Orange Pilling Your Parents
It's not as easy as it sounds
After a recent visit with my parents, where I attempted to explain Bitcoin to them as a superior monetary asset, I realized that I failed miserably. This was especially disappointing since my Mom read The Bitcoin Standard by Saifedean Ammous, which is my go-to book for orange-pilling. Almost anyone I tell to read The Bitcoin Standard contacts me afterward about the best way to buy and hold Bitcoin. Never fails. Until now. Since they recently retired, and in light of the current state of banks, financial markets, the economy, etc. we ended up talking a lot about wealth preservation, including:
Protecting cash in the bank and getting a better yield by moving excess funds to short-term Treasury Bills purchased through Treasury Direct
Buying gold for excess savings - OneGold is a good starting point that I have used and so have some of my gold bug friends
Owning real estate (i.e., your home) with the goal of being debt free at some point, even though you will always be dealing with property taxes
This conversation led me to think about how to get someone from that generation to better understand Bitcoin and I landed on a simple comparison to gold. From there, talking about self-custody and finishing up with a comparison to real estate seemed in order. Here’s what I came up with:
Why Bitcoin (or Gold)
First, let's talk about gold. Gold is a precious metal and a commodity that has been used as a store of value and medium of exchange for thousands of years. People have always valued gold because it's rare, durable, and difficult to counterfeit (though not impossible - tungsten has been used as “filler” for gold bars, since it has a similar weight but costs much less). As a result, gold has held its value over time and has been used to back currencies and investments.
Now, let's talk about Bitcoin. Bitcoin is a digital currency that was created in 2009. It's often referred to as a cryptocurrency, but it's also considered a commodity, similar to gold. Like gold, Bitcoin is scarce, durable, and impossible to counterfeit, but instead of being a physical metal, it's a digital asset that exists on a decentralized network of computers.
Bitcoin is created through a process called mining, where powerful computers solve complex mathematical problems to verify transactions on the network. When a transaction is verified, new Bitcoins are created and awarded to the miner who solved the problem. This process helps to maintain the security and integrity of the network, as it prevents anyone from tampering with the transaction history, which is immutable.
Because Bitcoin is decentralized, it's not subject to the whims of governments or central banks, which regularly devalue currencies through inflationary policies. Furthermore, Bitcoin has a fixed supply, with a maximum of 21 million Bitcoins that can ever exist. This makes it even scarcer than gold, which can still be mined from the earth (there’s also a lot of gold in asteroids, which is a whole other rabbit hole). As a result, some people believe that Bitcoin may become even more valuable over time as its scarcity becomes increasingly apparent.
However, it's important to note that Bitcoin is a relatively new asset compared to gold, and its price can be volatile. While it has outperformed many traditional investments over the long term, it's also experienced significant price swings in the short term. As a result, owning Bitcoin can be a way to diversify your portfolio and protect against market volatility.
In summary, both gold and Bitcoin are considered commodities that can be used as stores of value and hedges against inflation. They are scarce, durable, and difficult / impossible to counterfeit. However, while gold has a long history of being used as a store of value, Bitcoin is a relatively new asset that has many superior properties to gold, including improved ability to transport and transact, greater scarcity and ease of storage. By including both gold and Bitcoin in a well-diversified portfolio, you can potentially reduce your overall risk and increase your potential for long-term growth.
Self-Custody
Gold and Bitcoin are both valuable commodities that can be used as a store of value and hedge against inflation. However, to fully reap the benefits of these assets, it's best to hold them in self-custody, which removes counterparty risk.
When you hold an asset in self-custody, it means that you have complete control over the asset and don't need to rely on a third party to hold it for you. This is particularly important when it comes to assets like gold and Bitcoin, which can be susceptible to fraud or theft.
In the case of gold, holding it in self-custody typically means storing it in a secure location like a safe deposit box or a private vault. This ensures that you have physical possession of the gold and reduces the risk of theft or fraud.
Similarly, holding Bitcoin in self-custody means that you have control over your private keys, which are used to access your Bitcoin holdings. This removes the need to rely on a third-party custodian like an exchange and reduces the risk of theft or hacking.
In addition to the benefits of self-custody, Bitcoin has some advantages over gold as a store of value. One of the biggest advantages is that a large amount of value can be easily stored and transported instantly, whereas physical gold is heavy and difficult to transport, store, and transact in.
Moreover, Bitcoin has a fixed supply, and its scarcity is mathematically guaranteed. In contrast, gold mining is subject to discovery and new deposits. As a result, Bitcoin has the potential to be an even more effective hedge against inflation than gold over the long term.
Bitcoin vs Real Estate
Real estate is a physical asset that has been used as an investment for centuries. It's a tangible asset that provides shelter, generates rental income, and can appreciate in value over time. Real estate has the advantage of being a more stable investment compared to stocks, and it can provide a steady stream of passive income.
On the other hand, Bitcoin is a digital asset that has only been in existence for a little over a decade. It's a highly volatile investment that can experience significant price swings in the short term, but has shown significant long-term growth potential. Bitcoin can also serve as a hedge against inflation, and its scarcity is guaranteed by its mathematical design.
One of the key advantages of real estate is that it's a tangible asset, which means that investors can see and touch the asset. Real estate can also generate rental income, which provides a steady stream of cash flow that can be reinvested. Moreover, real estate investments are often seen as a hedge against inflation, as rental prices can increase over time.
In contrast, Bitcoin is a digital asset that cannot be touched, and it doesn't generate any income on its own. However, it can be easily stored and transported, making it a more convenient investment for some investors. Moreover, Bitcoin has shown significant long-term growth potential, outperforming many traditional investments over the past decade.
Another difference between real estate and Bitcoin is the level of accessibility. Real estate is a high-cost investment that often requires significant capital upfront, making it inaccessible for some investors. Bitcoin, on the other hand, is much more accessible, and investors can purchase even a small fraction of a Bitcoin with just a few dollars.
Another advantage of Bitcoin over real estate is the level of liquidity. Bitcoin can be bought and sold on exchanges 24/7, allowing investors to easily enter and exit their positions. In contrast, selling a real estate investment can be a more time-consuming process that requires finding a buyer and going through the legal process, including using several intermediaries, all of whom must be trusted to complete the transaction. Bitcoin is also not subject to property taxes and can be moved to a different jurisdiction, unlike real estate.
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 Bitcoin Fortress in 2023. To see all my books on investing and leadership, click here.
Always remember: freedom, health and positivity!
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