Rajat Soni, CFA - I've never met someone who understands Bitcoin and doesn't want more
The discussion emphasizes that Bitcoin should be viewed as a savings account rather than an investment. Unlike traditional savings accounts, which offer minimal returns and are risk-free, Bitcoin's value is expected to rise over time due to its finite supply and increasing demand. The speaker argues that Bitcoin's volatility is a result of its newness and the fact that it is valued in fiat currencies, which can be created infinitely. Over time, as more people understand and adopt Bitcoin, its price will stabilize and continue to rise, making it a reliable store of value. The comparison to gold highlights Bitcoin's potential to maintain purchasing power over time, as both assets have finite supplies and intrinsic value. The speaker suggests that Bitcoin's long-term value proposition lies in its ability to act as a store of value, medium of exchange, and unit of account, similar to traditional money. As more people adopt Bitcoin, its role as a global savings account will become more pronounced, potentially reducing reliance on fiat currencies.
Key Points:
- Bitcoin is a savings account due to its finite supply and potential for long-term value retention.
- Bitcoin's volatility is due to its newness and valuation in fiat currencies, which are infinitely creatable.
- Over time, Bitcoin's price is expected to stabilize and rise as more people adopt it.
- Bitcoin is compared to gold as a store of value, maintaining purchasing power over time.
- As Bitcoin adoption increases, it may reduce reliance on fiat currencies and become a global savings account.
Details:
1. 🔍 Clarifying Savings vs. Investments
- Bitcoin is framed as a savings account rather than an investment.
- Savings are defined as money left over after subtracting consumer spending from disposable income, representing a net surplus of funds for an individual or household.
- Savings are typically kept in cash or cash equivalents like bank deposits, which have no risk of loss but offer minimal returns.
- Investing involves growing savings by putting money at risk.
- A common confusion arises as people use investments like stocks and index funds as savings accounts, with a blind expectation of perpetual growth.
- The belief in constant growth of assets like the S&P 500 or real estate is attributed to markets being artificially inflated with new money.
2. 💼 Distinguishing Investing from Speculation
- Investing involves putting money into a project or asset with the expectation of earning a financial return, aiming to generate profits exceeding the initial investment.
- Key methods of investing include buying and selling assets, purchasing income-generating assets, and investing in securities.
- Investing differs from speculation, which focuses on profiting from short-term price fluctuations.
- Investors typically seek returns over longer periods, such as months or years, rather than short-term gains.
- Investing involves risk, with the possibility of losing some or all of the invested money.
- An investor's risk tolerance is influenced by their comfort with fluctuations in investment value and their ability to withstand potential losses.
3. 📈 Navigating Bitcoin's Volatility
- Bitcoin's price can fluctuate by 50% higher or lower within days, indicating high volatility.
- Bitcoin is considered a new asset class, contributing to its price volatility, due to its decentralized nature and limited historical data compared to traditional assets.
- The price of Bitcoin is expected to rise over time due to the ability to create dollars out of thin air, increasing dollar demand for Bitcoin.
- Bitcoin's price increase is based on the assumption that dollar demand for Bitcoin will not cease at high price points such as $1 million, $5 million, or even $100 million.
- Unlike dollars, Bitcoin cannot be created out of thin air, necessitating higher dollar offers for Bitcoin as demand increases.
- Historically, Bitcoin has experienced significant price swings, such as the 2017 surge followed by a sharp decline, and similar patterns in 2020 and 2021, demonstrating its volatile nature.
- Compared to other volatile assets, Bitcoin's decentralized nature and limited supply contribute to its unique volatility profile.
4. 📉 Bitcoin's Sustained Value Growth
4.1. Bitcoin's Price Trend
4.2. Market Dynamics and Influences
5. 💰 Why Bitcoin is a Savings Account
- Bitcoin's price rise is attributed to low initial allocation among the general population, driving demand as more people start to invest.
- The process of Bitcoin monetization is underway, as it increasingly serves as a store of value, medium of exchange, and unit of account.
- Holding Bitcoin long-term is perceived as a strategic move, with expectations of increased value over 5, 10, and 15 years, despite potential short-term perceptions of imprudence.
- Less than 1% of the global population currently understands Bitcoin, suggesting significant future growth potential as awareness and understanding increase.
- Investors who grasp Bitcoin's concept are motivated to accumulate more due to its finite supply and expected value appreciation over time.
- Compared to traditional savings accounts, Bitcoin offers a decentralized alternative that is immune to inflation, but it also comes with risks such as volatility and regulatory challenges.
- The finite supply of Bitcoin (capped at 21 million) contrasts with fiat currency, which can be printed indefinitely, potentially preserving value better against inflation.