There’s this strange notion that with each new financial crisis it becomes clearer that the naked emperor is actually naked. In 2020, when world leaders once again unveiled trillions of dollars in quantitative easing (QE) – just as they did after the 2008 global financial crisis – to avert impending economic disaster, people were reminded once again of how the centuries-old Printing money bank apparatus works. The monetization of debt is nothing new – the first central bank among central banks, the Bank of England was created through its institutionalization – but it is not exactly obvious or easy to understand to a common Joe.
Until it is ready.
The growing realization that the global financial system is somewhat illusory, combined with lockdown boredom and stimulus checks, has pushed the price of Bitcoin to an all-time high and fueled the crypto craze of meme stocks. And despite its big pullback this year, Bitcoin has achieved a new place in the public consciousness: the perfect inflation protection, the denominator of all fiat currencies. When you get nervous finding that all money is made up, or get suspicious that the US can print as much debt as it wants because virtually all foreign trade is in US dollars, which means all importers and exporters need to keep them for trading, then you might like the idea of a limited supply digital currency.
As Bitcoin’s price continued to climb through 2020 and early 2021, the world’s most famous investors from Paul Tudor Jones to Ray Dalio publicly aired that they were invested in Bitcoin. It can mean two things: Either it is only now, after more than 10 years, that they have realized that Bitcoin is really, really great, or the system is so broken that billionaires over 60 feel the need to join a number of. to invest code with limited supply. Maybe both are true. Bitcoin is like Pandora’s Box – it cannot be stopped once it is released. Every new Chinese raid is just a slip in Bitcoin’s timeline. The fact that it cannot be controlled and has an upper limit makes it a perfect hedge against inflation.
The story goes on
Of course, there’s a third, less naive reason for the big hedge funds to support Bitcoin: since it’s a complete black box for trading, you can essentially buy and sell it at your convenience through OTC desks without telling anyone. Praising Bitcoin only to sell it on the other side is exactly what a hedge fund could do. Bill Ackman’s “Hell is Coming” speech on CNBC in March 2020 when markets feared the worst grossed him billions, first betting against the market by buying credit protection products, then buying soon after the markets collapsed of stocks, some of which he said earlier, could go to zero.
Still, the case for Bitcoin is strong. From a purely technological point of view, Bitcoin is “Version 1” and “Version 1″ is seldom successful in technology. However, Bitcoin is unlikely to be replaced. It does its job well. It is a common denominator of value detached from human control, a bancor-like instrument as envisioned by the economist John Maynard Keynes. If you believe the US is puffing up its currency like other empires of the past – with the notable exception that it can take things a lot further because the global monetary system is stacked in favor of the US dollar – and it could, if at all, give a system reset, it’s bitcoin, then bitcoin is also a great long-term investment. Or to put it more clearly, in the words of Cameron Winklevoss: “If you own a Bitcoin today, you will be a millionaire in the future. For sure. Congratulations…”
This is nothing new, of course, and you may have read or heard this story hundreds of times by now, in which case I apologize. What is striking, however, is how few investment products do justice to this long-term investment thesis. Investing in Bitcoin shifted from pure technologists to digital natives in the early 2010s. Opening an account on a crypto exchange is easy, as is buying Bitcoin through a PayPal app, but it still requires some digital knowledge as well as a willingness to manage your own money.
Coinbase recently signed an agreement with a 401 (k) provider that allows workers to invest a small percentage of their 401 (k) premiums in Bitcoin and several other cryptocurrencies. That makes sense. If Bitcoin is a long-term hedge, there should be more savings and pension-like programs for passive investing. Most crypto savings products today are geared towards digital native demographics and incorporate less intuitive concepts like staking, wrapping, harvesting, etc. that require attention and can result in loss, both due to a user’s missteps and / or an error in the Underlying technology. On top of that, onboarding into the DeFi (decentralized finance) world is still too overwhelming for the average user; It’s about building a wallet, moving fiat funds up different ramps, and suffering uncompetitive high processor fees. Even after that, the wallet management by the user can be intimidating as it is far removed from anything we know from the traditional financial world.
Research shows that people are poorly managing their money and this is becoming more dangerous as financial markets become more accessible to retail investors with a variety of options and products. If it’s easy to buy Bitcoin on a crypto exchange, it’s also easy to sell it in a panic the next time it falls, resulting in unnecessary short-term losses or painful tax losses at the end of the year.
A quick look at a bitcoin chart shows us that for the past 10+ years, the best investment strategy has been to buy bitcoin passively. Bets are that Bitcoin, with its limited supply and bancor-like potential to serve as the denominator of all fiat currencies, will remain an important long-term investment. However, its strong cyclicality means that averaging the dollar cost may be the best investment approach.
George Juraj Salapa is co-founder of finstorathat offers a simple and secure Bitcoin savings plan.
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