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Why bitcoin has value in a portfolio: institutional thesis

 
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Clifford
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PostPosted: Sat Feb 20, 2021 5:19 am    Post subject: Why bitcoin has value in a portfolio: institutional thesis Reply with quote

In my other blog posts I predicted bitcoin would rapidly appreciate in value soon because institutions and high networth induvial would adopt bitcoin as a new form of digital gold. I want to go more indepth into the fundamental thesis behind that prediction.

First, let's establish why gold and other metals has value in a portfolio in layman's terms:

Fiat is a negative yielding asset, the longer you hold fiat the more wealth you lose. Gold is a finite resource and investors since the 1970s have chosen it as in inflation hedge against fiat. Theoretically speaking, as long as gold has consistent demand it should always be making new highs against fiat. But...

...Gold and precious metals historically has performed poorly as an inflation hedge, why is that?

1. Gold and all metals are inflationary, and the exact year over year inflation rate is unknown (more on transparency in point 4), but the inflation rate is believed to be at least 1% for gold and the other metals even higher. Why would someone escape the dollar to move into another inflationary asset?

2. Corporations like Tesla manipulate the precious metals market, because a high silver and copper price means they have to spend more on production costs. For example, one single Tesla Model S car has about 200 pounds of copper and 2 ounces of silver. Corporations who use these metals suppress the price so their business models don't get messed up.

3. The gold market is worse than a zero sum game, it's a negative sum game: Every time you transact gold you have to pay someone to inspect it to make sure it's not fools gold, weigh it and give you an appraisal of value, and melting it down in fractional parts if necessary. All of that money wasted on middlemen is a downward pressure on the gold price.

4. Lack of transparency scares people: It's highly disputed how much gold exists, so much uncounted jewelry and family heirlooms and so much fraudulent IOUs and fools gold counted. There is no public ledger or blockchain that shows all the activity happening in the market.

Bitcoin has value because it's a more efficient version of gold on points 1-4. It's faster, cheaper to move around, infinitely divisible, more scarce, and the market is more transparent. Bitcoin is replacing the role that gold has historically played in a portfolio, which is an inflation hedge against fiat.

Bitcoin's value: Bitcoin has just hit 1 trillion in marketcap, so where does the valuation go from here? I expected bitcoin to obtain a large marketshare of gold, but I don't expect bitcoin to eclipse gold, at least not in this bullrun. I'm not bearish, but I think it's time to be cautiously optimistic about the bitcoin price going forward.

Also, with the wild success of bitcoin recently, I really hope many of you have been reading my blog posts over the years and made life changing money.

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TheIndianGuy
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PostPosted: Sun Feb 21, 2021 4:20 pm    Post subject: Reply with quote

ok goldberg, bitcoin is not replacing gold as a hedge. institutional investors had adopted it as an alternative to how dead fixed income was last year due to such a low risk free rate.
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Clifford
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PostPosted: Tue Feb 23, 2021 6:27 am    Post subject: Reply with quote

TheIndianGuy wrote:
ok goldberg, bitcoin is not replacing gold as a hedge. institutional investors had adopted it as an alternative to how dead fixed income was last year due to such a low risk free rate.


You are right too, they are turning to finite assets because bonds haven't been yielding very much and the dollar has been inflating away. My argument tho was that they are choosing bitcoin, not gold, for that utility.

Everyone has their own thesis for owning bitcoin. The chap at MicroStrategy has a thesis that bitcoin is not just a store of value, but a corporate treasury asset, meaning corporations should buy bitcoin with interest free debt to reward shareholders instead of buying back their own stock or giving dividends.

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TheIndianGuy
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PostPosted: Wed Feb 24, 2021 10:17 pm    Post subject: Reply with quote

Clifford wrote:
TheIndianGuy wrote:
ok goldberg, bitcoin is not replacing gold as a hedge. institutional investors had adopted it as an alternative to how dead fixed income was last year due to such a low risk free rate.


You are right too, they are turning to finite assets because bonds haven't been yielding very much and the dollar has been inflating away. My argument tho was that they are choosing bitcoin, not gold, for that utility.

Everyone has their own thesis for owning bitcoin. The chap at MicroStrategy has a thesis that bitcoin is not just a store of value, but a corporate treasury asset, meaning corporations should buy bitcoin with interest free debt to reward shareholders instead of buying back their own stock or giving dividends.


how do you not see that bitcoin is reminiscent a 1980s ponzi scheme? you of all people should be aware considering you got in early. everyone buys and buys and buys and the last buyer is the loser when everyone exist for the door. just look at how volatile teslas balance sheet is now that they have bitcoin. just thinking about the crypto part on teslas balance sheet hurts my brain, who fucking knows what that'll be. its a lot of air.

it was great for money laundering speculation. that original functionality no longer exists with how transparent transactions are today.
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Clifford
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PostPosted: Sat Feb 27, 2021 8:46 am    Post subject: Reply with quote

TheIndianGuy wrote:
Clifford wrote:
TheIndianGuy wrote:
ok goldberg, bitcoin is not replacing gold as a hedge. institutional investors had adopted it as an alternative to how dead fixed income was last year due to such a low risk free rate.


You are right too, they are turning to finite assets because bonds haven't been yielding very much and the dollar has been inflating away. My argument tho was that they are choosing bitcoin, not gold, for that utility.

Everyone has their own thesis for owning bitcoin. The chap at MicroStrategy has a thesis that bitcoin is not just a store of value, but a corporate treasury asset, meaning corporations should buy bitcoin with interest free debt to reward shareholders instead of buying back their own stock or giving dividends.


how do you not see that bitcoin is reminiscent a 1980s ponzi scheme? you of all people should be aware considering you got in early. everyone buys and buys and buys and the last buyer is the loser when everyone exist for the door. just look at how volatile teslas balance sheet is now that they have bitcoin. just thinking about the crypto part on teslas balance sheet hurts my brain, who fucking knows what that'll be. its a lot of air.

it was great for money laundering speculation. that original functionality no longer exists with how transparent transactions are today.


I don't think America's largest bank would be recommending 1% allocation to bitcoin if they didn't do their due diligence: https://finance.yahoo.com/finance/news/jpmorgan-strategists-suggest-1-crypto-200545988.html

Bitcoin isn't a ponzi scheme by any definition, but perhaps you could metaphor it to a pyramid scheme. Especially in it's early days, the demand from it was derived from people shilling it on message boards as a get rich quick scheme and dumb people would buy. That era of bitcoin was no different than Gamestop or Dogecoin today.

My predictions have been focused on the formations of a new era of bitcoin. Much like other commodities, it's a form of property whose fundamental value is derived from the value society places on it. Right now society is placing an ever increasing value on it. Companies are going into debt to buy it, banks are buying, and even governments are buying. We are moving away from bitcoin as a pyramid scheme--to bitcoin as a standard portfolio hedge. Bitcoin is becoming an institutional grade asset and set for decades of price appreciation.

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TheIndianGuy
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PostPosted: Sat Feb 27, 2021 7:52 pm    Post subject: Reply with quote

Clifford wrote:
TheIndianGuy wrote:
Clifford wrote:
TheIndianGuy wrote:
ok goldberg, bitcoin is not replacing gold as a hedge. institutional investors had adopted it as an alternative to how dead fixed income was last year due to such a low risk free rate.


You are right too, they are turning to finite assets because bonds haven't been yielding very much and the dollar has been inflating away. My argument tho was that they are choosing bitcoin, not gold, for that utility.

Everyone has their own thesis for owning bitcoin. The chap at MicroStrategy has a thesis that bitcoin is not just a store of value, but a corporate treasury asset, meaning corporations should buy bitcoin with interest free debt to reward shareholders instead of buying back their own stock or giving dividends.


how do you not see that bitcoin is reminiscent a 1980s ponzi scheme? you of all people should be aware considering you got in early. everyone buys and buys and buys and the last buyer is the loser when everyone exist for the door. just look at how volatile teslas balance sheet is now that they have bitcoin. just thinking about the crypto part on teslas balance sheet hurts my brain, who fucking knows what that'll be. its a lot of air.

it was great for money laundering speculation. that original functionality no longer exists with how transparent transactions are today.


I don't think America's largest bank would be recommending 1% allocation to bitcoin if they didn't do their due diligence: https://finance.yahoo.com/finance/news/jpmorgan-strategists-suggest-1-crypto-200545988.html

Bitcoin isn't a ponzi scheme by any definition, but perhaps you could metaphor it to a pyramid scheme. Especially in it's early days, the demand from it was derived from people shilling it on message boards as a get rich quick scheme and dumb people would buy. That era of bitcoin was no different than Gamestop or Dogecoin today.

My predictions have been focused on the formations of a new era of bitcoin. Much like other commodities, it's a form of property whose fundamental value is derived from the value society places on it. Right now society is placing an ever increasing value on it. Companies are going into debt to buy it, banks are buying, and even governments are buying. We are moving away from bitcoin as a pyramid scheme--to bitcoin as a standard portfolio hedge. Bitcoin is becoming an institutional grade asset and set for decades of price appreciation.


yes, lets trust jpmorgan chase; one of the major CDO dealers involved in the 2008 financial crisis that got a slap on the wrist and a sweet deal on the bear stearns acquisition. obviously the global bank bailout was to prevent an even worse crisis and, of course, they're no government sachs. surely they've done they're due diligence. surely they're not telling retail investors to get into bitcoin because they're heavily invested in the crypto space as well. surely they have your interest and not their interest (and subsequently the shareholders interest). no one that promises you investment advice is giving you their best idea, ESPECIALLY for free. they keep that secret. this also goes back to what we agreed upon previously; that bitcoin is currently viable as a hedge in reaction to interest rates.

of course, we had a recent rise in bond yields due to inflation expectations resulting from the positive outlook on the economy today (covid vaccine) vs say 6 months ago. it was evident that as the risk-free rate goes up (pushing up all other rates including credit and duration) will bring down your valuation on those assets, as seen recently in the market. as it keeps going up the earnings yield/dividend yield/P/E ratio/etc. on the market get compressed and the 10-year treasury starts competing with the stock market. if you're only getting a couple hundred basis points on the stock market then that might not be enough and you'd reallocate to bonds. in other words, fixed income could be viable again and no need to look for riskier diWORSEification through bitcoin.

i do, however, believe in the adaptation of newer crypto technology in central banking that allow for instant transaction speeds vs something slow like a wire transfer, but not something as relatively outdated and slow as bitcoin. like you said, its value is derived from the value society places on it. so it would be in the interest of these institutional investors to promote bitcoins worth to society. they have an agenda.


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TheIndianGuy
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PostPosted: Mon Mar 01, 2021 10:16 pm    Post subject: Reply with quote

Clifford wrote:
Companies are going into debt to buy it


this is relatively meaningless, companies use debt to fund future projects/investments after careful financial analysis determining whether the project/investment is worth funding and will be profitable. there is an erroneous assumption by layman's that because debt for the individual is bad, debt for a company is bad. but the fact that these companies are willing to invest in bitcoin over the past year suggests their belief in its use as an alternative liquidity source.
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