lyn Alden has a background in engineering and engineering management, and since 2016 has provided research with a systems engineering focus into macroeconomics, energy markets, stock opportunities, and digital assets. She serves as the fundamental analysis contributor to the investing group Learn more.

Analyst’s Disclosure: I am/we are long GBTC, MSTR.

I am long Bitcoin as part of a diversified portfolio.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (641)

Cognoscente profile picture
By looking back at this great article, I gotta say and admit you, LAS, have become a God for me in terms of investment strategies, as you have been absolutely right about multiple asset classes you have analyzed, including Bitcoin. You are great!!! Thanks a lot LAS!
I capitulated and FOMOed a pretty small position into GBTC today (lazy way to buy it in my 401k). Moved some money over to buy gold now its dipping and couldn't resist. So yep we have hit the top.
GameBuzz profile picture
@GotsToGetMineFirst LOL I know how you feel. How were you able to buy BC in an IRA? Through an ETF or is it offered by the firm itself? Thanks and best of success!
@GameBuzz - GBTC is Greystone Bitcoin fund. One of the very few ways to invest in bitcoin in a Roth or IRA. They have one for ethereum too and I think Bitcoin Cash. Only problem is that GBTC is always trading at a hefty premium to underlying value of the crypto they hold. Sometimes it is 100%+ premium! So gotta be careful to pick a good entry point using GBTC
losbronces profile picture
@GameBuzz He used GBTC. GBTC will be allowed in many IRAs, but it is an expensive way to buy Bitcoin. Based on today's prices, you would pay $20.86 per share for $17.83 worth of Bitcoin. That is a 17% premium to the price of the coin. But if you believe Bitcoin will be USD 400,000 by 2030; it really doesn't matter.

Thanks very much for this article! Reading it a week ago was extremely helpful for me and it was the very thing that finally got me over my final "mental hurdle" with regard to taking the plunge and getting some exposure to bitcoin. I appreciated your clear, concise and well-organized piece here. So much so that I've added you as a favorite author and look forward to reading your "3 types of Inflation" next. Thanks for your contributions here.

Addams Family Trust profile picture
wth just happened to GBTC after hours?
@fnkyhd Hard to say, sometimes after hours trading is thin, people take what they are offered, and it hurts the price quoted, disproportionately. I looked at the news briefly, nothing that noteworthy, but if you are in GBTC, it did have a 60% drop in one day this year, so you have to be prepared for volatility.
Addams Family Trust profile picture
@Doneonbadstreet thanks. unfortunately i see that dip didn't hold and now it's up again this morning. was looking for an entry point. likely many others this is a new world for me so i am willing to pay the premium for GBTC. i cancelled my robinhood acct because i couldnt find much info on their BSV which moves very differently from BTC and also my satoshis on cash app.
jimbo162 profile picture
@fnkyhd can't find much info on BSV? Maybe not from robinhood but much is available searching google. It was created from a fork with bitcoin cash about year or two ago. It is not affiliated with BTC or BCH, completely separate blockchain. You may find much info regarding Craig Wright (the founder) as he was in the news every week, odd claims of being the true Satashi Nakamoto. It "moves" differently than BTC because it is different, so is BCH. The only similarity is they all have the word Bitcoin in the name, little more than a word in common with each other.
PT Larry profile picture
The amount of Bitcoin is fixed so additional quantities cannot be added.

BUT if every bank and every government started its own virtual currency, what would happen to Bitcoin's value....?
@PT Larry it’ll become the tulips of modern era. A well orchestrated Ponzi scheme with zero practical usage in a common man’s life.
PT Larry profile picture
@DeejL Also a great currency for the criminal world. One that the tax man can't follow.
@PT Larry mostly incorrect about that. Very traceable, but there are ways to conceal identity and/or hide coins using tumblers. There are privacy coins but one was just found to be traceable. I would argue it's the perfect currency for global control. Cash is way more anonymous.
Bitcoin is the game

Blockchain is the play station

So Bitcoin is just one example of how blockchain can be used including its current limitations

Blockchain will remain because it has millions of potential applications which may or may ultimately not include currencies backed by some kind of usefulness.

Once people realize that Bitcoin has no endgame other than proving a method, it will have the same value as the Argentina Pesos I kept from 1978.
bengalesq profile picture
Really nice article. Thanks.
Fed has other tools to stimulate the economy, "To Lay off Fed Workforce"
Dale Roberts profile picture
Bitcoins only up 10% from the release of this article? Tough week. Ha.

How's a guy ever going to retire?

Bubble everywhere! Powell has no clue, another irrational bubble!
Problem with BTC being up 10% is that can change in 15 minutes. Crazy volatile. That's my only real problem with it. And above she kind of skips over it being an issue with a it will get better. Still right now its more of speculative bet than a true hedge imo.
Dale Roberts profile picture
@GotsToGetMineFirst yup, now it's only up 20% or so from article date. More major institutions are piling in, at least we know of the ones that want to announce bitcoin adoption.

Bitcoin has mainstream acceptance. That debate is over.

The only question is the supply and demand imbalance (price) for an asset with a hard fixed quantity.

This is more than interesting to watch and be a part of.

TheLongerView profile picture
I have a lot of respect for this author and have benefitted from many of her excellent articles. However, this is not one of them. To address each of Lynn's points in order:

1) It's great that the author has a background in engineering and finance. I have a background in statistics and economics, and have done very well with my investments. But who cares about backgrounds? The truth is that technical analysis has been demonstrated time and time again to be dressed-up voodoo, yet people are still entranced by it and probably always will be.

2) I agree with Lynn in the sense that a thing has value if people decide that it does. Gold is a good example. So is the U.S. dollar, by the way. At any rate, the fact that bitcoin has "value" is not an earth-shattering observation. Baseball cards have value, too. Side note: $250,000 in gold coins is about 125 coins. Gold coins are small and can easily be "transported" internationally if you are smart about it.

3) Bitcoin might be scalable, although the jury is still out on this. Who cares?

4) Why compare Bitcoin to gold when discussing energy consumption? Gold is a *physical commodity*. Bitcoin is a *digital currency*. It makes no sense to create digital currency that is environmentally unfriendly to create when the Fed creates digital currency in the form of electronic U.S. dollars miraculously placed into bank accounts by pressing a key on a computer keyboard. No energy required.

5) Of course Bitcoin is volatile. It is a shallow market used by sketchy people. In other words, it is a speculative investment. If it was a deep liquid market, it would not be so volatile.

6) The issue is not simply one of "banning" Bitcoin. The bigger question is why any government or heavily regulated international bank would support a currency that they don't have control over, and that is used by criminals and terrorists. They won't. Governments will create their own digital currencies with appropriate regulatory controls. As stated above, the vast majority of "currency" today is never physically printed anyway.

7) If you still want to buy Bitcoin after reading this, you didn't get the point.
Mark Alexander profile picture

All good points except that gold doesn't have value simply because people agree it has value. Its primary value is aesthetics but it also has industrial uses. If people decided it had no aesthetic value and a costless substitute were found that achieved its industrial functions, then its price would deflate severely over time. It might take a while because people are so prone to anchoring, but gold would not hold its value just because central banks own it and it is currently a popular asset class.

I suspect gold might be in a little bit of a bubble at the moment. However, I don't know enough about gold demand in the developing markets (China and India being most important) that dominate global demand to make this assertion with any conviction.
GameBuzz profile picture
LOL on the first point. Nearly every top investor and trader has used a blend of technical and fundamental analysis for success. The market trades off technicals in the short term and fundamentals long-term. Fundamentals are great but cheap can always get cheaper. Knowing when to buy is just as important as what.

Technical analysis saved a lot of portfolios (mine included) in Feb-Mar and got them back in much earlier than the pure fundies who kept yelling that stocks were still overvalued, many of whom had articles here calling for another 20-30% down that never happened.

Leaving one’s mind open to new ideas and possibilities tends to lead to more opportunities for success.
Dale Roberts profile picture
@TheLongerView with all due respect, it appears you have done no research on bitcoin. Not a lick.

As always to each his or her own.

One can stick to fiat currencies.

Here is another example of black market run this Bitcoin show!

@Bathman - black market *ran* the bitcoin show

FIFY! Black market no longer runs bitcoin, that was in the early days when crypto was much more of a wild west. Today's reality is much different with global intelligence firms using advanced date analysis to track blockchain movements. No self respecting (or smart) criminal would use bitcoin anymore, Monero is now #1 for that along with Zcash
Dale Roberts profile picture
They can't ban bitcoin. That's the idea, ha. Bitcoin is decentralized.

The creators of fiat monies have no control. But they can continue to debase their own. They can create and print out of thin air, as much as they like.

Bitcoin will be a finite supply.

Hedge or not. A personal decision.

Mark Alexander profile picture
@Dale Roberts

"Bitcoin will be a finite supply."

Unless there is another glitch that allows someone to create another 84 billion or 10 trillion or whatever number. It will also be safe unless a really good hacker develops superior code that no one else thought about.
ngtenor profile picture
@Mark Alexander This was indeed a concern of mine, but having looked at the maths (mine is pretty poor, but just sufficient enough to be reassured), it becomes clear that you don't really need to worry about this until we get quantum computing.

The encryption used on the Bitcoin network is pretty sound, and although there are many examples of Bitcoins being stolen from exchanges, the network itself, in its 10 years of operation, has never been compromised to my knowledge.

Even with quantum computing, from a brute force perspective, you can only effectively reduce the difficulty from 'x to the power of y' to 'x to the power of y/2' so, as I understand it, it effectively reduces 256 bit encryption to 128 bit encryption, which doesn't do you any good at all.

What will have to be improved in the advent of usable quantum computers are the algorithms used to generate public and private keys, which are much more vulnerable. We certainly won't have to worry about that for the next 5 years at least as our current quantum computers are nowhere near powerful enough to be a threat.

In any case, the brightest minds will no doubt be working on improving algorithms to address this threat, as this is a problem for all networks, not just Bitcoin's.

What fascinates me is the prospect of a quantum computer participating as a Bitcoin miner. If you are planning to hold Bitcoin for more than a decade, this might be worth thinking about, because these computers will eventually gain the necessary power to outstrip the competition with ease.

The first sufficiently powerful quantum computer to join would be able to mine each block before any of the miners with standard equipment, putting them all out of business and destroying Bitcoin's greatest attribute - its decentralisation.

This is because the 'mining' is essentially a brute force maths challenge, giving the quantum computer the advantage described in the simple formula above.

It's not clear to me what could be done to mitigate such an existential threat to the network, given its lack of governance and the competitive aspect of the work done by the miners.
@ngtenor - only mitigation at that point would be to fork into a new blockchain with enhanced rules/encryption against those types of shananigans
Interesting, I google it, Ban Bitcoin 2020 and I am curious what they have to say if they ban Bitcoin. Here is the list of them,


For good reason, Let say, you went shopping for a new diamond purse handbags for a new wife and saleswoman said, "Sorry, we don't take credit card, debit card or cash, we are only take Bitcoin" Why is that? It is because, saleswoman know Bitcoin value appreciate much faster than fiat money. And you said, "Wait a minute, govenment already ban Bitcoin, it is because it is illegal runs by mafia, black market capitalism, snake saleman, drug dealer, pirate so on"
CBR900RR profile picture
Central government issued digital money will render cryptos even more irrelevant than they already are, it's amazing how blind bitcoin zealots are
@CBR900RR - you need to take a long hard look in the mirror to see who is blind. Big difference between centralized blockchain and decentralized
CBR900RR profile picture
Sure there is a difference, but you wanna be revolutionaries don't get it - central governments control money and always will - cryptos are speculation for a few dreamers, but will never be accepted by the vast majority of the world's working class. What is real is central government digital money leading to a global cashless system ("666") because God is never wrong. Plain as day to me where this is all going and bitcoin will have zero role in it.
@CBR900RR - You sound like you've already given up and accept the boot on your face. I will stay a dreamer wanna be revolutionary :-)
Best bitcoin article/breakdown I have read in a while. Also read your july article it was very good
The value of Bitcoin is not evident in the first world. We don’t need it.

The real value exists for people who live in a country where the government is corrupt and or banking services are not working well or the currency is not stable, such as some countries in South America and Africa.

It has huge value where a government has a past history of devaluing its currency and placing limits on withdrawals, ie. Venezuela.

Or where citizens need to store their wealth out of the government’s reach, and authorities can limit that citizen’s access to their wealth.

The first spike in Bitcoin appears to be tied to the application of the “Bail in Laws” in Cyprus in 2013 and there is speculation that the rise through 19,000 USD was Russians moving their money away from their government.

Even the first world now has “Bail in Laws” where your government can take your wealth if they can substantiate sufficient political or economic justification.

We could count a number as large as half of the world’s population who could use Bitcoin, due to one or more of the above factors, so there is a good chance that it will continue to have value.

Due to the limited nature of Bitcoin it will be seen as a store of wealth, it will not find it’s way to every day use for a while, if ever, but as a secure store of transferable value it works well.

It is the first new asset class that has been created in decades, if not longer.

So long as we have the internet we will have Bitcoin.
Mark Alexander profile picture
@Blake Ward

"it will not find it’s way to every day use for a while"

Can't you see that it will never find its way to daily use? As long as its price generally increases and its supply remains fixed, people will want to speculate in hopes its price will increase. They won't want use it to buy pizza or gas if they think they can buy twice as much in a month. If it experiences a long term drop in value, no one will want any part of it. Who wants to have enough money to buy a pizza one day then only be able to buy a slice in a couple of months?

It is not surprising that people in horrible monetary regimes will try just about anything to protect their wealth. However, I suspect that Bitcoin has become less attractive to people who really want to protect their money from horrible monetary regimes since late 2017. Are you aware of any data to suggest otherwise?
TommyIrish profile picture
@Mark Alexander

"Can't you see that it will never find its way to daily use?"

EVEN if you are saving for a holiday or capital spending of, say, $15,000 - do you save or borrow in US dollars to cover the cost or gamble on owning a Bitcoin and hope it covers the expense?

Bitcoin just makes no sense for spending or saving purposes.

Oops, a call on the other line!

Blimey, apparently I have a cousin in Nigeria who is leaving me a thousand Bitcoins! Executor says it is all mine JUST as soon as I send a SINGLE little Bitcoin to cover some administrative expenses.

Scratch what I said - I BELIEVE in Bitcoins!
@Mark Alexander

I think that you will find that my statement was ", it will not find it’s way to every day use for a while, IF EVER," as I believe that transaction times are prohibitive, and as everyone knows the volatility is and always has been huge.

Information on the "LocalBitcoin" exchange volumes can be found on coin.dance, as well as the open source Bitcoin Core operating system that you can download if you would like to start mining yourself. ;-)

Last weeks "LocalBitcoin" exchange trade volumes are up significantly in following countries; Argentina, Brazil, Chile, Columbia, Czech Republic, Dominican Republic, Egypt, Kazakhstan, Kenya, Mexico, Morocco, Peru, Poland, etc... not that this would make up a large part of the "value" of Bitcoin today.

My point is that there is a very important role that Bitcoin plays in the 2nd and 3rd worlds that most of us in the 1st world do not appreciate and this alone proves Bitcoins real value in the global market place. Although, most of these people are not speculating in the price of Bitcoin they are interested in the ability to move their wealth.

I believe there was some information recently indicating some 60% of coins have not moved in several years (I don't remember the exact number). I have been HODLing (holding on for dear life) since late 2016 (the first ETF failure where the SEC recognised Bitcoin enough to refuse it) and I will continue to HODL because of the continued potential... as well, I am not able to trade openly as my bank in the country I live in prohibits Bitcoin transactions. Further, there does exist some serious risks, unlikely to occur, but present all the same in the current situation with Bitcoin and we need further regulation to reduce those risks.
@Lyn Alden Schwartzer Thank you for another superbly written article. Your objective analysis of BTC is exceptional.
Satoshi was hoping for better pickup in Japan!
Mark Alexander profile picture
@Lyn Alden Schwartzer

Most of your articles are very solid in my opinion, and I like this one, but I think much of it amounts to a bunch of straw man arguments. The real problem with Bitcoin is that it serves no essential function (like fiat) and it has no intrinsic value (like gold or investments).

You do make one great analogy. "In simplistic terms, imagine a hypothetical online massive multiple game played by millions of people around the world. If there was a magical sword item introduced by the developer that was the strongest weapon in the game, and there were only a dozen of them released, and accounts that somehow got one could sell them to another account, you can bet that the price for that digital sword would be outrageous." The value of your hypothetical video game sword is entertainment value, which is basically Bitcoin's value. It is also a safe bet that when the game loses popularity, the value of the digital swords are likely to deflate, though it might be a slow process because people are amazingly prone to "anchoring". The same is true for Bitcoin.

A better comparison in my opinion would be gambling chips for a network of online casinos with a fixed supply but no fixed value and no need for a "house" to exchange them. As long as the game grows in popularity, the price of the chips will increase. When people tire of it, the price of the chips is likely to gradually deflate toward zero.
@Mark Alexander It serves as a store of value, a means of exchange and an investment, etc., so that is three essential functions, unless you describe essential functions in a very narrow way.

Many of the criticisms of btc relate to intrinsic value, but they are hollow, as we don't avoid other assets because of a lack of intrinsic value. We trade assets based on what we can get for them. How much of what we exchange has intrinsic value?
Mark Alexander profile picture

The only other thing that functions reasonably well as a store of value with no intrinsic value is money. However, it is not a great store of value because it slowly loses value over time, and the only reason it acts as a store of value is because society has collectively agreed to assign it value. It is basically a form of social compact. Nothing else in the history of the world has worked like that for an extended period of time.

It is not really an effective medium of exchange which is why people don't really use it for transactions. They use it to speculate.

Bitcoin is also not really an investment in the traditional sense. People aren't buying into a value creating endeavor when they buy Bitcoin. They are speculating, pure and simple.

"Many of the criticisms of btc relate to intrinsic value, but they are hollow, as we don't avoid other assets because of a lack of intrinsic value."

This is not a hollow criticism. Thinking that it is hollow is a byproduct of a being in an extremely easy money environment and an asset bubble. This environment did things like send Hertz shares skyrocketing after it went bankrupt, plus countless other similarly perverse asset price moves. Other assets whose prices are completely disconnected from intrinsic value will deflate. They always have and they always will. The problem is that bubbles often last long enough to convince people to believe otherwise.

"How much of what we exchange has intrinsic value?"

This might be difficult to see if all you have known is a bubble, but almost everything we exchange has intrinsic value. This is even true in a crazy environment like today where people are willing to bid up bankrupt Hertz shares to insane values. If you disagree, maybe you can think about your daily life and give examples of things you exchange with no intrinsic value.

Bitcoin's initial price increases made some sense because it looked like there was a chance that it would serve an essential function, perhaps as an alternative medium of exchange as its founders envisioned. Now there is zero chance (arguably there is a remote chance its blockchain will prove important, but that doesn't mean the digital asset needs to be worth anything) and its price is hundreds of times higher. That is how a lot of bubbles work. They start with a valid thesis, but then speculation takes over as the thesis dies.
@Mark Alexander - I find any 'currency' that lies outside the ability of governments & banks to meddle with and corrupt to have intrinsic value to me!
Gene Jaquet profile picture
Thank you LAS for this enlightening article. The comparison to gold is, however, unnecessary. Gold and Bitcoin will never inhabit the same asset class. The elephant "thing" in the room about gold is that it's been around for 4,000 years.

It's a fair bet that Bitcoin will not be around in 400 let alone 4,000 years. Gold can be recycled - from jewelry to coinage to bathroom faucets and back to coinage again. Perhaps some part of the bullion in Fort Knox was once an Inca earing, who knows?

The point is, human nature is such that few people are willing to bet against their ancestors, so whilst gold prices may fluctuate in our lifetime, they will never go to zero. Bitcoin is a child of technology, which is evolving ever so rapidly. Just sayin'.
@Gene Jaquet Do we really care what investments, means of exchange, or currency will perhaps be in use in 400 years? The hypotheticals people come up with are amazing.
m8 profile picture
Gold's appeal is that it doesn't oxidize.
autofocus111 profile picture
Tough, but not impossible to oxidize. Can't oxidize BTC haha.

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