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[Kurifodo]

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.

[Kurifodo]

[Kurifodo]