Bitcoin is Not Dead

Rumors of Bitcoin's demise are once again unfounded

Bad Recent Price Action

The cascading collapse of highly leveraged crypto hedge funds and exchanges along with the process of forced asset liquidations will likely accelerate the evolution / consolidation of the industry. Much like the dot.com bubble, many companies with questionable business models in the crypto space were formed in the last 5-10 years and only the strong will survive. Bitcoin price continues to be under pressure with all the forced selling of assets. From my vantage point, the selling has been somewhat orderly and I don’t believe we are at the panic level yet. While there may be more downside in the Bitcoin price in the near term if there is more unwinding to do, I think Bitcoin price is at an attractive level for someone looking to accumulate through dollar cost averaging. The long term Bitcoin thesis remains unchanged, regardless of the bad short term price action.

In short, Bitcoin:

• Is absolutely scarce (21M)

• Peer to peer and can be transferred without a bank or other intermediary

• Can be self-custodied outside the banking system and has no counter party risk if held without leverage

• Is a hedge against fiat currency debasement / collapse

Not Your Keys, Not Your Coins

One hard lesson a lot of people have learned recently is that trusting a third party like an exchange with your Bitcoin either to store it for you or to earn a yield on it is playing with fire. Exchanges facing financial difficulty have started freezing customer withdrawals and yield-generating schemes (double digit yields that seem too good to be true) have been falling apart. Even supposed industry stalwart Coinbase could be on shaky ground (see below).

From the March Coinbase 10-Q filing: Moreover, because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors.

Now more than ever the case for “not your keys, not your coins” has been made, most recently with Voyager announcing on Friday they were halting trading, withdrawals and deposits on their platform. This is a very serious development since many people used Voyager thinking it was trustworthy and that USDC stablecoin balances which were paying a good yield were “FDIC Insured.” This is what someone posted on Reddit recently, saying “please pray for voyager to come back I may end my life if I can't get my savings back”:

Leverage

Another lesson is that leverage of any kind involving Bitcoin is dangerous and with the wild price swings you could end up losing your coins pledged as collateral. If you must borrow against Bitcoin, the loan to value ratio should be be very low to avoid losing your collateral and you definitely want to vet the lender to make sure they are reliable. Anyone left in business after this shakeout has a good chance of survival, but definitely do your research. As for Bitcoin put and call options, those are better left to the gamblers. I have lost count of how many people on Twitter I follow who have been wiped out on both sides of that trade, on the way up and on the way down.

Keep it Simple

A final lesson learned is that with Bitcoin, you don’t need to be fancy. At its core, Bitcoin is a savings technology. Over time its absolute scarcity will work to protect your wealth from currency debasement. Just buy small amounts regularly with cash, self-custody and relax. It’s actually liberating and you can shift your focus from worrying about your investments to something more fun or productive.

The Community

Another thing I have personally learned is that the Bitcoin community is very diverse with a lot of different views, but all are staunch supporters of the network. I have been impressed with the many very intelligent people in the space who bring their own unique perspective to the Bitcoin experience colored by their own personal and professional background. I have long believed that the Bitcoin community is one of the most underrated features of the Bitcoin network and it will definitely help continue to drive adoption and innovation.

My Journey

I started my journey by buying Bitcoin at almost the exact top of the last cycle at around $20K in December 2017. I was only investing a small monthly amount and I watched the price continue to decline, but I continued to buy each month. I’m proud to say that I have never sold a coin. But for all that time investing in it until early 2021, I didn’t really understand Bitcoin, I just thought of it as an alternative investment idea like gold. It wasn’t until I started watching some of Michael Saylor’s YouTube videos that I began to understand better what Bitcoin is. Then I started listening to podcasts, following Bitcoiners on Twitter and ultimately read The Bitcoin Standard (followed by many other books recommended by the Bitcoin community). By May of 2021, I was developing a much deeper understanding of what an incredible financial innovation Bitcoin is and in turn, my conviction developed along side my understanding. That’s when I started increasing my monthly purchases and also buying strategically on pullbacks with a goal of accumulating more coins over time.

The Road Ahead

We are clearly in a bear market now, but market conditions will change and the bull market will come again as it always does. Bitcoin price action will continue to be volatile and will surprise to the upside and the downside, just as it has from the beginning. But the fundamental value proposition of an absolutely scarce, self-sovereign financial innovation remains unchanged and those that are willing to take the time to understand it will reap the rewards. As the saying goes, “Everyone buys Bitcoin at the price they deserve.” So no, Bitcoin is not dead yet.

Not financial or legal advice, for entertainment only, do your own homework.  I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2022.  To see all my books on investing and leadership, click here.  

Always remember: freedom, health and positivity!  

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