Today, I’d like to talk about Bitcoin.
A lot of our newer customers ask us, “why don’t you have a crypto product?”
And, “what do you think about Bitcoin?”
I usually avoid these questions because I can’t figure out the benefit of Bitcoin, even though a lot of smart people out there swear by it.
Today I want to address it because reader questions have increased as Bitcoin’s value has collapsed.
You look at a firm like MicroStrategy…
Its whole strategy is to buy Bitcoin.
So owning shares in MSTR is like owning Bitcoin in a regular stock account. That’s their big idea, anyway.
The problem is, let’s say they own $10 billion worth of Bitcoin…
Well, MicroStrategy was trading at double what they owned, so $20 billion in this example.
So, if your mission as a company is to own Bitcoin, your stock price shouldn’t be trading at 2x the assets you have.
That’s not rational.
If I were a guy who shorted stocks, I would have hammered this.
It doesn’t make any sense. Why would you pay them a 100% premium for “managing money?”
Even if you paid a 5% or 10% premium, it’s still more expensive than an ETF that buys Bitcoin and charges you 1%.
So why do they get a 100% premium just for buying Bitcoin?
Again, it makes no sense.
So, why didn’t I short the stock?
Because mass delusions can last a lot longer than my bank account. This I have learned.
And to turn back to the Bitcoin question - it’s funny…
First it was a “currency.” Which didn’t make sense. Currencies shouldn’t be volatile.
Let’s say I wanted to buy your car using Bitcoin. And let’s say Bitcoin was going up every single day. Would I want to give you Bitcoin in exchange for your car? No.
Conversely, if Bitcoin was going down every day, do you want to take that Bitcoin in exchange for your car? Of course not.
So, Bitcoin doesn’t work as a currency. That’s why that logic never worked for me.
Next, it was called a “hedge against inflation.”
Like gold.
But, gold tends to go up in times of panic and stress.
Bitcoin tends to go down in times of panic and stress.
So, it does not act like a hedge.
So, what is Bitcoin?
It seems to me it is a solution in search of a problem.
Now, I understand the use case for Bitcoin for criminal organizations. But even that has gone away.
Back in the day you could apparently send Bitcoin anonymously.
But now, unless you’re walking around with a little USB cord, it’s recorded everywhere.
Everyone has to record their Bitcoin buys and sells.
It’s crazy.
So, why do I think Bitcoin is going down now?
Here are the most likely couple of reasons:
One - they changed the tax law. So a bunch of people are going to have to pay taxes on Bitcoin gains.
Which is great, because you know what? These people were just insufferable before. They thought, “oh, we’re working around the government.”
Please. Give me a beak. You think the United States is going to give up its ability to develop a world currency? Are you insane? That’s just crazy talk.
That’s a monopoly. You don’t give that up unless you want to be in the poor house.
But now, this is interesting…
These crypto guys really backed Trump, and Trump rewarded them with the Genius Act, which supports the development of stable coins.
But where it gets really interesting is that their bet on Trump appears to have worked, on the surface.
But underneath, I think it’s really going to hurt the crypto industry.
Because according to the Genius Act, you can do stable coins backed by short-term U.S. debt - dollar equivalents.
So Trump’s big idea was to use stable coins to actually help sell our debt. Because these stable coins have to be backed with debt.
So stable coins as currency are likely to take off if mass adoption continues.
They’re dollar-backed assets just like mutual funds that invest in treasuries or dollars.
I could see stablecoin companies backing their stable coins in U.S. dollars and U.S. bonds as a currency replacement.
This is logical to me. This makes sense.
And I also imagine these stable coins taking away from Bitcoin.
So this Genius Act actually hammers the Bitcoin narrative.
I’m not sure people who swear by Bitcoin really get this yet.
It’s funny. I don’t think Trump really did them any favors - thank God.
Because my goodness - it would be some kind of stupid to devalue the U.S. dollar in exchange for this B.S.
Anyway, I don’t want to sound like the crusty old guy who missed out on Bitcoin, sour grapes.
That’s just not the way I see the world - life is too good for me to be angry about it. But I do view this whole Bitcoin thing as some kind of special delusion.
When Bitcoin came out I went around and sat down with the smartest people I know who were touting it, people I’m sure you have heard of.
And I asked each one of them what the deal is.
None of them could get past the logic trap and convince me.
The other issue with Bitcoin is a structural problem…
People put a lot of leveraged bets on it so that whenever it starts to tank, these leveraged bets get called in.
We think of Bitcoin as having a finite supply, but you can actually increase the supply by adding leverage.
Bitcoin’s finite supply makes it appealing to genuinely smart people. But it also makes it appealing to people who want to use exotic debt instruments to mimic supply increase.
So maybe that is a critical flaw. We don’t know yet.
But since so many of you have asked, I wanted to share my two cents on Bitcoin.
Maybe Bitcoin works, maybe it doesn’t. It’s beyond my understanding.
But my take is, bottom line: I think there’s better places to put your money.
That’s all I have for you today. Speak to you tomorrow.
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