Bitcoin isn’t the money of the future because Bitcoin isn’t money. I’m saying that with love, folks, with all the respect in the world.
Bitcoin doesn’t need to be money. That’s not what it’s for.
If you look at the structure of Bitcoin, it becomes pretty clear that it’s just not cut out to be a currency. “But Nick,” I hear you say, “it’s a currency, and it says that right on the box: cryptocurrency.”
True enough, but on the street, the word doesn’t quite match the reality.
A currency is something that people use to conduct everyday business. They spend it. On pizzas, iPads, loaves of bread, aircraft carriers, gallons of milk, 10,000-share blocks of AAPL stock. Institutions lend it and invest it. It’s how the economy works day to day. And any currency that does this needs to be able to expand its money supply.
In fact, that “expandability” is critical. I’ll tell you what I mean, because it’s got everything to do with how you actually make profits in crypto in general and Bitcoin in particular.
Here’s What We Need from Money
When it comes to economic growth, a certain amount of inflation is not just acceptable, it’s necessary. It lets an economy stay flexible as it gets bigger, and as more and more people participate in an economy, this flexibility is what allows the economy to scale up in response.
What this means is that a lot of Bitcoin’s most touted features, some of the attributes that make it a fantastic investment and store of value, are actually… well, not great if you’re strictly talking currency.
That legendary 21,000,000 BTC supply cap? Great if you want your Bitcoin to hold and grow its value against inflation in the long-term. But it’s crummy if you want to use Bitcoin as the day-to-day currency of an economy. The fact that scarcity will drive prices up over time is exactly the wrong quality to look for in a currency that people are supposed to spend and invest every day.
At the moment, it’s still by and large a hassle to spend or accept Bitcoin at the point of sale. That’s getting easier by the month, but on balance there’s still just too much incentive to let it sit still and gather value by sitting still.
“So, Nick – if Bitcoin isn’t money, then what is it?” you ask…
Here’s What Bitcoin Really Is
It’s the most successful asset of all time in terms of appreciation. I could try and describe it, but the logarithmic full-lifespan chart looks like a giant mountain, and it pretty well speaks for itself.
In about a decade and a half, Bitcoin’s gone from a computer hobbyists’ novelty worth pennies per token to a rising star asset worth tens of thousands. If you’d bought at the very beginning, you’d be sitting on something like 32,000% gains by now.
And we’re still in the fairly early stages here. Buy now, and there’s no telling how much you’ll have banked
Bitcoin’s limited supply makes it basically inevitable that, as long as people care about it, as long as they’re demand, it will be a strong hedge against inflation over the long term. (Over the short term, we’re dealing with market forces that nobody can really control.) It’ll continue to appreciate – unlike money.
So, you can say Bitcoin is an asset. A strong asset. A versatile asset. A must-own asset. An asset unlike anything else that’s come before.
Just don’t call it “money.” Treating it like money is probably worse. If you do, you’re missing the point of what it brings to the table, and missing out on some of the biggest gains potential in market history.
As long as you get what it is and what it’s for, it can deliver results. As for what you can do with this perspective… Buy Bitcoin regularly, particularly when it’s going down. Build a position as cheaply as you possibly can, because like the chart up there shows, that’s the key to overwhelming long-term gains.