Why Bitcoin Will Moon
If you’re on the sideline wondering where bitcoin will go, we’re about to demystify it.
Warren Buffett famously described bitcoin as “rat poison squared” and a major reason for that view was the cryptocurrency’s failure to produce cash flows, or anything else really.
Buffett was viewing bitcoin more like an asset than something more elementary, a currency. And in that subtle difference, the reason why bitcoin is likely to moon can be seen more clearly as we’ll explain.
Key Points
- Warren Buffett dismisses Bitcoin as “rat poison squared” due to its lack of cash flow and tangible value.
- Bitcoin counters government control and infinite money printing by being a decentralized currency.
- Early recognition of Bitcoin’s value could lead to lower purchase prices before potential long-term gains.
Why Looking Back Reveals Bitcoin’s Future
A few thousand years ago if you had a few cows and needed some staple for food, you might have exchanged milk for the food. The transaction is problematic from the outset because it’s localized between you and the farmer selling you the food. It can’t be scaled.
Enter coinage. A medium of exchange where you’re not limited by how many cows you have or the amount of food another farmer has to barter. Now you can both agree on the price of milk and food and exchange.
Then came government, who decided to shave off a little of the metal on the coinage and create an alloy, debasing the coin’s worth, and hoping the people wouldn’t spot the loss in value. Over time, even empires like Rome collapsed from such “theft”.
Fast forward to present times and the same thing happened when coming off the gold standard. The Federal Reserve had the opportunity to create an infinite supply of capital and debase the value of each dollar, albeit slowly over time. As a result, asset prices go up in dollar-denominated terms, and we call that inflation.
Now there is talk of a digital currency that keeps track of your transactions. And that’s where the problem lies, and where the seed of the biggest argument for bitcoin lies.
Imagine a world where a government that controls an infinite supply of money also gets to attach rules to the use of that money. Did you fail to pay a tax liability on time? Electricity gets cut off.
That’s the end-game some have argued is likely when a government both issues a currency and monitors how it is spent. And it’s where bitcoin stands apart as arguably the only solution that solves the problem, precisely because it is decentralized. Nobody can control it, not even the government, and least so say the bulls.
Bitcoin separates government issuance of money from government tracking of how it is spent. Yes, bitcoin ledgers mean tracking transactions remains but should the government continue to print dollars at present rates, the limited supply of bitcoin alone should lead it to soar over the long haul.
What’s a Good Price To Buy Bitcoin
Michael Saylor has argued that everybody gets to buy bitcoin at the price they deserve and it’s an astute observation.
Those who understand the fundamental value of bitcoin as a scalable alternative to the barter system from thousands of years ago, and an alternative to the infinite money printing of government, and the only way to escape a tracking and control of a currency by government are likely to get in at lower prices than those who realize too late how no other such alternative exists.
So, while bitcoin is way up compared to its early days, and certainly the bulk of the gains in percentage terms are in the past, the future may still lead to enormous upside for those who stick with it over the long-term. Perhaps the biggest risk to the thesis is the stroke of a government pen, such as a President choosing to outlaw it.
