The Greatest Bet in the History of the World | The Future of Money P13
A look at my thesis on how this asset, which is poised to disrupt all fiat money, has the potential to be the greatest investment in history.
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This is the final installment of my series The Future of Money.
Today, I’m going to share what I believe to be the best asymmetric in the history of the world (a very bold statement). The good news is it’s also a bet that anyone can make.
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Disclaimers and Risks
Nothing I say is financial advice and you should seek professional counsel before making any investments. Understand that this is a bet, and the very nature of such means the outcome is never guaranteed.
I believe one should plan for their worst-case scenario - write off the money they invest as a loss before making the bet due to the risk involved. If the money comes back, view it as a freeroll. Only allocating money that one can comfortably put within this framework seems like a reasonable way to avoid getting hurt.
Now, even though this is my personal favorite bet, it's not suitable for everyone. It's a rollercoaster ride with a lot of ups and downs, and not everyone enjoys that kind of volatility. It takes a certain type of person to embrace uncertainty and enjoy the journey.
How Asymmetric Bets Work
Before we get into the specific bet, let’s review some fundamentals. In order for a bet to be asymmetric it must have massive upside potential. The more the better. The beauty of longshot bets is one’s downside is capped at their investment (1x), and therefore, the bets with the greatest upside are always the most asymmetric.
In order to have massive upside, a product, service, or technology must have the power to disrupt a niche or marketplace. Investing in a cure for cancer for example would be an incredible asymmetric bet because the value placed upon (market cap) such a therapy is enormous.Â
Therefore, when being as audacious as attempting to find the most asymmetric bet in the history of the world, it’s imperative we specifically look for the industry with both the largest amount of wealth and the potential for disruption.
It’s a question worth pondering. Where is the most wealth concentrated?
Think about it for a second.
So, what’d you come up with?
AI?
A cure for cancer?
Biotech?
I challenge you to think bigger.
What about money itself?
The most amount of wealth is stored in our money supply. The global money supply is an estimated 120 trillion with the global bond market adding another 300 trillion.
I’d argue that part of the real estate and equity market is really just inefficiently allocated capital in desperate search of a yield to offset inflation, a phenomenon we won’t have on a hard money standard like Bitcoin.
Therefore, the most asymmetric bet in the world would have to be akin to a ‘startup’ with the power to disrupt the way we store value.
That bet is Bitcoin.
Bitcoin: The Greatest Bet in the History of the World
‘Nothing is as powerful as an idea whose time has come.’
Victor Hugo
Bitcoin is the greatest bet in history because it has the potential to disrupt the largest industry in the world: money. That's the story of Bitcoin summed up in two words: digital gold. Gold has been considered money for thousands of years.
As we discussed in this series, Bitcoin is a more efficient form of money with superior monetary properties. Throughout history, the most efficient money has always emerged as the winner.
Game theory incentivizes everyone to store their wealth in the soundest currency, and Bitcoin fits that bill perfectly. Bitcoin cannot be banned or replicated, making it a superior form of money. This means that Bitcoin could disrupt the world's money supply and become a new preferred store of wealth for the entire world.
Imagine the implications of that being true. (My last post sheds light on how the world may look on a Bitcoin Standard).
The first milestone for bitcoin is to exceed the market cap of gold, which currently sits at around 12 trillion. Bitcoin’s market cap by contrast is 600 billion, which means it would require a ~20x in appreciation to be on par with gold (putting the price of bitcoin at ~$600,000).
But what if Bitcoin actually becomes the world’s store of value due to its perfect scarcity, efficiency and it being the game theory optimal choice for society to converge upon as a chosen money?
It would mean the potential market cap of Bitcoin is at least equivalent to the world’s supply of money. There are several ways society measures this supply: narrow money (cash), broad money (all market accounts, easily convertible into currency), and debt (including corporate and government). The potential market cap of Bitcoin is to disrupt the broad money supply, which is roughly 120 trillion dollars.
To reach 120 trillion would require a 30,000x increase in price from here, putting the price of Bitcoin at $90,000,000 per coin. Eventually though, as I’ve argued before, Bitcoin won’t have a price. On its path to becoming global money, it’s first a collectible, followed by a store of value (where it currently resides), then a medium of exchange, and finally a unit of account.
In the future, all prices will be denominated in Bitcoin. At that point, Bitcoin’s value will be everything there is, divided by the 21 million coins that there will ever be. If it sounds like a lot to get one’s head around, that’s because it is.
Bitcoin is already the best-performing asset of the past decade. In 2010, one could buy one Bitcoin for $1. That investment would have produced a 30,000,000% return so far. But for Satoshi Nakamoto (who invented Bitcoin) and the early miners, the gains would be even greater.
Satoshi famously owns 10% of the Bitcoin supply, and his coins have never moved since they were originally mined. If Bitcoin comes to fruition and reaches a market cap of 120 trillion, Satoshi will be the richest person in the history of the world by a wide margin (his or her net worth would be ~12 trillion, or 45x Elon Musk, the world's current richest man).
Put simply, if one had bought or mined and held Bitcoin at inception, and it reaches its full potential of millions of dollars per coin, it will be the single greatest bet in the history of the world because it would have disrupted the single biggest store of wealth ever known to man: money itself.
Bitcoin is Binary
People love to tout how Bitcoin is in a bubble because it experiences 50% declines in price during flash crashes and market pullbacks. This is not to be conflated with Bitcoin being a scam but rather a natural part of price discovery in a free, unmanipulated market as members of society around the world are evaluating Bitcoin's potential as a store of value.
At a current price of ~$30,000 and a market cap of 600 billion at the time of this writing, Bitcoin is still in its infancy (like a toddler who has just learned to walk). People claiming it hit the peak are missing the narrative at play. The outcome of Bitcoin is binary. It's either money or it's not.
If Bitcoin is money, the upside is virtually unimaginable, and it will go down in history as arguably the single greatest discovery of mankind. Satoshi will be awarded the Nobel Prize. A completely borderless, decentralized, censorship-resistant, and permissionless universal money has the power to equalize opportunity around the globe (considering that 2 billion people don’t have access to banking).
January 9th would be celebrated globally as a liberating milestone, freeing humanity from the shackles of central banking, which has long perpetuated the siphoning of wealth from the lower and middle classes to the elite.
The road to get there will be bumpy.
As fiats fall like dominos around the world and people flood to store their wealth in Bitcoin, it will inevitably be blamed for the failure of fiat, when in fact, fiats failure is the result of an underlying flaw in a system that has never done anything but fails. In time, as it always does, the truth will prevail, and Bitcoin will emerge as one of the humanities greatest liberators.
However, the lack of understanding of economics, finance, and our global monetary system will confuse many along this path. Sadly, many people who are suffering the most from the fiat system will blame the thing (Bitcoin) that gives them the best chance of freedom, leading to more confusion, potential conflict, and revolutions, and slowing the rate of adoption.
Nevertheless, Bitcoin will persist because it stands as the most efficient form of money ever devised by humankind. In the realm of finance, the most efficient money invariably emerges victorious, as the nature of money is ultimately not a choice.
If Bitcoin is not money, it’s literally nothing greater than coded tulips, destined for worthlessness. In the long term, there is no middle ground. Bitcoin is either money or it’s not. This inherent asymmetry is what makes Bitcoin the greatest bet in the history of the world.
Bitcoin is a Global Call Option
In finance, options are used to make bets on the future direction of the market. A call option is purchased when an investor believes the market will go up. Options allow for asymmetric returns as they give one the ability to purchase the underlying asset at a set price on a future date. When betting on the appreciation of an asset’s price, one’s downside is fixed (1x) while the upside is unlimited. Â
An investment in Bitcoin is the equivalent of a call option on a new global monetary system. One is buying into a potential upside of ~100 trillion market cap for an event that is on pace to happen within a few generations for an asset whose market cap is currently 400 billion, or 0.004% of its potential.
What Is the Future of Money?
Will Bitcoin become money?
I’ve done my best to present in this series, but ultimately, it’s up to you to decide. I’d estimate I’ve spent 4,000 hours on this subject over the past decade, 500+ of which were in 2020 when I wrote this series.
The more I delve into this topic, the less certain I become about anything. It's only rational to acknowledge that we can't know for sure what the future holds for money. I would be skeptical of anyone who claims otherwise.
Since money is not a matter of choice, every member of society must decide where to secure their wealth. This decision resembles a game of poker, where we possess incomplete information (we can't see all the cards), yet we're compelled to place our bets. Many individuals wrongly assume that holding cash is opting out of making a bet simply because it's the default option.
We have been conditioned to perceive the U.S. dollar as a "safe haven" asset. While it has played this role traditionally for the past 75 years, we must remember that every instance of fiat currency throughout history has either failed or experienced a 99% devaluation. This tendency to give greater importance to recent events, known as recency bias, leads people to conflate something being a traditional "safe haven" with it being inherently "risk-free" in perpetuity.
Holding cash is indeed a bet, albeit on fiat currency. As fiat is destined to lose value over time due to inflation, storing wealth in fiat is akin to folding every hand in a poker game and allowing the blinds and antes to erode your stack until you eventually bust out of the tournament. If the definition of insanity is repeating the same actions while expecting different results, then why would anyone choose to store their wealth in cash?
‘Cash is trash’.
-Â Â Â Â Â Â Ray Dalio, CEO of Bridgewater, most successful private hedge fund in history
If fiat currency is an assured losing bet, why do so many people still make it? Sadly, many individuals have no alternative as they live paycheck to paycheck and must hold onto what little cash they possess.
This is why inflation is particularly insidious, as it disproportionately affects the poor who lack the means to preserve their wealth in tangible assets that appreciate in value due to inflation.
Others cling to cash because it offers known results, and with certainty comes comfort. This reinforces my theory that people harbor such a strong aversion to the unknown that they will sabotage their long-term best interests to avoid temporary setbacks or uncertainties in the short term.
Should You Bet on Bitcoin?
I can’t tell you what to do.
Only you can decide if Bitcoin is a bet worth making. As I’ve said before, just because a bet is profitable (which I believe Bitcoin is), doesn’t mean it’s suitable for everyone. One must also possess financial responsibility and the ability to withstand volatility. If you can't handle significant pullbacks of 50% or more, then Bitcoin is likely not the right choice for you.
In my view, investing in Bitcoin requires belief in two fundamental principles:
Bitcoin has the potential to become money.
It’s a highly profitable bet with asymmetric reward/risk.
A conviction about the above does not alone mean one should invest for the reasons we discussed before. Absent the above, it seems foolish to speculate.
For those who agree with the principles above, the next step is to plug in various hypotheticals (Bitcoin’s probability of success and its potential price) to determine if a Bitcoin bet is profitable. Only if one concludes that it is, then, one can consider the appropriate size to choose based on their risk tolerance and individual life circumstance.
In order to believe money can be disrupted, one must hold two beliefs: that all fiat currencies eventually fail and that things inevitably move toward efficiency over time. Put another way, that independent economic actors will eventually choose the best option to store their wealth. It’s up to you to educate yourself on what that form of money is, and whether it will play out this way.
Conclusion
Throughout history, fiat currencies have failed largely due to hyperinflation. This process begins when a government either debases the currency (in Rome, they melted the gold and replaced it with copper or simply clipped the edges of the coins) or prints it into oblivion (as in Weimar Germany and Zimbabwe).
Game theory teaches us that when this happens, independent actors will always choose gold and silver to store their value as it’s the Nash equilibrium choice, the hardest form of money.
We now live in a world that runs entirely on fiat with unprecedented levels of money printing. It’s above my pay grade to pretend I know how and when this will turn out.
The final question for you to ponder is this: is it possible that society will choose a new type of money, the most efficient one ever created, to store its wealth?
Time will tell. In the meantime, I’m stacking sats.
AlecÂ