I’m a pretty traditional guy when it comes to investing. Buy assets/capital that produce economic goods and value. Ideally, buy them cheap, buy the ones that do better than the rest, let time sort the rest out.
This is why people always ask why the living hell I’m even vested in Bitcoin at all. It “produces” nothing. It has been called a fraud, a scam, and even this post here references it as “ponzinomics” despite the author’s extremely bullish stance (the author is vested w futures too).
We can go on and on and debate about the merits of Bitcoin whether it brings real value to human life or whether its a fraud, but I think everyone reading this would just prefer to make money, not lose money, and ideally, keep on making money.
There are 4 points or “legs” to understand why you need Bitcoin which forms a “Triangle”.
1) Understanding Bitcoin’s value proposition
2) Mathematician John Edensor Littlewood’s Law of Miracles
3) Black Swan Events
4) Intellectual Honesty
1) First, let’s get Bitcoin’s value proposition right:
Bitcoin/digital currency investors believe that there is a chance that one day, the world will do away w fiat currency that can be printed and devalued en masse by a government and that the world will one day switch to Bitcoin as the main transacting tool of choice.
Based on current bitcoin price of $24,985.19?
Coffee? 0.006BTC ($1.50)
Eggs? 0.012BTC ($3)
HDB apartment/housing? 12 BTC ($300,000).
So on and so forth.
The underlying principle of the EXPANSION of BTC’s value is the INFLUX of “real dollars” to BTC whilst the world rapidly or even semi-rapidly decouples itself from traditional “money”. This gigantic influx of cash dramatically shoves up “prices” of BTC everywhere since (a) bitcoin has a finite supply and (b) demand is skyrocketing.
IF this change DOES come, and if the world DOES transition smoothly toward it without immediate violence and unrest erupting with the breakdown of the economies worldwide, holders of Bitcoin will probably be the new age deca-billionaires.
So…in reality, Bitcoin is a MOONSHOT EVENT.
– IF the economy moves toward BTC peacefully,
– IF the world as we know it begins transitioning towards digital currency
– If governments across the world (especially the US) begins accepting and paying in Bitcoin
We will see a massive Bitcoin spike.
All above scenarios MUST play out.
Still with me?
The question now becomes: “What is the probability of all 3 events above happening?”
Most people would say one in a million. Mathematician John Edensor Littlewood puts it best.
2) Littlewood’s Law of Miracles:
“Littlewood’s law of miracles states that in the course of any normal person’s life, miracles happen at the rate of roughly one per month.The proof of the law is simple. During the time that we are awake and actively engaged in living our lives, roughly for eight hours each day, we see and hear things happening at a rate of one per second. So the total number of events that happen to us is about 30,000 per day, or about a million per month. With few exceptions, these events are not miracles because they are insignificant. The chance of a miracle is about one per million events.
Therefore we should expect about one miracle to happen, on average, every month.”
So on average, if we can expect a “one in a million event” to occur once a month, we can probably expect around 12 “one in a million” events per year and since the average lifespan of a person is about 80 years now, we can probably expect about 960 “one in a million” events to occur throughout our lifetimes.
So really, if you think about this carefully, the chances that some event somewhere on Earth starts pushing us towards Bitcoin as THE main currency system goes from “crazy impossible” to “improbable but possible”.
With me so far?
If you understand everything I’ve said so far, then you should be able to grasp why Bitcoin becoming a world dominating desired currency is an “improbable” event.
Here’s the whammy.
To what extent, and to what levels will this “improbable” event push Bitcoin/Digitally Encrypted Currencies to?
The value is unknown, but with a finite supply and theoretically infinite demand, I’d bet that the value would skew upwards – violently, and in a manner that will leave the world speechless.
THIS is where the understanding of “black swan” events comes in.
3) A “Black Swan” event
A “black swan” event is defined by three things:
- it’s unpredictable
- it causes severe and widespread consquences,
- after it has happened, people will rationalize the event as having been predictable.
The two most recent “Black Swan” events I can think of with almost zero predictability save for a handful of individuals looking for them are the 07/08 financial crisis and the more recent “Covid-19” crisis.
Both were seen by others (the Big Short covers the people who saw it, and everyone now says it was “inevitable”).
Hell I knew about the risks of diseases on air travel AND I knew about covid19 in Nov/Dec of 19 when Twitter started having videos of China authorities literally welding apartment building gates shut so people are forced to stay inside.
Similarly, most infectious disease experts say it was a “matter of when, not if”.
1) By Obama, 2014 – “https://www.youtube.com/watch?v=oDHmXdcdShE&ab_channel=TYTInvestigates”
2) By George W Bush, 2005 – “https://www.youtube.com/watch?v=uSDC5L7qYUc&ab_channel=NowThisNews”
As you can imagine, I think if Bitcoin taking world dominance comes to pass, many such “videos” will be circulated. It will be heralded as something that was “when, not if” by Bitcoin “experts”.
It will be rationalized. It will be deemed humanly predictable, if only we humans weren’t so bound up in our ego, our hubris, and our intellectual pride.
4) Which brings me to the final point – having some god damned intellectual honesty.
Read that twice. Then read it again. This article highlights the precise conditions under which I believe Bitcoin will go against me and in which I will be forced to give up my beliefs – that Bitcoin is an improbable event.
But most importantly, this is just honesty.
We’re human. We make mistakes. We often get blindsided by what we don’t see coming. To combat such things, we try to gather data and make forward predictions. We try and “skate to where the puck is going to be” a lot more than we think. Hell, when covid was made known, people were queuing up to empty supermarkets and people were hoarding facemasks. Both are behavioral examples of us trying to be “ahead”.
Most of us buy insurance to answer uncertainty.
- Personal accident plans.
- Critical illness plans.
- Mortgage Insurance plans.
- Life Insurance is frequently bought by parents too when they have kids they want covered in case shit happens.
So how do I view Bitcoin?
I view it as insurance.
Bitcoin taking over the world is an improbable, highly unlikely, event. But if it DOES happen, if it DOES transition towards becoming the fiat of choice, I want my ass covered. Even just a little tiny bit of it (5%) in my portfolio helps me sleep a little better at night.
On the plus side? Bitcoin halving will continue to happen, and the scarcity alone will help it gain value – this post details a great example of why I believe Bitcoin’s value is going to explode much much higher than what it is now. I high encourage you to read it.
PS: if you wanna learn more about Bitcoin, feel free to explore our site for more articles.
PPS: an online course is available for those of you who want to accelerate your learning. Here’s the link.
By Irving Soh