Deconstructing Bitcoin’s Zeal Into Investible Theses

Image by Miloslav Hamřík from Pixabay

It’s all Bitcoin all day in my Twitter feed these days. Quiet are the Tesla bears, the Fed-obsessed, and even the gold bugs. The HODLers are out in full force celebrating Bitcoin’s parabolic, seven-fold resurgence from the ashes of $5,000 (as of the morning of this writing). Frankly, I’m skeptical of Bitcoin. I see it as a speculative tech stock, not digital money. However, I’m not avoiding the cryptocurrency. Instead, I’m trying to determine an appropriate position size and strategy consistent with my investment framework.

I’ve been around the Bitcoin hoop for a while now. I traded a very small amount in the early days and made no significant gains (in absolute terms). At first, I was drawn to the prospect for decentralized money and banking—the theoretical and practical benefits that cryptocurrencies potentially possess. However, I expected more development 12 years into Bitcoin’s existence. To me, it still more resembles a tech stock in 1999 than a burgeoning currency—all potential; no (meaningful) practicality (yet).

While I’m certainly not the most plugged in to the cryptocurrency scene, I am informed. Given Bitcoin’s lofty market capitalization ($666 billion as of this writing)—eclipsing that of Walmart, Johnson & Johnson, and all but a handful of blue chip companies—I’m surprised that Bitcoin still has so little utility in comparison with these household names. Surely some people are using Bitcoin, but the overwhelming majority appears to be hording it in hope of higher prices.

Value Requires Utility, Even for Money

Value, in my view, requires utility. Thus, “intrinsic value” is illogical. I don’t see how something can have value in and of itself; just because it exists. To have value, an asset must have value to someone; a.ka. a value-er.

Material objects as such have neither value nor disvalue; they acquire value-significance only in regard to a living being—particularly, in regard to serving or hindering man’s goals.

Ayn Rand, “From the Horse’s Mouth,” Philosophy: Who Needs It

Food, housing, entertainment, art, etc. all serve purposes for the purchasers of such items. Their market prices reflect this value. Remember, oil was a property-devaluing nuisance prior to 1859. Today, however, the opposite is true. What changed? The invention of oil refining birthed utility to the previously useless sludge transforming it into the black gold we know it as today.

Money is no different. It serves a human purpose from which it derives its value. Money is a measurement concept for economic worth. It quantifies value, making it relatable among people and hence facilitates trade. Just like there could be no houses, cars, or smartphones without standards of length (feet, inches, meters) or time (seconds, hours, days), modern economies necessitate monetary standards.

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Disclosure: I am long small amounts of Bitcoin and Ethereum.

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