Bitcoin

A case for BTC

Overview

  1. Bitcoin is the original and most fundamentally important cryptocurrency. Virtually every other crypto project depends on the BTC fundamental thesis being realized in addition to their own.
  2. BTC functions as digital gold that can act as a secure long-term store of value that cannot be arbitrarily printed or destroyed by governments.
  3. BTC allows individuals to transact securely between one another without relying on any third party.
  4. These transactions are stored in a public ledger, where all can verify their accuracy perfectly and completely themselves. This is why individuals can transact without trusting any third party.
  5. Currently, it is the most valuable crypto.

Major Bullish Arguments

  1. All transactions can be tracked on the Blockchain by all participants. No participant needs to trust any other in order to transact.
  2. Today there is massive demand for alternative reserve assets for corporate and county treasuries. Nearly all other forms of existing liquid (easily spendable) capital are currently losing value. This includes currency, government treasuries, corporate bonds, etc. BTC is highly liquid and net-deflationary - its value tends to be preserved over long periods of time. The world’s capital has historically pooled into the most safe, low-cost, and widely accepted forms of liquidity.
  3. BTC has been compared to a foreign bank account that has no minimum fees and is accessible to all.
  4. The rising generation prefers digital money to physical money.
  5. Major countries are increasingly using monetary policy as a weapon. Countries locked out of the current dominant system will likely seek an alternative.
  6. History provides thousands of examples of fiat (Government-issued) currencies. Every example has eventually become worthless. The average lifespan of a fiat currency system is only 30 years. The USD is one of the oldest with its current form being just over 40 years old (Its parent was the gold-backed currency also called USD).

Major Counterarguments

  1. It has no intrinsic value.
    • Nether does the dollar. BTC has guaranteed scarcity “built in.”
  2. It’s only used by criminals.
    • Criminal activity is frequently the first adopter of new technologies. The original use of the internet was mostly pornography. Today BTC is used by many reputable institutions, and the whole world relies on the internet.
  3. It could be hacked.
    • As a network, BTC is perhaps the most secure network on earth. Billions of dollars are paid to those who help maintain security and in over 10 years it’s retained its value. No one can steal from your BTC wallet without you giving them your private keys (password). It’s true that over the years a very few potential inflation (print-all-the-BTC-you-want) bugs have been found and addressed. But, if the network ever were to be catastrophically hacked the community could fix the issue and move the system to another blockchain to undo the theft.
  4. Major governments won’t allow BTC to succeed and will begin to ban it.
    • Several governments have already tried to ban it, mostly unsuccessfully. Bitcoin is now too large to be threatened by any direct governmental attack, but if a major government were to ban its use it could certainly affect the price in the short term. However, most governments would not want to allow another country to get ahead of them in this emerging area that is being developed by the brightest minds of the world.
  5. It’s too hard to use.
    • Earlier in its lifetime it was extremely difficult. However, now very easy to use tools are now available. You no longer need a PhD to use Bitcoin.
  6. It’s too volatile.
    • The volatility of new assets tends to decline with age. The world has never before created anything like BTC and it will take time to arrive at a stable price. Each market cycle has been less extreme than the last.
  7. It’s not FDIC insured.
    • Insurance can be purchased as desired. FDIC insurance uses newly printed money to function, which means that the rest of us actually pay for FDIC bailouts through inflation.
  8. It has too high of transaction fees for widespread use.
    • The fees are apparently acceptable to those with accounts sufficiently large as they are being paid. BTC makes a better long-term savings account than a checking account. Innovation may reduce fees over time.
  9. It has too few developers working on it. It lacks the resources to improve itself over time.
    • Many argue that Bitcoin is functional as is and needs few improvements if any. It is true that many other cryptocurrencies innovate faster.
  10. It could eventually be surpassed by another crypto.
    • While this could happen, no other cryptocurrency is as widely recognized or accepted. The network effect has been sufficiently powerful so far.

Price Potential

  1. BTC could overtake the $11 trillion global gold market as a more accessible alternative. This could happen over 1-3 decades as millennial and gen x demographics inherit the wealth of parents and grandparents.
  2. BTC could replace the USD as the new global reserve currency. It is currently becoming a holding in the currency reserve in many countries as an impartial settlement layer between nation-states. That said, it is unlikely that BTC will be used for regular payments as it focuses on a different problem. BTC is less than 5% of the USD market, which is now $19 Trillion USD (by M2).
  3. BTC could take a sizable portion of the global bonds and treasuries markets, 80% of which are currently yielding negative returns (losing money) either after or even before inflation. The size of the US bond market alone was $41.2 trillion in 2020

Major Risks

  1. If Bitcoin were to suffer a large-scale catastrophe such as an inflation bug the entire crypto market would likely acutely suffer for a time. However, even if such a thing were to occur some fix would be made or alternative created and the market would eventually recover with near certainty. Bitcoin has had a couple of such bugs in its history, but they have been addressed in time and the protocol has survived.
  2. Some governments may attempt to ban it. In the past this has led to short-lived sell-offs. However, this has proven almost impossible to enforce in several countries.
  3. Some governments may target and tax its users unfairly. However, the more it is attacked the more resilient the protocol can become as new features can be added if needed.

Additional Resources

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