Why you should invest in Bitcoin to protect your wealth?
By: Haris Aghadi
Tags: Wealth, Bitcoin, Investing

A primer on Bitcoin and why it’s a great store of value

A couple of months ago I wrote a post about the state of the stock market and then a whole bunch of offline conversations drifted into building a solid portfolio and Bitcoin. I thought I’ll write a primer on why Bitcoin should be in everyone’s portfolio.

You must have heard all the fuzz around Bitcoin as it has hit an all-time high price of $27K.

You must have also heard critics saying that it’s a scam, something only used by criminals, a gimmick, not backed by anything, is illegal has no inherent value, etc.

If you’re one of them I urge you to keep reading.

This post is focused on Bitcoin, not any other cryptocurrency, tokens, digital assets, etc. I’m not saying all others are bad. They have their own merits and are very different from Bitcoin.

What exactly is Bitcoin?

Is it a currency, a token, a digital asset, a piece of code, vaporware? What on earth is it?

Bitcoin is what you want it to be. There are so many definitions, use cases, views on it that it’s difficult to distill it down. I think the most apt definition is Bitcoin is digital money.

The Internet is one of the best inventions of our time and Bitcoin is internet money. It’s the first native currency built on the internet to be used on the internet.

Bitcoin vs Fiat Money

Before we talk about Bitcoin further let’s clarify what money is, also known as “Fiat Money”

Fiat money has 3 main characteristics:

Medium of Exchange : People can use the money to trade for things instead of barter.

: People can use the money to trade for things instead of barter. Store of Value : Most currencies tend to retain most of their value over a long period of time. This gives peace of mind to save and have trust in the currency.

: Most currencies tend to retain most of their value over a long period of time. This gives peace of mind to save and have trust in the currency. Unit of Value: A standard way to define the basic measurement i.e 1 USD. You can price things in them and they are fungible.

Bitcoin is a medium of exchange. You can buy bitcoin using fiat money and vice versa. There are numerous online platforms which accept Bitcoin along with credit card.

However, we still don’t have that widespread adoption of Bitcoin yet. You don’t see Amazon, Ebay, Walmart, etc. accepting. So it’s not that great medium of exchange yet.

It’s certainly a store of value. This is probably the best aspect of Bitcoin.

In hyperinflation countries or countries with currencies frequently being devalued have much higher Bitcoin adoption. People in those countries are putting their savings into Bitcoin instead of local banks to have a better store of value as they have lost complete faith in their local currency.

Not to mention as governments around the world continue to debase the currency by printing more.

It’s also a unit of value: Things can be priced in 1 BTC. Bitcoin is also divisible. 100 Million Satoshis = 1 Bitcoin.

Bitcoin’s price is fairly high for most people to own a full bitcoin, one can easily buy a tiny fraction of a single bitcoin.

My first BTC purchase was 0.0005 BTC. This makes Bitcoin very affordable to pretty much anyone.

Fiat money also has the following traits:

Durability: Persists across time. Won’t degrade over time Divisibility: It can be broken down and combined. Portability: Can be moved. Recognizability: Verified by someone. Scarcity: Limited supply. Fungibility: Interchangeable

As Pomp says Money is a belief system. You and I have faith in the US Dollar bill that we both can transact using it because we have faith in the government printing the bill.

In countries like Lebanon, Venezuela, Iran, etc. people would rather not hold on to their local currency because they have lost faith in their government as they can and probably will further debase the currency.

They would rather hold their savings in a more stable currency like the USD. But the US government has printed so much USD in the last several months that it’s only a matter of time that USD will also lose its stable status.

Similarly, Bitcoin holders have faith in the Bitcoin currency and the blockchain network.

What are Bitcoin’s use cases?

This is a popular claim from Bitcoin critics that Bitcoin doesn’t have any utility and hence it’s worthless. To this, I would say what is the utility of other assets?

Gold has some utility as it’s used in jewelry and a few other things.

But what’s the utility of stocks or bonds? They merely derive their value from the performance of the company and the terms set by the issuer respectively. But they have no utility other than financial instruments that will appreciate in value over time or act as an inflation hedge.

The primary reason so many institutions have gold in their portfolio is to use it as an instrument to hedge other parts of the portfolio. Not because it has any inherent utility.

Bitcoin should be considered no different. Except, it’s so much superior to gold.

Bitcoin is the only digital, decentralized, payment settlement layer in the world. I think it would be foolish to think this won’t be worth something enormously big in the future.

Bitcoin is permissionless, trustless, stateless, unregulated, uncensorable, decentralized. Bitcoin is the answer to everything that’s wrong with the futile fiat currency.

Just imagine me and you can transact directly with each other without having to trust any 3rd party.

In spite of Bitcoin being superior to Fiat money, I have a slight contrarian opinion on Bitcoin that it should not be perceived as currency at the moment as we are still early in its adoption cycle.

Instead, investing in Bitcoin should be viewed as investing in an asset just like one would consider investing in any other assets like real estate, stocks, bonds, gold, art, baseball cards etc.

If looked from an investment lense then the question changes to why Bitcoin asset is a good asset class? To answer that let’s look at what has happened in the last 9–10 months.

The US government has systematically weakened the dollar

Most governments usually have 2 tools at their disposal to manipulate the economy — change interest rates and print money to buy assets (Quantitative Easing).

You might be thinking I don’t live in the US. Why do I care what they do? It’s because the US Dollar is the world’s reserve currency. Several countries have pegged their currencies to the USD Dollar.

The US government has printed $9 Trillion Dollars this year to stimulate the economy — that’s two-thirds as much money in the last 6 months as it did over the prior 11 years.

Once the money is printed it has to be injected back into the economy through asset purchases, corporate bailouts, and stimulus checks, therefore, increasing liquidity in the market.

Increased liquidity usually causes an increase in asset prices, an increase in inflation and a significant drop in purchasing power as the growth of money is outpacing the growth of the economy.

This will have generational consequences like hyperinflation, wealth inequality, currency devaluation, etc. to not just the US but every country on earth because 80% of the world trade is done in USD.

The sad thing is there is no end to it. They can’t stop printing money because the entire system is so addicted to government intervention and stimulus

Here are 5 reasons why I invest in Bitcoin.

1. Inflation Hedge/wealth protector

All my assets are denominated in fiat currency/USD and at the same time, the fed is flooding the market with cash. This inherently reduces the purchasing power of the currency. Also, every year inflation erodes 2% of my assets. As Paul Tudor Jones says cash is a wasting asset.