The Unconventional Bull Case For Bitcoin
Seeking Alpha Analyst Since 2019
Graduate of the University of Miami
CFA Level 1 Completed
Equity Research Analyst for the University of Miami's Student Managed Investment Fund
Feel free to reach out to me at pgm39@miami.edu
My blog posts will center around any investment asset or specific company I find particularly under or over valued.
Summary
- Barely Money was the first currency and one of the only currencies to have an intrinsic value.
- Other people believing in a currency is a good reason to believe in it yourself.
- The way I see it, you are much better served adding Bitcoin to your portfolio before the large banks.
To understand the case for Bitcoin and cryptocurrencies in general, we must first understand money, what it is, and its history.
Located in the southern region of ancient Mesopotamia, around the year 3000 BC, the first ever currency was created. Sumerians used barely money as the local currency to meet the demand of intensifying economic activity, that the barter system could no longer support. A standard measurement of barely was used as ‘Barley Money’ allowing people to then exchange this money for a variety of goods and services. The reasoning for using Barley was the fact that this product had some utility in the sense that you could consume the barely to survive. Even though barely had some intrinsic value, it lacked most of the qualities we associate with a desirable currency today. It was difficult to store and transport, especially in large quantities, and the total barely supply deviated greatly based on how successful the harvest was that year. This led to the value of barely being unstable.
To correct for the negative characteristics of barely money, the Sumerian’s innovated and decided to due away with having a currency that provides intrinsic value, but instead, is easy to store and transport. For this reason, the silver shekel was created and used as currency. A silver shekel was simply 0.3 ounces of silver, not a coin. Because of this, these shekels would need to be weighed before every transaction and there was no good way of telling if they were indeed silver. Much like counterfeit jewelry today, civilians were able to make a shiny piece of rock look and feel like a silver shekel.
In 640 BC, coins were the next innovation made in currency. Each coin was made of a certain precious medal along with indentations to verify how much metal is contained within the coin, and that the coin is truly made of the specific metal. These coins worked well because they were easy to transport, hard to counterfeit, and most importantly they were supported and controlled by the powerful governments/rulers of the times. How then, did gold become so dominant as a universal store of value today and not some other precious metal?
This can be traced back to the Roman coin, which was made of gold. The Roman Empire was so powerful and played such a large role in the global economy that when they traded with other countries/empires, these other entities began to value gold as well. If this were not the case, global trade, and the economy as we know it, would cease to exist.
Money has been able to bridge such a wide variety of differences between people. Throughout history we have seen wars raged based on race, religion, and ideology. However, never once has any powerful ruler or government entity disputed money. Osama Bin Laden hated nothing more than the principles and ideology of the United States government, however he gladly accepted and purchased goods with American dollar bills. These bills contain the signature of our Secretary of Treasury and the saying “In God We Trust” printed on every single one of them. The reasoning for this cognitive dissonance is that money does not ask that you believe in something, money only asks that you believe that other people believe in something(Harari).
My main investment thesis behind Bitcoin is completely centered around this concept. We could go on for days listing the amount of uses the underlying blockchain technology has, and how these technologies may impact business in the future. However, these applications are not the essential principles to be concerned about when considering Bitcoin as an asset. The fundamental truths about Bitcoin are that it has a set supply controlled by no one government organization or person (will contribute to price stability), it is extremely easy to transport and store, it is almost mathematically impossible to counterfeit or manipulate, and most importantly; other people believe in it.
Our societies transition to a decentralized crypto currency is inevitable in my opinion. We are no longer a species that puts the upmost trust in governments and god, but instead we trust math and algorithms. This transition will not be overnight, and there will surely be many bumps in the road, for this reason I would recommend any portfolio manager to have a decent amount of exposure to Bitcoin as a long-term investment and hedge against inflation.
Additionally, I would add that the market cap of Bitcoin is around $350 billion, compared to gold which is $11 trillion. Because of this discrepancy, any institutional investment in Bitcoin will lead to a drastic increase in demand, and thus outsized price appreciation. Recently, only a handful of institutions have added Bitcoin to be part of their core portfolio’s. If we continue to see price appreciation, surely more institutions will pile in, and create excess demand. The way I see it, you are much better served adding Bitcoin to your portfolio before the large banks and institutions do.
Source
Harari, Yuval Noah. Sapiens: a Brief History of Humankind. Harper Perennial, 2018.
Analyst's Disclosure: I am/we are long BTC-USD.
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