by Fade_Dance | 2025-09-13 14:04:36+00:00
Store of Value. Digital gold, with the added utility of being able to teleport across jurisdictions and being able to plug directly into the next wave of smart contracts and decentralized securitization. It's no more complicated than that.

(No, gold does not primarily derive its value from practical applications).

These tools have practical application within the financial system. Speaking as a portfolio manager, gold has drawbacks. For example there was turmoil in the gold market from the recent Trump tariffs because of Swiss refining. It's a physical product that has to be stored, which means it has negative carry/costs money to hold, and if you get it through futures you have to deal with the futures term structure. Crypto also has rich volatility to work with (useful for many classes of trader), and it can even be relative value traded against peers. With Gold you end up going to industrial metals or to Silver (which is frankly an awful asset to manage in a portfolio or trade, outright worse than some of these alt-coins).

Simply put, it's a new asset with many highly unique characteristics, that has a good mix of store-of-value and speculative elements. It's also highly liquidity sensitive (vs Gold which has a much slower impulse, because it is heavily influenced by Central Bank Reserve activity, which isn't great to have to deal as the driving factor in an asset price because it's so opaque), and cleanly embeds risk-off/risk-on animal spirits.

Let's see you are a fund manager and are looking to add persistent alphas like Trend and Volatility Risk Premium to a portfolio. Crypto can be a good addition to these systematic trading programs because it's uncorrelated with other asset classes.

Granted, I'm no "Bitcoin Maxi" (despite living offshore with the tax-dodging crypto crowd for a year, I only did my first crypto trade this year), and will be the first to admit that the majority of the space is rank speculation and wretched excess, to quote Munger, but I'm begrudgingly admitting that it's a neat asset, although I think some of the ones like ethereum that are built more around the utility aspects of distributed computing and smart contracts have more use cases. BTC is primarily the gold equivalent in the crypto universe.

Step back one more level and I'd argue there's some deeper evolution going on as well in regards to money as technology. This isn't a process that anyone totally controls. The modern Eurodollar system (Eurodollars as in offshore dollars and derivatives, 20 trillion in size, not the currency Euro) that underpins the global financial system spawned out of the ether of many would argue petrodollars, and we didn't fully get a practical or theoretical handle on it until things like the Asian financial Crisis decades later. I'll immediately say that in no way am I saying "Bitcoin is the future of money", but the recent securitization wave in the crypto space does smell to me like the system pushing into new meaningful directions. Stablecoins that can be re-hypothecated across borders without regulation and frictionlessly lever up seems like the next obvious step that will naturally take hold. Right now the Eurodollar system and thus the global financial system is tied together with a huge hedge-fund driven basis trade which propagates out fed policy via an arbitrage. It's pretty obvious that this isn't always going to be the case and eventually that link is going to be severed. Likewise with the repo market and Tbills which is where systemic leverage originates - this is another pretty arbitrary thing that has been concocted, and don't be surprised if new strange things develop.