Dec 15, 2020
Why investing in stocks or real estate is risky compared to bitcoin in long term?
The best use of 15-minutes spent in your investment life.
Bitcoin is a revolution in the world of finance, which questions our fundamental beliefs about money and investments
On the face of it, Bitcoin looks very similar to a Ponzi scheme
- The only way you profit is if someone buys it for more
2. There are no cash flows for investing in bitcoin
These two are the classic red flags of Ponzi schemes, isn't?.
However, unlike a typical ponzi scheme which goes bust in 2–3 years at the best, Bitcoin has been running non-stop for last 11 years ( which is a record NO BANK can claim , Not EVEN the best banks in the world can claim it). Usually, most ponzi schemes get shut down by government in few years, which effectively means most investors lose money.
However, in the last 10 years the value of Bitcoin keeps going up from $1 to $24,000 Now reaching a mind boggling $500 billion Market cap. There’s is no company or asset in the history that grew this big this fast.
Bitcoin believers say it’s just getting started
something really interesting must be going on with Bitcoin
Why is Bitcoin the safest investment of all?
This probably is a hugely contradictory statement for a common person who is used to all the insane volatility that bitcoin attracts and all the hacks that attract cryptocurrencies.
please watch the Interview of Michael Saylor CEO Micro strategy who invested $425 million in Bitcoin.
This interview is one of the best explanations of why bitcoin is the best bet ever.
Assuming that you have the seen the above video, I will still add my 2 cents about why Real estate and stocks are terrible investments compared to Bitcoin.
Before the invention of Fiat currency, Gold was considered Money which meant it couldn’t be taxed nor could govts print unlimited amounts of it like modern fiat currencies. Since gold wasn’t taxed, both the rich and poor simply invested their life savings in gold and Gold offered the best investment strategy both for the rich and the poor, for this reason, Gold held tremendous investment value over generations.
But ever since the invention of Fiat currency, Gold was demonised by governments slowly but surely.
However, even today Gold still remains a very popular investment option with the poor (as they are not forced to pay capital gains tax or other taxes). The unfortunate effect is that massive investments controlled by rich has flowed out of Gold to other assets like Real estate and stocks. This is the biggest reason for gold occupying a tiny 10 trillion value in the global 250 trillion investment world ( real estate, stocks & bonds )
If there was an asset that is universally appealing for Rich, poor and middle class and offered gold-like properties ( like scarcity and fungibility), it can attract almost a mind-boggling $250 trillion.
why is real estate sucky?
Even though real estate occupies the largest pie of Global investments, the success of real estate investments depends on various factors and is one of the most illiquid investments ever. Real estate is also not scarce at all unlike say Gold, high-quality art or high-quality stocks.
You may fall in love with your newly acquired penthouse apartment, but by next year, you will have five neighbours building up next to you, which in-turn decreases the scarcity value.
The main appeal of Real estate is its physical which gels with the psyche most of the middle-class house-wives who control the purse strings of household investments.
The flip side is this since Realestate is purely physical, it offers Governments an incredible amount of control. This is the reason why you pay the largest amount of taxes for investing in real estate (especially if you are investing more than say $1 million). Not to mention if things turn bad for the economy, Govts can always jack-up taxes on your second home with a stroke of a pen, this is the reason why most Rich people don’t go gaga over Real Estate.
The best real estate investments generally barely keep up with ‘Real Inflation’ once you consider the taxes into the picture.
Why are stocks risky?
Everyone knows investing in stocks is risky, most stocks are unreliable in long run and even the best ones like say Apple or Microsoft etc will eventually be regulated so much so that they lose their sheen.
100 Years ago Electricity companies/ railroad companies were stock market darlings, after decades of profit squeezing regulations, these stocks don’t even appear in S&P 500 anymore. Assuming stocks to perform well for decades is simply foolish, not to mention picking winners is extremely risky. Stock markets are tightly controlled by the government and in most countries, govt routinely jack-up taxes on stock investments year or year.
Again if there’s an asset that Rich, poor and middle class can invest, that asset class can explode to 250 trillion market cap, which Bitcoin is uniquely positioned for.
Gold vs Bitcoin / Kodak vs iPhone
Before the invention of iPhone, Kodak was a blockbuster stock with seemingly unstoppable cash-flows, however the invention of iPhone with its ability to digitize pictures has bankrupted Kodak.
Digitization has incredible advantages which give the underlying network huge value.
There are millions of merchants (both online and offline ) that accept the digital gold i.e Bitcoin and that number is increasing every day, there are zero merchants in the world that accept physical gold, this is the power of digitization.
Setting up a crypto gateway for accepting payments is so incredibly easy and so convenient that it can be done in less than 10-minutes (Cryptocurrencies don’t treat businesses like criminals).
This in my mind is killer feature of cryptocurrencies
Bitcoin runs on the internet which is accessible universally opening doors for investment from everyone covering 99% of the world’s investors.
What doesn’t kill you makes you stronger
In the 21st century, most Govts across the world have an iron grip on financial markets ( stock market brokers, banks etc) and are keenly aware of the disruption that is being caused by Bitcoin ( and other cryptocurrencies ), however, none have so far come up with a coherent/ winnable strategy to kill Bitcoin ( or any other crypto ).
The mighty US government which routinely shutdowns many financial entities for non-compliance ( aka not following its arbitrary rules ) has finally accepted its defeat in defeating Bitcoin ( https://www.forbes.com/sites/billybambrough/2019/10/08/the-us-government-tried-to-shut-down-bitcoin/?sh=4494363c1966 )
Ironically, This ability of un shut-downability of Bitcoin is arguably is the biggest USP / value proposition of Bitcoin and what gives it a value of $400 Billion ( as on Dec 2020).
Suddenly, a global uncensored monetary network for the 21st century is born.
A network that has no borders, that doesn't take a break on weekends as your bank does.
A network that only abides by Code and one that cannot be regulated by any politician.
This network is native to the internet and can be programable so a million apps can build on it,
If you thought internet bought in crazy revolution and wealth, Bitcoin/ Crypto will be 100 times that.
Why Bitcoin can’t be shut down or regulated?
Bitcoin runs on a system of decentralised ledgers and operates by private key cryptography, where the holder of the key ( 60 character password ) is the only person that has the final say in utilising these funds. No banks or trust in govt is needed, nor can they stop it.
As more people start using/investing in Bitcoin, its values goes higher as its value goes higher more people get attracted to it and the decentralisation effect of its network becomes larger. This is a powerful feedback loop that has locked-in over $400 billion dollars in a network in just 10 years of its birth. Unlike traditional investments, Bitcoin network that doesn’t give any future cash-flows, for this reason, Bitcoin is often compared to Digital Gold
Now, Unlike Physical gold, Bitcoin can be sent across the globe at speed of light using the internet. Imagine this, If you ever wanted to move gold worth billion dollars across the world, it will take an army of lawyers plus an actual army which will cost you upwards of 10 million dollars or more, with bitcoin however it can be done in a couple of clicks and for less than $1.
Cryptocurrencies, for this reason, has tremendous use cases across the world. The entire world the 7.5 billion people can take part in a single financial network.
Bitcoin is basically the unstoppable, uncensorable, unregulatable Gold for the Rich, Powerful and the croooked ( pun intended).
In 10 year history of Bitcoin, its market-cap went from zero to 400 Billion dollars, while reaching to 100 million users so far. Govt across the world have tried finding ways to regulate it and stop it very hard, however, none have seen any success so far. Once you really really really understand that it’s impossible to stop or regulate bitcoin, the value of Bitcoin becomes clear as a day.
Take a moment to appreciate the fact that Bitcoin cannot be regulated again ..lol
Bitcoin chart
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why Bitcoin can’t be banned?
A ban of bitcoin results in what analysts call Streisand effect, wherein once the ban is enforced let's say its results in massive PR and news hype about Bitcoin which will reach every nook and corner of the country as everyone wants to avoid this crime. This will be the biggest PR that bitcoin can ever aim to receive. Not to mention, by now people would start questioning the legitimacy of Bitcoin Ban,
Average folks don't care about AML / KYC /Inflation and other esoteric concepts, they will never agree for average citizens getting arrested for possessing cryptocurrencies
Read this article for complete info about why Bitcoin can never be banned a Must read, please
Why Bitcoin cannot be seized legally?
As mentioned previously the owner of Bitcoin is the owner of this very long password ( or private key ) this can be encrypted using a simple password of your choosing on your mobile phone or can be stored on Hard-wallet mentioned below.
Now if a govt chooses to seize your Bitcoin they need your co-operation in revealing the password that controls your Bitcoins, Forcing you to give password forcibly is considered
Breach of your First amendment Right of Freedom of Speech
Not just in the USA but in many countries across the world.
Forcing users to give up information in their head is illegal in any civilised country.
To the gold bugs out there, this is a big killer feature of Bitcoin, Govt can seize your gold without any hassle ( which they have done in the past multiple times ) as gold is not an asset that resides in your mind and exists physically.
Not to mention, moving bricks of gold attracts lots of bells and whistles all over the place, unlike Bitcoin which can be moved across continents without much of a hassle and cost.
Even though Govt can never seize your bitcoin forcibly, hackers and other bad actors can, so you need to understand how to protect your crypto wealth
Security situation with Bitcoin has rapidly improved so much so that recently billion-dollar institutions are now getting comfortable with investing in Bitcoin which was not expected just a few years back.
Hosting on exchanges comes with its risk, and I personally recommend only coinbase.com the most audited and most regulated exchange based in the US, unfortunately, they only operate in the rich world and if you cannot access them the best option is self-custody.
What is the Bitcoin IQ test?
Bitcoin IQ test is a phrase used by bitcoiners to decide whether one is smart enough to invest in bitcoin.
Since Bitcoin is such a new asset in the investment world, there are no ETFs or index funds that you can be a part of to invest passively ( at least not for your average investor), so the only option left is for you to do research and execute investment individually.
There will soon be a day when most fund managers will invest on your behalf, but when this happens the price would have risen 50–100 times, now this is the price you pay for your lack of risk-appetite or curiosity.
Having said that, Given the nearly global adoption of the internet, its fairly easy to bounce up on Bitcoin and get yourself acquainted with it, understand it and even invest in it. There are tons and tons of material on youtube talking about the same.
As with everything in life, most people are slow to adopt new things, only 1% of people have the intellectual curiosity to look out for new things and when it's concerned with unknown investments like bitcoin most people simply shy off.
Conclusion:
The Macro picture
Worldwide governments are printing money like crazy and this is the reason why there is major asset inflation in the world.
Reckless money printing means the money you hold in your bank gets valued lower and lower
30 years back a home costed about $10,000 but the same home now costs $1,000,000 . However should you decide to sell the house govt will charge Capital gains tax on this sale ( $1,000,000 -$10,000 ) * 30% ) even though in reality you haven’t made any real return per se.
This is why Govts world over LOVE inflation, The more the inflation the more tax they collect on asset inflation.
( Now the rich are aware of this and so they move their assets to Tax-friendly jurisdictions like hong kong, singapore, London city etc and manage investments from there)
As govts print more money and as more people see the value of Bitcoin, the price keeps shooting up.
As price keeps shooting up, more people will start investing in Bitcoin until the majority of world’s investments get sucked into Bitcoin, This is called hyper-Bitcoinization which is expected to happen in the next 10–15 years.
Can Bitcoin become a Global reserve currency?
Reserve currencies are what countries keep in their treasury to pay for their imports etc. For the last 70 years or so Most countries kept US dollars as the reserve currency as it was the most dominant currency globally. In order to acquire US dollars, Countries deposited their gold with the US and acquired dollars in return, as there is no Gold based settlement network.
Even though this worked reasonably well, the US has increasingly used its ‘Reserve currency’ status to punish its rivals and push its global hegemony further. Even though most countries don’t support US weaponing dollar, up until now they do not have an alternative Global payment / settlement network.
Bitcoin comes with its own payment network which can be used by countries to pay for imports without much hassle so long as the other country is ready to accept Bitcoin. Instead of using US dollar and trusting it to keep their gold safe and sound ,using Bitcoin will work out to be a much safer alternative for any country doing business internationally. We are already seeing few internationally sanctioned countries like Iran using Bitcoin for their trade.
This is another very powerful feedback loop that will push the price of Bitcoin higher and higher.
Even though most govt’s don’t like offering financial freedom to their citizens, they themselves don’t like being controlled an overlord like US, fortunately govts don’t abide by arbitrary regulations like KYC / AML /FATCA etc when doing business with other countries, so sooner or later they will adopt Bitcoin for doing business.
If Bitcoin indeed replaces US dollar in the global trade, the value of Bitcoin will reach 10s of trillions of dollar easily.
What is the Bitcoin IQ test?
The only solution for this issue is education & more education, spend a good amount of time understanding bitcoin and invest only after that
or
you can wait till 99% of the world invests in Bitcoin, however you will pay the price in terms of price of Bitcoin which would have risen 100–500 times by then.
Disclaimer: The following information is purely for educational purposes only and cannot be considered as financial advice. The author cannot be held liable for your losses. Never invest more than what you can afford to lose.
