The short answer to why you should buy Bitcoin is because it is the world’s hardest money.
Let’s unpack that statement.
Is Bitcoin Money
First, let’s talk about whether or not Bitcoin is money. There can be a strong argument against that due to Bitcoin’s perceived volatility against fiat currencies. Bitcoin price moves can be shocking in nature and that could scare people from transacting in something that has whipsaw price action compared to fiat currencies.
The best way to think about this is to consider just how young the Bitcoin protocol is – as I write this, Bitcoin only came into existence around 11 years ago. And in that time we have seen the volatility grow smaller as Bitcoin’s market cap continues to rise. The reason for the current volatility is because the market is figuring out what a Bitcoin should be worth relative to fiat currencies, while at the same time the Bitcoin protocol continues to experience planned dis-inflationary events, or halvings.
Combine this with:
- the growing number of individuals that are hodling Bitcoin
- the growing number of companies that are holding Bitcoin in their treasuries
- trading Bitcoin being mostly unregulated
- 24/7 trading that occurs on exchanges
When we take all of these things into consideration, we have an asset that is still figuring out where it fits price-wise in the grand scheme of things. My point here is that the current volatility is temporary while Bitcoin gets it’s legs underneath it. There is an opportunity to invest early in the meantime as price discovery continues to happen and Bitcoin continues to eat other assets market caps as it grows.
So maybe not perfect money right now (so hold onto it,) but still money because Bitcoin is:
- easily divisible down to 8 decimals
- scarce (more on that below)
- durable, it does not degrade over time
- highly portable, you can memorize 12 words and cross any border with your wealth
- verifiable, running your own node means you can verify transactions and verify total supply
- easy to store, anybody can download a wallet to their smart phone and transact right away
- almost impossible to counterfeit due to the strength of the Bitcoin network.
What is “Hard Money?”
Hard money is a store of value that is scarce. Gold is an example of hard money. So why is Bitcoin hard money? Because the Bitcoin protocol will only ever issue 21 million total Bitcoin. That fact was my biggest reason for investing in Bitcoin, and it should be what would excite anyone the most about Bitcoin. There is a finite supply, and at the time of this writing between 88%-89% of that supply has already been issued. There is a window of opportunity right now to take advantage of owning a percentage of an asset class that will continue to grow in total market cap while the total supply available will never grow above 21 million Bitcoin.
The blue line on this chart is Bitcoin’s scheduled issuance over time. The red line is tracking the blocks being mined, along with the dramatic decreases in Bitcoin being issued to miners.
Do the math.
The scarcity is why it is going to continue to get more difficult to acquire Bitcoin. It really is still early in Bitcoin’s existence, which means exposure to it will ensure that you are taking advantage of the upward volatility.
Why Buy Bitcoin?
You may have heard other people call Bitcoin “digital gold.” I think that is a great example of how you should treat Bitcoin – as a store of value and a hedge against economic instability. Long term, that will be the way people treat Bitcoin, and many believe that Bitcoin has a real chance at becoming the world’s reserve currency due to its scarce attributes and other traits outlined above.
That last statement may sound almost conspiratorial to some people. How can something that is digital, and invented such a short time ago, become the world’s reserve currency? I understand how crazy that sounds, however consider the following:
- Bitcoin has already become the best performing asset in recorded history.
- Bitcoin has been under constant assault from hackers for over a decade with no issues.
- There is as much energy being used to secure the Bitcoin network as it takes to power Switzerland.
It’s OK to have reservations about whether or not you should invest. However, all signs point to Bitcoin continuing to over perform in the short term, which means having some Bitcoin is an asymmetric bet. There is some risk due to the nature of how new it is, and there is extreme upside for the same reason. This is why you should buy Bitcoin and hold onto it for the foreseeable future.