Before I get hate mail, please hear me out as my intention here is to help you, not mock you. I feel there is a grave misunderstanding of what bitcoin is, and what it is not, and my reason for writing this is to help protect you. You may feel you may not need it, but I’d still like to say my peace and hope this helps you understand this down the road.
I’d like to start with the way back machine to biology. I hated biology, by the way, but I remember…”Kingdom, Phylum…”. And that’s about where my memory fades. This is where you learn tomato is a fruit rather than a vegetable do to its inherent characteristics and how it is classified. However, there’s a mass perception that a tomato is a vegetable, so many people treat it as such.
I feel bitcoin is the tomato that you all see as a vegetable because you characterized it wrongly – it’s not your fault, and you can still enjoy the tomato. IF I can provide you perhaps another way of looking at this, the idea is to preserve what wealth you have built with it.
The above is MY assertion of 3 major asset classes which stores “financial energy”.
I see currency (like cash) as the means to move financial energy between these asset classes. Just like a current in a copper wire, there’s a cost of financial energy to move it – and the distance of the copper wire increases the amount of financial energy loss. This also happens with cash with inflation and transaction fees. The longer you hold cash, the more financial energy dissipates from it – so there is time decay with the POWER of the currency due to inflation. To get in and out of these items usually has some form of transaction fees.
Let’s review how I classified these items, so you can at least appreciate my argument
With “Money”, I count this as tangible assets/commodities where there is a spectrum here of utility versus storage. These items can have a burn rate of financial energy loss. Meaning, if you transfer cash to something like a car, it loses value every year. Something like wheat may lose value in months due to rot. A baseball glove may lose a lot of its value immediately upon usage, but then can retain a certain value for many, many years. You buy a car for a utility. The BEST form of money over 5,000 years evolved to be gold and silver. These items have retained their values RELATIVE to other money. So here, your goal is to store the POWER of the financial energy over time. For example, two silver dimes in 1964 could buy a gallon of gas, and those same two silver dimes today can buy a gallon of gas. Give or take a few cents. THIS is what has gold as the grand daddy of money over time – it’s value RELATIVE to everything else.
This is what money looks like, from a BROAD case.
The NEWER definition uses things like “fungible”, but when shit hits the fan and you have food at your house and you need to barter to get something else, that food you have becomes money. Things that LAST LONGER may STORE ENERGY. Meaning, on day 1 of SHTF, people are bartering for food, smokes, alcohol, wheat, flour, etc. In the SHORT TERM, consumables are more important as they decay. This is why people say, “you can’t eat gold”. As time goes on in SHTF, things like salt and sugar keep for long periods of time and have value for food preservation. However – the best MEDIUM OF EXHANGE comes down to the gold and silver. It has for 5,000 years.
Over time, due to how complex transactions CAN be, is why gold and silver (and copper) rose to the top of the heap as MEDIUMS of exchange – as they can store financial energy for eternities. Maloney and others narrow down the definition of money to a more modern slant – which has “divisible” as part of it. I’m sorry, but if you have chickens and eggs and people are starving, an egg becomes money. Or, rather, a form of currency which can thus be EXCHANGED for something else of PERCEIVED (relative) equal or greater value. This is where thousands of years of TRADE originates. The BEST forms of money are divisible, yes – but it doesn’t mean chicken eggs cannot ACT like money in a BROAD SENSE.
Most people know the $20 bill USED to be a receipt for MONEY – you could exchange that gold note for one ounce of gold, prior to the Fed coming to town. I look at Kinesis Money as a digital replacement of that $20 bill above. This is why I have asset-backed cryptos as money, because they are a receipt for gold or silver.
With money, you are trying to store, preserve, or consume financial energy for utility.
With “business” – you are trying to GROW your money using a BUSINESS PROCESS. In my example, you are taking financial energy and more or less planting those seeds into a business for an expected ROI. For example, stocks and bonds can be here, but also things like rental properties due to generating of income.
With the business side of things, it’s very similar to planting a seed – where you take something with instructions and put it into an environment that consumes energy and water to grow. Where you once had a watermelon seed, you now have many watermelons grown. It uses energy from the environment to then have an output. This is also very similar to mining anything – you do not mine gold if the cost to do it (in financial energy) is less than the output you can sell it at (ROI). The ROI is what makes something deflationary.
This is the same thing talked about with Steve St. Angelo and the coming energy problems. He uses EROI, where the amount of energy used to extract something is more than the energy you can drill/mine.
At some point, you get out the supply/demand charts from economics and the demand goes up, it pushes the cost of something up, and now, on a relative term, you can mine again. You do not mine unless you have this ROI. In all fairness, bitcoin mining IS a business process. You do not mine BTC if the cost to do it exceeds the value of them at the end. As long as there is perceived value with BTC, then mining continues.
With business, there is a speculative aspect to it – but it’s based on a BUSINESS MODEL and PROJECTED ROI. There can be higher risk speculations in business, but this is different than property below because the projected value of the property speculation is SUBJECTIVE and not OBJECTIVE.
With property, this is more of the subjective speculative class. Where I offend bitcoiners/crypto people here is classifying their investment as a speculation. Somehow, this offends them, as I think the term offends they before they understand what is meant by this.
To me – this is non-asset backed crypto. The idea is that in a future 2, 5, or 40 years from now, everyone will be using the crypto THEY invested in with the hope that there will be some technology or massive use-case for it.
They WANT it to be classified as money, since it fits a lot of the definitions with fungible, divisible, etc. However, the transaction costs, energy usage, and time to settle the transaction doesn’t make it a particularly GOOD money. But hear me out, and why this is important.
Other items of speculation may be your home, fine art, mining exploration, etc. You think of your home as a solid investment, which it mostly is, but have you considered what happens to the perceived VALUE of your home if:
- Your local taxes go through the roof
- A sex offender moves directly next door
- Power lines are run over your home and make a constant buzzing sound
- A dump is approved behind your house, creating foul smells
- Interest rates for homes go up 5x.
- Your school system is voted the worst in the county.
There’s a lot of other factors, but when you buy a home, you are SPECULATING on its future value – whether you are betting on the status quo or an improvement at a future time. Many of the items above, you have no control over. You SPECULATE that all will be ok. Now, up until 2008, people only thought housing prices went up. Not true.
With something like art, it’s very subjective. If you look at a painting and I look at it, we may have different opinions on its worth. With bitcoin, I do not feel it has the worth you feel it does – so there is a SUBJECTIVE element to its value, whereas something like gold has a relationship with all kinds of other items in relative value. Remember how gold and silver have RELATIVE values to other tangible goods? Bitcoin doesn’t have that. And it may never have it. IF it does, it might take 50 years to build, if ever. Because it has no anchor point to anything, by definition you are thus speculating on its relative value to other things at a future time.
I often compare bitcoin and other cryptos to sexy beachfront property, which also offends you. What you do not realize is I complimented you on staking out this ground before anyone knew it was sexy. You feel like I dismissed the value proposition of your investment. Instead, I applauded your keen eye. I am in the mood for a cabin in the woods next to a lake. So, do not be offended if I do not want your beach front property. Not a fan of sand.
One other thing with this – property’s value is ALL about what someone else is willing to pay for it rather than its intrinsic value. Meaning, you have two identical houses, and one is in a great neighborhood and another is in a terrible neighborhood. How can you value them? Look at the traits above. Meaning, there’s no practical difference between 10,000 of these cryptos in application – they are identical homes – but they are in different neighborhoods with different values based on PERCEPTION OF SPECULATIVE UPSIDE VALUE.
But now, you must understand WHY this means anything. Why the hell am I writing this?
Because you can be awesome at speculation, but if you cannot bank your gains (preserve your wealth), then you are simply watching the perceived value of something go up and down indefinitely.
Nate, who gives a shit if it is property or money?
Why I care so much is because bitcoin has never seen a recession, and in its 13 year history, it has lost 90% of its “value” 3 times. It seems the main strategy to build wealth in BTC is to never sell a dime of it. Ever. I mean, ever. For all intents and purposes, that is not an investment plan, it’s a cult.
By definition, this is not a terribly good store of value if the entire thing falls apart when Bob goes to take some profits to pay his mortgage. Many want to call it a hedge against inflation, but the problem is, it has never seen a recession so you are SPECULATING how it will react during a recession. It’s a working theory, people. That is also pretty much sounding like a speculation….
There is no 5,000 year history of crypto. It doesn’t mean in 5 years all of these won’t moonshot. But anyone have a guess how it might hold up during a real recession? What you have is a working theory on a white paper written by someone who is anonymous. And then you have people who have convinced you to sell everything you own and live in a rented van down by the river and sell your children’s belongings to buy crypto.
Let me explain a principle I learned with speculating on mining explorers – just to give you a frame of reference to show I am not against speculation. I am an avid supporter of speculation, actually – but I also then understand the risk, and when I get a win, I bank profits and store it as money.
Mining explorers are a pretty volatile speculation. They are, by nature, penny stocks and many have legit geology teams and impressive CEOs who have made big discoveries before. One thing I learned was “when you get a double, take half off the table”. I have used this on triples and 4 baggers as well. Now, I’m not a savant who picks the best miners. I hire the best guys out there who do this research and I evaluate the speculative prospect and jump. And understanding the macros of how these are evaluated with understanding the metals market overall gives you a pretty good picture of what’s going on.
Anyhow – some of these went up a lot, I took out my initial investment, and then I saw them crash back down to earth later. What did I do with that currency I took out of the speculation?
- I put some in business processes (equities) – miners who mine gold. Energy companies. Uranium producers. Battery metals producers. Silver producers. I wanted to GROW the money, so a PORTION of the profits went there.
- I put some of it in my rental business process for repairs and upgrades. Took about $20k out of my trading account to fix up a rental that ran over budget. This rental and the one next to it will provide me a nice ROI on my investment.
- I put some of it in money – bought silver, gold, and things like half a pig, quarter cow, and stocked my shelves.
- I put some of it in low risk speculation – some of this then went back into a new speculative idea or improving my home (solar panels and batteries, finishing up my basement over 10 months to improve the value)
- I put some of it in high risk speculation (call options on miners) – whereas shares of a company are business (equities), I count call options as speculative because they can go to zero and dissipate if conditions are not met. However, if you are good at this speculation, you can make many multiples your money like I did in January with AG options. Sometimes, you make the right speculation, and market conditions change and you lose your call option bet with GDX (twice).
In the example above, let’s look at my best 10 speculations this past year. Remember, I am an amateur with a full time career and occasionally do a trade here and there. One of these below, Aya Gold, was not a speculation, but an equity trade that I did that blew up and I sold on a good gain. Unfortunately, my GDX speculation with call options didn’t work out so well and took about $12k off the board. TSLVF doesn’t count, as it was part of a spinco I got for free.
The 10 speculations I put here because I made a bet on an explorer OR a call option (with time decay) that could have gone to zero. Others in some of these speculations with me watched some of them go to zero. I also tool some options profits (like from WPG) and put into equities, with those call options later expiring worthless from those who bought from me.
Example of playing the speculation to PRESERVE wealth gained
If you listen to Saylor, you are selling plasma weekly to buy bitcoin and have no earthly possessions except bitcoin. This is about the dumbest thing an MIT grad has ever said in the history of MIT. This is when you think the doctor is the smartest guy in the room and then you ask him how to do drywall and you find out he’s an idiot at drywall. This is what’s kind of going on here. It’s important to understand personal risk, and how much of your portfolio you would put into a speculation. Speculations are risky, by nature – but some, like a house you might live in forever, might be a lower risk than buying an NFT or comic book collection.
Now my one buddy had bought BTC around $30,000. At $60,000, I begged him to sell some to take profits. The idea was to sell half. He eventually got out with a nice profit and sold his whole bitcoin. Completely out.
Almost immediately thereafter, it went down to $28,000. He was grateful to have not rode it down. But now, it went back up over $65,000 and I’m getting hate mail because “look, it is higher now, I should never have sold”. Well, he’s also not a chart guy and to get it now would also mean the idea of getting in at the peak of a double top. Meaning, not a great time to buy.
So how should he have played it, using some of my high risk mining stock speculation rules?
Well, BTC has sunk 90% 3 times in 12 years or so, and has never seen a recession – so this is a high risk speculation. So what would happen had we transferred some of that to “money” like gold? Gold has it’s ups and downs in nominal terms, but its VALUE to other things is relative. An anchor point.
- You SPECULATE on BTC at $30,000. At $60,000, you sold HALF. You now have HALF a bitcoin and $30,000 in gold.
- BTC goes down to $30,000. You have half a BTC ($15,000) and $30,000 in gold. So you have $45,000.
- You LOVE BTC, and want to get back in. You take half of your gold at $15,000 and buy half a bitcoin. At THIS stage, you have $30,000 in 1 BTC and $15,000 in gold. If BTC goes to zero, you have the $15,000 in gold. Being able to anchor some of the financial energy into gold allows it to go into a time capsule.
- However, BTC goes back up to $60,000. You now have $15,000 in gold and $60,000 in BTC for $75,000. You sell half of your BTC again.
- You now have .5 BTC valued at $30,000 and $45,000 in gold for a total of $75,000.
- The double top is in, and BTC goes back down to $20,000. You now have $10,000 in .5 BTC and $45,000 in gold.
7. BTC hits $20,000 and you are chomping at the bit to buy more. You take $20,000 from your gold (leaving you $25,000) and you buy 1 BTC to give you $30,000 in 1.5 BTC and $25,000 in gold.
- HODL – Had you started with 1 BTC you bought at $30,000 and rode this whole thing up, down, up, and down again to $20,000, you’d have 1 BTC worth $20,000. You are down 50% from your starting point and still clinging to an idea of $1m bitcoin
- Bank winnings – Had you treated it like a high risk speculation like I treat my mining explorers and transferred profits to winnings (in gold), and converted back at cheaper costs, you’d have 1.5 BTC (50% more BTC) worth $30,000 plus $25,000 in gold (total portfolio 2.5x) – so about half of your portfolio is in a high risk speculation and half is in a safe hedge that will store your financial energy as a hedge during inflation.
Note: there are many ways to play gold and silver. On Kinesis, you can trade BTC there and buy gold and silver with BTC. This is the easiest way for you to “bank winnings” into gold and silver.
Now – your RISK portfolio is different than mine. Perhaps you are 53 and would want to take all of that to cash, ok. Perhaps you are 23 and want all of that in BTC. OK. The point is, that if you treat it as a high risk speculation rather than money or a store of wealth, then you can use the method above to de-risk and bank gains.
In my one blog, I wrote about how BTC is more or less leverage on a bull market with the indexes – I have since heard this theory, but you can see my work goes back to February 2021 or so. It seems to capture excess liquidity in the system like a sponge. However, when stock market sell offs happen, and they will, it stands to reason this sponge will be wrung out to avoid selling stocks as long as possible.
Lastly, BTC has competition from thousands of other cryptos. Whether you like it or not, they are the same houses in different neighborhoods at the moment. Maybe your BTC loses market share to ETH. Or worse, some stupid dog meme coin. I see people talking about “the block chain” but aren’t grasping that if they can SEE it as a worthy speculation, rather than a “store of wealth”, then they can PRESERVE that wealth through the wild ups and downs that BTC has.
Do with this as you will. If you want to fight me and tell me it’s money because someone told you it’s fungible, you are missing the whole damn concept here. The overlords who told you it’s money didn’t tell you it’s not a really good money, and those who told you it was a store of wealth didn’t realize there’s no anchor to anything else – and it is a floating currency measured in a dying USD that is too volatile to be owned by institutions as a store of wealth (like gold). Furthermore, just about every central bank on the planet is now trying to create their own cryptocurrency and you run so many risks to it being made illegal that your HEDGE here is to bank winnings in gold.
Speculate all you want. Just take some winnings from time to time and put it into money (like gold and silver), stocks, rental units, your house, etc.
I do love higher risk speculation. But I do it with a PORTION of my overall wealth and I try to look for asymmetric trades to do it in. My PREFERRED speculations are mining stock explorers and call options on producers. I have told people “I am a buyer of BTC at $3,000” which pisses everyone off and they laugh. OK. But one thing you also learn about speculation is you don’t chase things and there’s plenty of setups out there to speculate on.
About the worst thing you can do as a crypto speculator is buy something at an all time high, in the wake of a possible recession, as interest rates are bound to rise, as a sharp sell off can happen at any moment.
If you are one of the people out there who bought in to BTC at $20,000, and BTC is $60,000 as of this writing, what is the harm in selling 1/3rd your BTC, get your initial $20,000 back, put it into gold, silver, value stocks, rental properties, or repairing your house? If it goes to zero next week, you aren’t out anything. If it moon shots to 1 million, you still have 2/3 of a BTC.
So, I’m not trying to give you financial advice, but rather present you a different way of looking at what BTC is. And what it is not.
- Until it sees a recession, you cannot say it is a hedge on stocks. It actually acts as an amplifier to the markets
- Until it lasts through inflation, it cannot be said to be a hedge against inflation.
- Until it stops dropping 10-20% in a day, or 90% in value, it cannot be said to be an effective store of wealth
- Until it has an anchor to anything in tangible value, it will be anchored to a dying US dollar. And the USD lost 6.2% of its spending power in the last year. While the BTC NOMINAL value is about the same as 6 months ago, 1 BTC has 3.1% less spending power
- Until it is widely adopted as legal tender in any G20 country, it is an underground currency
- Until it reduces its transaction costs and time to settle, it is not efficient money. Other cryptos have BTC beaten on that.
Let me finally explain one concept you might be missing. If you liked cryptocurrency and the blockchain, you’d be be buying gold and silver on Kinesis. It is anchored to an ounce of silver and a gram of gold. And what Frank Guistra missed with his debate with Michael Saylor, is that Kinesis now allows you to divide up gold and silver digital ounces where the physical metals are not practical below an ounce. Where PHYSICAL gold is not practical to walk around with it – Kinesis allows you to spend that gold using a card and the blockchain.
What you WANT is to SPECULATE on BTC or titscoin so it goes up 20,000x in 2 weeks. That is not investing, it’s a wild speculation like playing the lottery. The sad part is, you don’t realize the hidden inflation of the last 50 years since we went off of the gold standard created the conditions where you HAVE to wildly speculate on something just for the hope to buy a house someday. You are FORCED to put an INCREASING AMOUNT into the casino JUST TO LIVE.
So. Is it a store of wealth, or are you sitting at the black jack table. If you are sitting at the black jack table, take some winnings off the table and put it into your back pocket. Get your initial investment back, and play the game with house money. THAT is how you speculate.
Lastly here – gold and silver are in a different asset class than bitcoin. So, no shit bitcoin can outperform gold. It’s like comparing a Ferrari to a Jeep. YOU want to line them up next to each other on a speedway because it makes the Ferrari look better. OK. Now do off-road and you look like an idiot when the Jeep spanks the Ferrari. They run on 2 different race tracks, and when you start to understand this, the closer you are getting to seeing my point. Gold and silver aren’t meant to go up 5x in a year. IF they do, it’s because it’s going up during a currency collapse. You take a PORTION of your portfolio and roll the dice for a 7 – and that is your BTC. Gold and silver have virtually no risk compared to cryptos. And that low risk is why central banks and institutions will buy it and not BTC.
THIS is why you feel COMPELLED to speculate, remember this…