To investors,
There are many deeply held beliefs in the bitcoin and crypto industry that get repeated over and over again. One that I have always found peculiar is that “[Fill in the blank] is merely an attempt to get more bitcoin.”
The argument is presented as a negative swipe at anyone who is buying, holding, or creating any investment assets outside of bitcoin. Before we dig deeply into this perspective, it is helpful to take a look at what capitalism and investing actually mean.
Capitalism is defined as “an economic system based on the private ownership of the means of production and their operation for profit.” Capitalism is the pursuit of profit by private market participants.
According to Principal Financial, “investing is a way to potentially increase the amount of money you have. The goal is to buy financial products, also called investments, and hopefully sell them at a higher price than what you initially paid. Investments are things like stocks, bonds, mutual funds and annuities.” The idea of investing is simple — you buy assets with your money in order to sell them later for more money.
In the legacy financial system, this means Americans are investing dollars with the goal of getting more dollars back at a later date. They may be investing their dollars in stocks, a piece of real estate, their own business, or a speculative bet that has low probability of succeeding. Each individual chooses to allocate their capital how they see fit, and according to their risk-return profile, but ultimately the free market will decide who made good decisions and who made bad decisions.
The market is the referee and the scoreboard is who ends up with more dollars at the end of the day. We can argue ad nauseam about whether the system is fair, why people want to invest, or which investments are better than others, but it is fairly indisputable that the point of investing is to acquire more money (dollars).
This brings us to the new digital financial system. Dollars are not the reserve currency, but rather it is widely accepted that bitcoin serves as the global store of value. There are a plethora of reasons why bitcoin is superior to dollars, so for the purposes of this analysis, we are going to operate under the assumption that everyone agrees bitcoin is money. Once you understand that bitcoin is money, it is obvious to see that individuals are going to take two actions — saving and investing.
Bitcoin allows people to save in a way that preserves and increases their purchasing power over time. You can focus on spending less than you make and then storing that economic value in the decentralized, digital currency that has grown into a $1 trillion asset. This is no longer possible with dollars, specifically as a long-term store of value, because of the historic devaluation that we are witnessing.
But not everyone will be satisfied by simply saving. They either don’t make enough gross income or the delta between their income and expenses won’t leave much to save. Some others will simply aspire to acquire more bitcoin and at a faster rate than through saving. These are the investors. They are willing to allocate their capital to risk-reward situations that may or may not end up working out. Those that choose to take risk will be judged by the free market. If they made good decisions, then they’ll get back more money. If they make bad decisions, they’ll get back less money.
The two systems are the exact same. The store of value or money is different, but we have savers and investors in both the legacy and digital financial system. So let’s bring this back to the people who constantly state “[Fill in the blank] is merely an attempt to get more bitcoin.”
Yes, of course. That is how capitalism works.
Think of it this way — every bitcoiner building a business right now is trying to acquire more bitcoin. They aren’t doing it to acquire more dollars. These entrepreneurs want more bitcoin.
Every content creator that sells sponsorships or subscriptions is trying to get more bitcoin. Every bitcoiner is going to work as an employee trying to earn more bitcoin. Everyone involved in the bitcoin industry is trying to create economic value to acquire more bitcoin. They each pursue this goal differently, but capitalism is the ultimate pursuit of more money. If bitcoin is money, everyone is going to pursue it.
This is true of most investors and entrepreneurs in the non-bitcoin verticals within the crypto industry too. Many ICOs from 2017 ended up acquiring a lot of bitcoin with their proceeds or on their balance sheets. We see multiple DAOs that put bitcoin on their balance sheet. Almost every exchange, wallet provider, miner, and yield provider has bitcoin on their balance sheet. Bitcoin is money and everyone is trying to make more money!
I think there is a psychological perspective held by most bitcoiners that anyone who uses a non-bitcoin path to acquire more bitcoin is a bad thing. If you build a bitcoin company, then acquiring more bitcoin is a good thing. But if you build a company that doesn’t support bitcoin, whether it is a technology startup in a non-crypto field or a crypto startup, then the person is somehow “bad” or “immoral” for trying to acquire bitcoin. It feels like that anger and virtue signaling is misplaced. Bitcoin is money and everyone wants it.
We can debate the merits and durability of the various things that people build in order to acquire more bitcoin, but the pursuit of bitcoin is just capitalism playing out. Not every company will work. Not every technology will gain adoption. Not every podcast will be interesting enough to hold an audience. Not every employee will stay at a company forever. The free market will determine who creates true value and who doesn’t, which will allow for capital to flow to these people and organizations over time.
Now it should go without saying, but there will be plenty of critics so I want to be abundantly clear, there are always scams, frauds, and unethical actions that people take in the pursuit of money. That is true if they are pursuing dollars or bitcoin. Those people should be called out. They should be punished by society, whether legally or socially. There is no room for bad actors. But just because someone chooses a technology or a legal structure that you don’t find appealing or durable does not make them a scammer or a fraud.
This brings us to how I think the world is going to unfold moving forward. Bitcoin will continue to ascend to global store of value status. It will be adopted by individuals, corporations, financial institutions, pensions, and nation states. Quite literally, every type of organization will recognize bitcoin as the best store of value on the planet. They will hoard bitcoin like it is the most important thing they do.
The digital, decentralized currency will allow a higher percentage of people to simply save what is left over from expenses without having to worry about the debasement of their net worth or savings. They can “Bitcoin and chill” without fear of what will unfold in the next monetary policy decision or how the macroeconomy could create a catastrophic financial situation for them.
But there will still be investors. Bitcoin won’t disincentivize capitalism. These investors will risk capital in exchange for a potential return. These investors will seek risk to earn more money. They will allocate funds to equity opportunities, both in the public and private sector. They will find yield opportunities for passive income. They will purchase real estate. They will create their own businesses to invest their capital and time into. And they will purchase a variety of digital assets that exist in the virtual economy, including non-bitcoin assets with the hope of selling them for more bitcoin at a later date.
You can chide them because the underlying technology is something you don’t like. You can argue that the incentive structures won’t work over the long term. You can even yell from the rooftop that they are going to lose money. But that is why we have a free market. Those that make good investment decisions will be rewarded and those that don’t will suffer financially.
I say all of this because no one, regardless of whether you consider yourself a bitcoiner or not, has a moral high ground on the “right way” to acquire more bitcoin. Bitcoin is money. Every single person in the world is going to pursue the acquisition of more of it, regardless of what you think. Some will save in bitcoin. Others will invest in bitcoin-focused companies. There will be those who earn in bitcoin. And there will be hundreds of millions of people who invest in other assets with the sole purpose of acquiring more digital money.
Welcome to capitalism. A story as old as time. There is plenty of nuance along the way, but as the saying goes: “the more things change, the more they stay the same.”
Hope each of you has a great start to your week. Talk to you tomorrow.
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-Pomp
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THE RUNDOWN:
Two of the Biggest Bitcoin Mining Companies in the World Are Battling It Out in a Texas Town of 5,600 People: In Rockdale, Texas, two of the biggest names in bitcoin mining are battling it out for market share and cheap electricity. These rivals also happen to be next-door neighbors. Bitdeer – a firm spun off from Chinese bitcoin mining giant Bitmain – is four-tenths of a mile down the road from Riot Blockchain, one of the biggest publicly traded mining companies in America. Both are tenants of property once occupied by aluminum maker Alcoa, but they share little else in common. Read more.
Amazon Web Services Looks to Drive Crypto Settlement and Custody to the Cloud: Amazon Web Services is searching for a specialist to foster digital asset underwriting, transaction processing, and custody in the cloud, according to a recent job posting. The infrastructure giant wants to hire a Financial Services Specialist to work with global financial institutions and innovative fintechs, and “transform the way they transact digital assets (ex. cryptocurrencies, CBDCs [central bank digital currencies], stable coins, security-backed tokens, asset-backed tokens and NFTs [non-fungible tokens]) from price discovery to execution, settlement and custody.” Read more.
DOJ to Hire Director for Its Crypto Enforcement Unit: The U.S. Department of Justice is looking for someone to head its newly announced National Cryptocurrency Enforcement team. The DOJ posted a job opening for the director’s role on USAJobs, the Federal government’s jobs website. The director will lead “a team of experienced prosecutors investigating and prosecuting cryptocurrency cases as a central part of a nationwide enforcement effort to combat the use of cryptocurrency as an illicit tool,” the job posting said. Read more.
Cathie Wood's $500K Bitcoin Call Is Already Happening: Cathie Wood isn’t afraid to make bold predictions. Back in early 2018, the owner of Ark Invest said Tesla shares would go from $300 to $4,000 within five years — a potential upside of around 1,200%. Yet Tesla hit the target early. This January, Tesla shares surged past the $800 mark, or $4,000 on a split-adjusted basis. Pretty astounding, but Tesla may not be Wood’s most bullish call at the moment. Last month, she told CNBC that the price of Bitcoin could soar to half a million dollars in five years. Read more.
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George Gammon is an investor, entrepreneur, and real estate expert who teaches macroeconomics and investing.
In this conversation, we discuss macro economics, monetary policy, bitcoin, gold, investing, real estate, international markets, and personal freedom.
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