Bitcoin

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Bitcoin has been surging in the past few weeks. 📈

There is a growing need for "Money" 💰that computers can understand and does not require any middle organization(banks, Plaid, Zelle, etc.) to verify my transaction. "Money" which is internet and computer native. A system that does not take days but milliseconds to validate simple transactions. A system that is accessible and geography-agnostic.

I'm not entirely sure if the answer to that problem is Bitcoin, but it has to be some form of crypto-asset. But as of now, Bitcoin has the largest market share. So, should you, as an investor, consider adding BTC to your portfolio?

I initiated my first position in Bitcoin in the fall of 2017, a few months before the boom 📈. I resumed dollar-cost averaging again this fall. I plan to continue doing that for the foreseeable future.

These are the top 3 reasons I've been holding and stock-piling Bitcoin.

  • Asymmetric bet 🎲. Capped downside compared to a potentially huge upside. It is not a low probability that Bitcoin can double, quadruple, or even 10x as more institutions pour money into it.

  • Network effect 🌍. Compared to other cryptocurrencies, Bitcoin has huge network infrastructure support (many miners who have invested heavily in the hardware). The incentives(miners get paid in Bitcoin) are such that the miners will keep running those nodes that make Bitcoin secure and running.

  • Limited supply and growing demand 🤝. There can only be 21 million Bitcoins. About 18 million have already been mined. By 2030, all Bitcoins will have been mined. As long as there is a new group of people, every year, who are willing to own Bitcoin, Bitcoin's "valuation" should go up.

Now, let's look at the top 3 reasons not to hold Bitcoin:

  • Volatility 🙃. It’s not for the faint of heart. It has been down over 80% in some years, while in other years, it has gone up over 1,000%.

  • Lindy Effect 🎭. The Lindy effect is a theory that the future life expectancy of some non-perishable things like a technology or an idea is proportional to their current age. Bitcoin's current age is only 11-12 years, compared to other assets like gold, which has been around for hundreds of years. There is a very high chance bitcoin might not be around in a couple of decades.

  • Quantum computers 😼. The first principle of cryptocurrency is that even the most powerful computer can't break the cryptography; it’s a one-way process. Once a transaction has been done, no machine can change that transaction. There is a very low probability event where a quantum computer can "decrypt" the transaction breaking that one-way process. This means those transactions can be altered. Quantum computers posses a threat to the integrity feature of Bitcoin.

We recently did a deep-dive on cryptocurrencies on Cold Brew Money.

What I'm doing:

Like I previously mentioned, I've been dollar-cost averaging in Bitcoin and plan on continuing to do so. It also keeps me interested in that technology space.

There are polarizing views on crypto and Bitcoin by much smarter people than me. Here are some of them-

Every year Bitcoin does not die; it becomes stronger.

Disclosures: Long BTC(duh!)