..a deep dive into the wisdom behind investing in digital assets based on monetary rather than technological attributes.
Hello friends,
I hope you have been well. During times when the Bitcoin price is in a more corrective stance or consolidating in terms of price action, I find it helps to get away from the charts and I actively attempt to stay grounded in my day to day routine.
Additionally, through continued research, increasing conviction for the longer term horizon helps with investment discipline and ultimately, inner peace. No one really expects bitcoin to be around these ranges at this time as Bitcoin Twitter speculates how Vanguard and co are hindering the breakthrough by manipulating the market.
But that’s what makes the bitcoin market so unique and humbling. I believe it to be a blessing in disguise, and just an additional opportunity to keep dollar-cost averaging. Bitcoin will continue to act as a risk-on asset for now (which is why price has fallen in conjunction with macroeconomic uncertainty), but I am positive that it ultimately will be seen by the market majority as both a deflationary and inflationary hedge- the ultimate checkmate.
By now it’s widely adopted to categorize bitcoin as an asymetric bet. And perhaps a rather low-risk long-term bet compared to other volatile and risky options like toxic bonds.
But today, I want to go over my developed fascination in the significance of investing in “boring cryptos” like Bitcoin based on their monetary (rather than technological) attributes.
To many misinformed people, Bitcoin is seemingly a ‘Boomer’ coin; it is old technology and transactions occur seemingly slow. But there is so much more development beneath the surface where Bitcoin’s iceberg lies.
Just to acknowledge a quick and well-known example, Bitcoin has a second layer protocol built on top of it called the Lightning Network, and this has already successfully enabled near instantaneous, borderless, and costless transactions to occur globally.
Recently, Robinhood (you would not expect that) announced they will integrate lightning. Kraken, one of the largest exchanges in the US made lightning available to their users just a few weeks ago. Bitcoin experts believe many exchanges will follow.
My bet is that boring will win, because it’s only boring on the surface. The innovation is happening sort of “secretly” and those who don’t know where to look usually end up missing it!
Source: @ssaurel inbitcoinwetrust.substack.com
tl;dr // One should learn about the fundamentals of money when investing in bitcoin or crypto assets, not hyper-focus on the rapid technological innovation happening in newer and newer cryptos. In other words, Bitcoin, not blockchain. Many fail to understand the importance of network effects. With the worldview that Bitcoin could very well be the winner in terms of becoming the monetary base layer of the globe, one should be weary when investing in different crypto projects that are thought to have technologies or innovation/development which are entirely “better because their faster” than another’s (in this case, Bitcoin’s).
Digital assets are first and foremost valued by their network effects and their monetary characteristics. This is a concept that much of Silicon Valley (surprisingly) and the rest of the world have failed to grasp. Investing in Proof of Stake and the plethora of Proof of Stake “Ethereum killers” comes with its much more serious, inherent risks and trade-offs. It is mere speculation (hard to consider, I know). Much money can be made, but this is riskier and fundamentally more irresponsible in my opinion, because the investment theses do not stem from first-principled sound money understanding. //
According to Vijay Boyapati, well-known Bitcoiner and author of The Bullish Case for Bitcoin, crypto networks are monetized by their monetary attributes, not their underlying technologies. This is a profound idea that I wish more retail crypto investors understood. Everyone wants to get in early on the “next Bitcoin”, or even the “next Ethereum”, but this way of thinking is flawed. Unit bias also acts as a bad habit here especially since many other crypto asset prices are low today (reminds me how early we are).
Remember, bitcoin is the next bitcoin.
Here is Vijay correcting the unfortunate and commonly shared misunderstandings of a financial journalist at Bloomberg…
Source: Vijay Boyapati
And here is another aligned and insightful perspective shared by ARK Invest’s blockchain/crypto analyst Yassine Elmandjra (another wise, O.G. Bitcoiner).
Source: Yassine Elmandjra of ARK Invest
Now the cool part is that Bitcoin is, indeed, innovating! Although Yassine shares the opinion that Bitcoin shouldn’t want to compete with other chains, it still is putting up an amazing competition through thousands of Bitcoin-centered companies/developers/etc. Innovation is still happening on ‘boring’; in fact, we prefer innovation to occur on simpler, foundational base layers of money.
Strong foundations build strong homes! There are so many amazing innovations on Bitcoin like: the Lightning Network, Taproot, Bisq network, Blockstream’s Liquid Network (sidechain technology), and also Stacks; which is allowing for smart contracts/NFTs/domain names/DeFi/and so much more to be secured by Bitcoin’s blockchain (we’ll save that last one for another time because I absolutely love what Stacks is building). All this is to say that Bitcoin, as Yassine stated, is not even focused on competing with these smart contract platforms and other cryptos (but it will and it will compete well).
It is important to remember that Bitcoin is a base layer of the soundest money we have ever seen. And in the wise words of Robert Breedlove of Parallax Digital, the first to marketability in a protocol world will reign supreme. As we can see, all of these developments taking place on top of Bitcoin as a better money network are like icing on a cake, the cherry on top. Building from a strong foundation enables healthy innovation and development. In the controversial (to altcoin ecosystem enthusiasts), yet profound words of Alyse Killeen, founder and GP of Stillmark as well as a board member of Blockstream, true DeFi (decentralized finance) cannot exist unless it is on Bitcoin. She states, “to build DeFi on a centralized protocol…or one that is a protocol managed by rulers, is inherently broken from the start.”
Inevitably, this concept of finance crypto v. tech crypto involves Proof of Work (PoW) v. Proof of Stake (PoS). I have found that too many investors in PoS have a misconceived notion of what PoW truly entails; it is rarely the other way around.
In my opinion, PoS is akin to central banking ; it is in many ways what our traditional systems already do; how they operate. The more an individual has of a particular stock/crypto asset/etc., the more say or power they have over that network. This is by nature even how our fiat money (U.S. dollar) system works today via central banking and the consequences of Cantillon Effect. This is fundamentally flawed.
I am a big supporter in digital assets that utilize Proof of Work consensus mechanisms (like Bitcoin and Litecoin) because I believe these are much more accurately marketed decentralized cryptocurrencies. These two have also been deemed “not securities” via the Howey test under SEC regulatory framework and share above 99% network uptimes. Many other digital assets cannot say the same. Furthermore, both of these digital assets have been around for more than a decade (further on down the road of success via Lindy Effect).
Below is the insight of lightcoin.btc (cool name, right?), who accurately describes the significance behind PoW and responds to that same Bloomberg journalist that Vijay responded to above.
Source: lightcoin.btc
Another amazing resource out there that shared the concept of money v. tech in crypto is Dan Held, a long time Bitcoiner that had nearly a decade of experience in the Silicon Valley environment.
In a What Bitcoin Did podcast with Peter McCormack, he discussed how a large portion of people in the Silicon Valley simply did not get Bitcoin early on because of the nature of how tech start-ups operate. He mentioned that most tech companies and their employees are focused on innovating consistently, and for that reason, many people jumped the gun and fled to Ethereum and other ICO’s that they wanted to get in early on.
He even mentioned that he was looked down upon in Silicon Valley for being a Bitcoin supporter in 2017. One thing that he said in this podcast that I found insightful was how he mentioned that there is one example on his mind of a company that never had to innovate, yet stuck around and remained widely used and successful. Craiglist is an example of an interface (no matter how outdated), that stuck because of it’s network effects. In the same way, he mentioned that this gives credence to Bitcoin, which will remain a global leader because of its significant network effects and first-mover advantage. This is in alignment with what Breedlove has stated about how the first to marketability will win, and is not even including the aforementioned and lesser known innovations and amazing projects taking place on Bitcoin as we speak.
Overall, I am entirely bullish on Bitcoin’s future. Not only does it still have the biggest and most successful network effects across the span of the ecosystem, but the innovation happening underlyingly will remain a contrarian bet. In a way, I believe Bitcoin to be, within itself, a trojan horse. Constantly innovating (even though it absolutely doesn’t have to) and ready to fight its competition because of its robust foundation and stealth factor. Put simply, Bitcoin and Proof of Work are extremely underrated and overlooked still. Many VC’s, investors, and even companies have, for many years, had the misconceived notion that Bitcoin is boring and outdated, or even worse, that they “missed the bus”. However, boring has and will continue to dominate regardless of peoples’ opinions.
Sources:
Bitcoin Is Currently Facing the Iceberg Illusion
Why Silicon Valley Doesn’t Get Bitcoin with Dan Held
Proof Of Work v. Proof of Stake
Vijay Boyapati (@real_vijay) / Twitter
The Bullish Case for Bitcoin Paperback – May 8, 2021
Yassine Elmandjra (@yassineARK) / Twitter
ALYSE (@AlyseKilleen) / Twitter
Bitcoin Offers DeFi | Alyse Killeen | Bitcoin 2021 Clips
The Cantillon Effect: Why Wall Street Gets a Bailout and You Don’t – ProMarket
What’s the Lindy Effect? – Definition, Examples, and More — Wealest
