I got sent this blog post today written by some hedge fund manager.
He had done a 6x trade on Bitcoin, but then dumped it and moved his capital back into USD, because Bitcoin is “fundamentally worthless” and will soon go to zero.
I found this train of thought interesting – his estimation of Bitcoin being worthless, and USD being the safe haven.
What does “fundamentally worthless” mean? It means the asset can be created out of nothing (or at least at zero marginal cost), and is backed by nothing of value. This defines the USD.
This might also be why the USD is printed en masse, and has lost 98% of its value since it was first minted. Soon it will be 100%. As he rightly says, any asset that is fundamentally worthless will eventually go to zero. The USD is almost there.
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For an asset to be fundamentally valuable, it must be scarce and backed by something of value.
This is Bitcoin. Unlike the USD, Bitcoin cannot be created out of nothing. If it could, you and I would be doing it already, as would any other rational person.
It is also backed by 13 years of proof of work, arguably the most reliable backing a currency has had, ever.
This might explain why Bitcoin’s value has only ever trended upwards over time. Volatile, sure, but over its lifetime its value has only increased. If assets eventually revert to their fundamental value over time, my estimation is Bitcoin still has a long way (upwards) to go. And the USD will eventually go to zero.
If you’re going to choose an asset class to keep your net worth, are you choosing the one that is backed by nothing and has lost value its entire lifetime? Or the one that is backed by something and has gained in value its entire lifetime?
Of course Bitcoin isn’t perfect. Nobody is saying it is (or at least I’m not). It probably won’t be valuable forever. No asset class ever is. I’ll even concede there is a real possibility Bitcoin will end up worthless sometime in the future. But the USD is worthless now.
I do agree with him on one thing – one should move capital out of a fundamentally worthless asset class before it hits zero, and move it into a fundamentally valuable asset class. But by the numbers, he has the trade the wrong way around. You could argue otherwise, but you’d just be arguing with mathematics.
Jay-Z said it best:
Men lie. Women lie. Numbers never lie.