Disclaimer: Opinions expressed in this article do not constitute investment advice from Bitcoin Reserve.
Bitcoin has been on everybody's mind for several years, yet a lot of investors are still very cautious when it comes to opening a position.
To some, it is "magic Internet money" that lacks intrinsic value; to others, it is contrary to their economic beliefs; another group will find themselves afraid of losing everything due to a hack; and yet others, understand that Bitcoin warrants attention, despite not really knowing why it matters to them. Nevertheless, an increasing number of single- and multi-family offices have seen a rise in questions posed to them related to obtaining, storing, and securing bitcoin. Below are the most important reasons why ultra-high-net-worth individuals are so interested in allocating a portion of their funds into bitcoin.
Bitcoin: An Easy Investment Thesis
Launched in 2009, right after the global financial crisis, Bitcoin has taken the mass media by storm, while, at the same time, confusing and mesmerizing experts and retail investors alike. During the ten years of its existence, there have been countless obituaries written for "gold 2.0". "It will never work," they said. Yet, it is alive and well, poised to make newer highs while institutions are on a hunt for bitcoin advisors that could shed some light on the enigmatic phenomenon.
Based on the principles of the Austrian school of economics (L. Von Mises, F. Hayek, M. Rothbard), bitcoin is designed to be the sound money for the digital age: it is not governed by a central committee, its supply is hard-capped, and it is purely electronic.
A bet on bitcoin is highly asymmetric in nature. Like in any investment, the downside is capped at the amount you invest. However, the potential upside is virtually unlimited. As traders like to say, it is a call option that never expires. Economic uncertainty and financial calamities tend to force people to diversify into alternative assets. Arguably, bitcoin feeds off of such events, by offering a novel way of preserving and multiplying your wealth as well as a tool for intergenerational money management. We do not hold an extreme belief that bitcoin will devour the value of every traditional financial instrument out there. However, we are confident that its future has only two possible outcomes: the currency will either fall back to zero or keep rising sharply until it is a force to reckon with.
If this asset is held by individuals, corporations, and governments across the globe, is there a chance it will become the world's next reserve currency? And if so, can your CIO afford not to consider bitcoin?
Why You Should Care About Bitcoin
As Darwin stated, it is not the strongest that survive, but the ones able to adapt to a changing reality. Bitcoin today may be what the Internet was 20 years ago: an under-appreciated tool with massive global potential.
Bitcoin is the first digital commodity that is rare: the problem of digital scarcity was solved in an ingenious way thanks to the proof-of-work mechanism, a self-adjusting incentive-based system of securing the network activity and unlocking new supply of the currency. The issuance of new bitcoins is regulated by the software run on tens of thousands of computers worldwide, as opposed to a centralized body. Even if you have nothing against institutions like central banks and their policies, bitcoin's hard-capped supply makes it highly predictable—you can remain confident that nobody will inflate it five, fifteen, or fifty years from now. When it comes to wealth preservation, an asset outside the influence of central planners has historically been the choice of many.
Fun fact: There are about 36 million millionaires in the world and only 21 million bitcoins that will ever be in circulation. This means it is impossible for every millionaire to own1 full bitcoin!
History is full of examples of bank account seizures, property confiscation, and other types of asset forfeiture. While justified in a lot of criminal cases, there have been numerous occasions when such actions were questionable at best. If your wealth is not always safe in banks and real assets, how can you preserve it and pass it on to future generations?
Today, being your own bank does not require learning a lot of new skills. If you feel comfortable using a computer or a smartphone, you are likely to find bitcoin no more difficult. With proper measures, it can even become the safe haven of your dreams—nobody knows whether you have bitcoin or not, how much and where. It might be the one asset that remains when everything else is gone. With bitcoin being a liquid investment, you are free to open and close your position at will using the swiftly evolving exchange and over-the-counter infrastructure. And, most interestingly, due to its digital nature bitcoin can be moved in an instant anywhere in the world at virtually no cost.
Single- and multi-family offices already find bitcoin's native governance tools fascinating and extremely powerful. Multi-signature wallet set-ups, for instance, allow for corporate-style spending rules, in which two or more parties must sign off on a transaction. This prevents theft, embezzlement, and misappropriation of funds.
Departing from our brief overview of bitcoin and its benefits as an innovative investment instrument, let us draw a historical parallel between sound monetary systems and human progress.
Throughout history, periods of accelerated development of humanity have been highly correlated with sound money. Gold, being the free-market choice for storing value, allowed for wealth preservation, multi-generational fortune inheritance, and patronage of arts and sciences. In "The Bitcoin Standard," professor of economics Saifedean Ammous, states:
"Some of the most important technological, medical, economic, and artistic human achievements were invented during the era of the gold standard, which partly explains why it was known as la Belle Epoque, or the beautiful era, across Europe."
Bitcoin, being more scarce than gold due to its hard-capped supply, and a continually appreciating value against fiat currencies, may as well become the catalyst that returns humanity on its path to higher goals and aspirations, ushering a New Renaissance.
The pace of change and innovation in today's world is accelerating. Things that were unthinkable just a few decades ago are now a reality. We believe that the world will benefit significantly from an inclusive monetary system designed around a novel hard asset. Bitcoin's mere existence today proves that there are vast numbers of people willing to switch to a sound money that is neutral, apolitical, and borderless. For many, it is a hedge against the traditional financial system and political uncertainty.
Whether you want to invest in bitcoin directly or support companies that comprise its infrastructure, chances are you are about to become an early adopter of a world-changing technology, which in itself is an opportunity of a lifetime.