When most people look at bitcoin, they see an asset with a lot of volatility; the price in any fiat currency can move five, ten or even fifty percent in the space of a day. The volatility is the primary factor that tends to put off those looking to invest in the asset, even if it’s only a 1% allocation. I always find it funny when new people get into bitcoin, and they will be so fixated on the price volatility of 1% of their overall net worth. Yet pay little to no attention to the constant depreciation of the 99% of their net worth in other assets.
The issue with bitcoin is most people see it as a derivative of fiat, that you should put in an allocation and take it out when it’s overbought. But Bitcoin is not a stock; it’s not a futures contract, it’s not an option, it’s not an ETF, bitcoin isn’t some representation of fiat or future cash flows.
Bitcoin is a bearer asset, pristine digital collateral.
When measuring bitcoin in fiat terms, you tend to get a lot of noise and a lot less signal. You see the price moving up or down and attesting these movements to either a positive or negative sentiment. Yet the price of bitcoin is not a reflection of the assets value, only the meeting of buyers and sellers in different markets at a specific time.
The current price measurement of what sellers are willing to give up bitcoin for, the rest won’t be moving for any price close to today’s worth. Often, those willing to sell exhaust their supply, and we see bitcoin stabilise at a new price range, usually higher than it was before. Bitcoin has performed this leg up in purchasing power and relative fiat value systematically over its 13 years in existence and will continue to perform this way as long as the network survives. Bitcoin is designed to increase its value over time due to its number go up technology.
The lower your time preference, the better bitcoiner you become
Friends and family often ask me what the best or quickest way to profit from bitcoin is. Is it trading, is it lending it out for a return, is it mining, or is it borrowing against your bitcoin? The answer I constantly give is not one that many would like if their goal is more fiat over a short time. My answer is to lower your time preference. The longer your time frame, the more you’re willing to save today, the longer you’re ready to commit to bitcoin, the more you are rewarded in the future.
The simple art of hodling bitcoin has been one of the most profitable trades of the last decade, but it’s not easy.
- You’re constantly tempted to sell at a specific price and realise gains. You’re tempted continuously by alternative investments promising better returns.
- You’re constantly tempted to part with your bitcoin by friends and family with no conviction and remain fiat maximalists.
- You’re constantly tempted to part with your bitcoin mainstream media FUD articles.
If you want to try your luck at doing the bitcoin hokey pokey, putting your fiat in, taking your fiat out, and shaking it all about, be my guest. If you are going to try and trade these markets, realise that you are not only committing capital but time and labour you could have used more constructively.
If your goal is more fiat in the present, it means you’re actively looking to secure less bitcoin in the future.
Since my focus is on reducing my fiat risk, it means I’m actively looking to secure more bitcoin in the future. That’s why I always say traders are the ones who pay hodlers.
Saving in bitcoin
The fiat system has us constantly chasing more, we have to go out and earn the currency of our country, and because the currency loses value, we need to go out and make our money twice by investing it. Ask any person what they think they should do with their money, and they’d say invest it. How you invest is another story, but the notion that people think that risking your capital is the best way to preserve it speaks volumes about how the fiat system corrupts incentives.
Under a fiat system, we are pushed to either spend now or invest in riskier assets to try and make a return. We’ve forgotten that saving is still an option because you cannot effectively save in fiat.
Today people save in contracts, be that bonds, stocks, EFTs and real estate, because they perform slightly better than holding ordinary cash or borrowing out that cash for a return via a savings account. Saving in fiat is dead, which is why bitcoin was created, to encourage participants to save in a method that rewards the time value of money. As a bitcoiner, you’re storing your time and labour in an asset that’s only goal is to protect the future purchasing power and appreciate against items that are easier to produce than bitcoin.
Bitcoin is my savings account, and any excess capital I won’t need right now to live is put into the hardest money ever, and for my sacrifice, I am rewarded. By delaying my need to spend now, I secure better opportunities and optionality in the future. Options I would not have dreamed of, especially considering I earn a living in a third world currency.
Bitcoin gives everyone in the world the opportunity to own a piece of property that will save their wealth on a global level, compared to everyone else. There is no third party risk involved, such as the state of your national economy, no. Everyone in the world gets to save in the same medium and play by the same rules and, of course, benefit from it.
Spending in fiat
Bitcoin is not great for spending at the moment; sure, you can sell it off now to purchase goods and services. Sure, you could buy goods and services with your bitcoin, but why would you want to if you still have access to fiat. I understand if you’re all in and bitcoin is your only form of savings, you’ll have to reduce your stack of bitcoin to fund your lifestyle.
But if that is not the case, why would you consider selling or trading your bitcoin when you can still have fiat. Your goal with bitcoin is to save, while your goal with fiat is to ensure that your obligations are paid for in money that losses value, so you don’t fear opportunity cost losses.
When you spend bitcoin now, you risk losing purchasing power in the future; when you spend fiat now, you risk nothing; you realise the best return for that fiat currency in the present. Your goal is to spend the bad money and keep the good money until such a time where you run out of the bad money, or the good money is all you have left.
Most of us still live on a fiat standard; we have jobs that pay us in an inferior store of value. Still, we also have bills and expenses denominated in these currencies, so we need to hold an amount to service those obligations. As a bitcoiner, I try to ensure I consume less than I earn, that I cover all my fiat obligations and what’s left gets locked away into bitcoin for as long as possible.
I am actively getting rid of the currency I don’t need, but others want and trying to acquire the money that I need in the future.