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Crypto News Updates

Bitcoin Is The Only Investment-Grade Digital Asset

Every four years or so, bitcoin’s seemingly cyclical nature rears its head and the rise of another bull market begins. There are headlines across mainstream media outlets boasting massive price action, and droves of people start coming out of the woodwork to claim that they have been long on bitcoin for years! However, there is also another, more nefarious cyclical event that inevitably surfaces as well. The seemingly irresistible allure of alternative cryptocurrencies, tugging at the minds and wallets of individuals who are looking to recapture what bitcoin has achieved.

Those who think they have missed out on bitcoin begin looking to compensate by finding the next big thing, because they are plagued with the mindset that they somehow have “missed out” on bitcoin. There’s no shortage of these dubious crypto assets that claim to be able to unseat bitcoin. They might declare to have faster transactions, cheaper fees or that they are capable of more complex applications. There are literally thousands of these coins, and they have all failed to dethrone the king for 12 years running. 

The truth is that none of them are even close. In actuality, when you look deeper than surface level, they are illiquid, insecure, centralized copycats perpetuated by bloated marketing budgets, seeking out dummies with deep pockets. They chase the wrong metrics, and are built with flawed incentive structures. Do not fall for the siren’s song. The reality is there is only one “investment-grade” digital asset — Bitcoin.

“100 out of 100 of the last conversations I’ve had with investors seriously looking to allocate, let’s say over 50 million dollars, 100% of those conversations have been about Bitcoin and 0% of them have been about any other crypto asset.”

Robert Gutmann, CEO of NYDIG

Crypto Copy Cats Will Continue To Fall Short

Silicon Valley startups go to sleep at night, and dream about building something that captures the massive returns that bitcoin has offered. Bitcoin has gone from being an idea on a white paper worth $0 to having a $700 billion market cap in just 12 years’ time. All with no funding. No CEO. No marketing team. Just the correct set of economic incentives, embodied in a robust protocol that continues to grow and adapt against all odds. What Silicon Valley’s tech crowd is failing to realize is that this is not solely a competition for who has the best technology or marketing strategy. Bitcoin is truly the first creation of digital scarcity, and was built in such a way that once its first version was released, it would never change.

“When tech workers see Bitcoin, they want to fiddle with different parameters: block size, monetary policy, it’s core capability/utility, etc. This is exactly the right mindset when building applications, but the wrong mindset when it comes to building the base layer of the financial system.”

Dan Held, “Why Silicon Valley Doesn’t Get Bitcoin

The tech contingent in Silicon Valley can continue to launch VC-funded cryptocurrency projects by the thousands. When they get their hands on these cryptocurrency projects, their first instinct is to tinker. They want to tweak and prod at existing structures and rules, or as the more commonly-used Mark Zuckerberg moniker states “move fast and break things.”

This is exactly the opposite of what you would want to do with the software underpinning a $700 billion financial network. Their efforts fail to realize that it is precisely these boring, slow and unchangeable characteristics of Bitcoin that make it so great. At its core, a base layer protocol that aims to be the foundation upon which an entire financial system is built should be exactly that. Rigid, slow-moving, precise and unchangeable.

Blockchain Buzzwords And Decentralization Theater

Crypto projects everywhere are trying to woo investors with marketing efforts, business partnerships and buzzwords like “blockchain technology.” Their marketing budgets may be large, but their words are hollow.

Many crypto projects love to plaster the term “decentralized” all over their websites and marketing materials, as if it gives their coin an air of legitimacy. Here’s the bad news: If your cryptocurrency has a website, a pitch deck, a marketing budget, an HR department and a CEO that can ultimately be called before Congress… well then, it’s not quite decentralized is it?

True Decentralization

Bitcoin’s code base is maintained by a widely-dispersed set of developers all over the world, and its network is made up of tens of thousands of individuals freely choosing to run its open-source software. With Bitcoin, there is no marketing budget. In fact, there’s no marketing department at all. There is no leader, no CEO and no HR department. Bitcoin does not have employees on a payroll. Rather, Bitcoin works by aligning human action through a series of elegantly-balanced economic incentives.

It’s decentralized. No company controls it. No government regulates it. It runs on thousands and thousands of decentralized nodes and the obvious thing it is, is an investment-grade safe haven treasury reserve asset.

Michael Saylor, Founder and CEO of MicroStrategy

Buyers are incentivized to hold, miners are incentivized to be honest actors, developers are incentivized to commit code, and network participants are incentivized to enforce the consensus rules of the network.

Bitcoin even has its brand marketing taken care of. There are thousands of evangelists, writers, podcasters and educational content creators alike who all feel compelled enough to take up the task best suited to them. Out of their own free will, they work to propel the network forward, and push for the mainstream adoption of this nascent digital asset because they believe in the protocol rules and monetary policy enabling a non-sovereign sound money to emerge on the free market. This is what true decentralization looks like.

More Than Just Technology 

Yes, at its core, Bitcoin is just code. It is a software program, widely dispersed and run on individuals’ computers. But do not let that confuse you into thinking this is solely about technology. Bitcoin’s success is rooted in monetary and social revolution as well. It is the antithesis of the debt-based monetary system we have today. Its network effects have propelled it outside of reach from any competitors for a myriad of reasons. Chief among those is its ability to incentivize humans to carry out the protocol rules via social consensus.

“The social layer and its rules are the heart of bitcoin. But the protocol layer makes them enforceable for the first time, while simultaneously making the social contract more credible to outsiders.”

Hasu, “Unpacking Bitcoin’s Social Contract

Image from Hasu’s article, “Unpacking Bitcoin’s Social Contract”

Entrenchment Is Growing

Regulatory Entrenchment: Entrenchment by both investors and regulators has gained significant momentum over the last several years. On the regulation front, we have seen the following individuals placed in prominent positions within the new administration:

  • Gary Gensler, U.S. Securities And Exchange Commission Chief: Taught cryptocurrency course at the Massachusetts Institute of Technology
  • Chris Brummer, Commodity Futures Trading Commission Chair (pending confirmation): Authored a book titled “Cryptoassets: Legal, Regulatory, and Monetary Perspectives”
  • Brian Brooks, Acting Comptroller of the Currency: Former chief legal officer at Coinbase, the leading cryptocurrency exchange in the U.S.

Institutional Entrenchment: Prolific investors like Paul Tudor Jones, Stanley Druckenmiller and the like have removed career risk for interested money managers. We have also seen an increase of adoption from hedge funds, financial institutions and publicly-traded companies like MicroStrategy and Square, which chose to allocate treasury reserves in bitcoin.

None of these significant players listed above are here to pump altcoins, or dubious VC-backed cryptocurrency projects. They are all here for Bitcoin and Bitcoin only. The main reasons for that are clear and obvious. Bitcoin is king when it comes to three core tenets of an investable asset — liquidity, security and the credibility of its monetary policy.

Bitcoin has grown and flourished for 12 years and counting. It has withstood network attacks, gained adoption and its heart has kept beating, cranking out a new block of transactions every 10 minutes. 

However, chief among all characteristics that make bitcoin the only investment-grade digital asset is the credibility of its hard-capped supply, rooted in its protocol rules since inception. It is the cornerstone of what makes Bitcoin the most significant alignment of computer science, economics and game theory ever discovered. There will only ever be 21 million bitcoin.

This is a guest post by Nick Ward. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

The post Bitcoin Is The Only Investment-Grade Digital Asset appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

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Crypto News Updates

In 2020, Bitcoin Was Significantly Derisked

2020 was unforgettable, especially for Bitcoin. To help memorialize this year for our readers, we asked our network of contributors to reflect on Bitcoin’s price action, technological development, community growth and more in 2020, and to reflect on what all of this might mean for 2021. These writers responded with a collection of thoughtful and thought-provoking articles. Click here to read all of the stories from our 2020 End Of Year Series.

In previous years, traditional investors and businesses had been averse to opening their arms (and wallets) to bitcoin. For many, it had too many unknowns, too much risk and too much baggage. Not to mention the mountains of hit pieces drafted up by mainstream media outlets deriding Bitcoin for a myriad of reasons: Bitcoin is just a ponzi scheme backed by absolutely nothing, they said. Bitcoin will be banned. It’s for criminals. Bitcoin is too volatile to be a good store of value. It will just be copied by someone else. Even legendary investor Warren Buffet threw his hat into the ring, stating that Bitcoin is “probably rat poison squared” at Berkshire Hathaway’s 2018 annual shareholder meeting.

But not only has bitcoin not gone to zero by 2020. This year has been marked by bitcoin adoption from renowned investors, hedge funds, financial institutions and businesses.

Each of the above narratives declaring Bitcoin dead continue to be toppled over time and time again. The more time you spend researching and learning about each of these alleged flaws of Bitcoin, the more obvious it becomes that they are without merit. 2020 proved that times have certainly changed. 

The risks associated with allocating to bitcoin have now been inverted. It is now more risky to not own any bitcoin and with each day that passes, seemingly more and more acclaimed investors, companies and institutions have decided to dip their toes into the water by taking up a position in bitcoin. Let’s take a look at some of the most notable recent examples.

Investors 

What do Paul Tudor Jones, Stanley Druckenmiller and Bill Miller have in common? They are all part of the growing list of prolific investors who are bullish on bitcoin. Let’s take a look at what some of them have had to say about it.

Paul Tudor Jones

In a letter addressing investors, Jones prefaced readers by outlining the massive money printing that has taken place so far in 2020. 

“We are witnessing the Great Monetary Inflation, an unprecedented expansion of every form of money unlike anything the developed world has ever seen.”

In his full letter, readable here, Jones went on to explain how he expects large amounts of capital to flow into safe haven assets to avoid this inflation. Bitcoin’s hard-capped, finite supply means it has extreme scarcity built in. It can offer an inflation-proof hedge against monetary and fiscal irresponsibility by central banks and governments.

“The best profit-maximizing strategy is to own the fastest horse. If I am forced to forecast, my bet is it will be Bitcoin.”

Paul Tudor Jones

Stanley Druckenmiller

The “bitcoin is digital gold” narrative has nabbed yet another convert. Druckenmiller is the latest high-net-worth investor to come out as a Bitcoin believer.

Druckenmiller ascribed this conversion to a similar investment thesis as Jones. He sees a bearish dollar scenario lining up for the next five to six years due to the massive stimulus measures taken by the federal reserve and congress. 

“Bitcoin could be an asset class that has a lot of attraction as a store of value,” said Druckenmiller in an interview on CNBC.

“I own many, many more times gold than I own bitcoin. But frankly, if the gold bet works, the bitcoin bet will probably work better because it’s thinner, more illiquid and has a lot more beta to it.” — Stanley Druckenmiller

Bill Miller

Bill Miller formerly managed Legg Mason Capital Management Value Trust Fund, and had beat the S&P 500 for 15 years. He has recently emerged as a bitcoin bull as well.

Voicing similar sentiment to those of Druckenmiller and Jones, Miller has stated that the Federal Reserve is “gunning the money supply” in his reasoning for being long on bitcoin. It seems to be an ongoing trend for the outspoken converts of 2020. The expectation is that unprecedented money printing will cause inflation, and that the hardest assets will benefit most.

“The Bitcoin story is very easy. It’s supply and demand. Bitcoin’s supply is growing around 2.5 percent a year and the demand is growing faster than that.”— Bill Miller

Companies

In 2020, Bitcoin became the elephant in the boardroom. In some cases, bitcoin is even being held as a “treasury reserve asset” by several publicly-traded companies. The spreadsheet on BitcoinTreasuries.org lists the companies that have begun allocating to bitcoin.

Source: https://bitcointreasuries.org

Perhaps the most significant company on this list is financial services and payments company Square, with founder and CEO Jack Dorsey stating that Bitcoin is an “instrument of economic empowerment and provides a way for the world to participate in a global monetary system.”

While Square’s sentiment may sound bullish, it was still dwarfed by business intelligence company Microstrategy’s move in August 2020 to put a whopping $425 million (85 percent of its treasury) into bitcoin. Microstrategy followed up by releasing a statement:

“Bitcoin is digital gold — harder, stronger, faster, and smarter than any money that has preceded it. We expect its value to accrete with advances in technology, expanding adoption, and the network effect that has fueled the rise of so many category killers in the modern era.” — Michael Saylor, Microstrategy CEO

As we look toward a highly-uncertain future, where loose monetary and fiscal policy seems to be the continuing norm, it wouldn’t be surprising to see this become a trend. More companies will be looking for an inflation hedge to preserve their capital in an era of massive monetary inflation.

Institutions

In October 2020, online payments giant PayPal announced that it would enable its 346 million users to buy, hold and sell bitcoin on its platform. After initially intending to go live in 2021, PayPal pushed up the launch date. It launched its bitcoin offering on October 21 and is already seeing significant demand.

Though PayPal joined the party in 2020, it isn’t the only financial institution to offer bitcoin to its users. Square’s Cash App is currently selling twice as much bitcoin than what is currently being produced by miners (with nearly three-times as many users, it’s likely that PayPal will be eating up the BTC supply at an astounding rate). And Grayscale has been a behemoth when it comes to gobbling up the newly-minted bitcoin supply as well, doubling its bitcoin holdings since the third quarter of 2019.

Source: Kevin Rooke

What About The Banks?

None of the information touches on the largest of financial institutions: the banks. Well, rest assured, because expectations are that traditional financial institutions could be getting involved soon enough.

The Office of the Comptroller of the Currency (OCC), which is a U.S. regulator of banks, recently offered regulatory clarity that could enable banks to get involved immediately, if they so desire.

“From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today,” per an OCC announcement from July 2020. “This opinion clarifies that banks can continue satisfying their customers’ needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency.”

What 2020’s Derisking Means For 2021

All of these recent events can help provide cover fire for any money managers looking to get involved with bitcoin. Publicly-traded companies, large institutions and big money investors getting involved in the game in 2020 helps remove the career risk associated with bitcoin that saturated in years past.

Bitcoin is no longer contrarian. In fact,  as of 2020, it’s becoming the consensus. It is becoming less and less difficult to get exposure to the new asset class. At the end of the day, it may well completely flip the risk profile associated with Bitcoin. If these well-established and respected names are now involved and you are not, then you may begin to believe that it is more risky to not have any exposure to bitcoin than it is to have just some.

This is a guest post by Nick Ward. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

The post In 2020, Bitcoin Was Significantly Derisked appeared first on Bitcoin Magazine.

Source: Bitcoin magazine