Bitcoin, The Modern Gold Rush

Do you know about the 4 year cycle?

** Disclaimer ** The below references my opinion and is for information purposes only. It is not intended to be investment or financial advice. Seek a licensed professional for investment or financial advice.

I wrote this for my family and friends to show them why I believe bitcoin is worth looking into and to try to help answer their questions. I am no expert, I have just been able to listen to a lot of podcasts lately. Please do your own research (DYOR). I think it could help others so I am sharing it. Bitcoin community, please send corrections so I can update! Thanks, Delly

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The Modern Gold Rush

I grew up in a town called Maryborough, Victoria, Australia in the Central Goldfields Shire. It’s about a 30 minute drive from where the World’s biggest golden nugget was found, the Welcome Stranger in 1869. I have heard stories about this time period and have always wondered what it would be like to grow up in the gold rush era. With what I’m learning about bitcoin, now I feel like I am.

My first bitcoin purchase was at the beginning of January 2018. I bought a small amount of the cryptocurrency that is a digital store of value at the absolute top of the market. I only knew that it was going up fast and there were only 21 million bitcoin. Unfortunately, I did not spend the time then to dive deeper and really try to understand why bitcoin is important.

Moving forward to the middle of 2020, I started looking into gold as an investment when I couldn’t figure out why the stock market was continuing to go up when so many people weren’t able to work due to COVID. This eventually brought me back to look into bitcoin. Luckily, I have been curious enough this time to dive deep and learn as much as I can. I’ve gone into detail about what I’ve learned so far below. I am hoping this helps you dive a little deeper too and/or is another resource to help you explain bitcoin to your family and friends.

Gold 2.0

To better understand bitcoin, it’s important to understand gold. Gold is so valuable because, apart from its many uses, it has been a proven store of value for thousands of years. A good store of value is something you can put your money into and you will still have the same amount of purchasing power in the future. If you measured the stock market’s value in gold (and bitcoin), it is down over the last 3 years even though it is way up in dollar terms, as Mark Yusko explains below.

Bitcoin is emerging as the new store of value for the whole world. It has some advantages compared to gold:

  • Easily verifiable- All public on the blockchain. Gold you have to melt down to make sure it is real, someone can’t send fake bitcoin.

  • It’s more scarce- The supply of Bitcoin can’t be increased (there will only ever be 21 million total Bitcoin). The supply of gold increases about 2% on average every year. If there is more demand for gold, miners can invest more in trying to meet demand.

  • Easier to send -Bitcoin can be sent easily from person to person using your phone or computer. It is a lot more complicated to send a gold nugget from the USA to AUS.

  • Easier to divide up -There are 100,000,000 satoshis (sats) in 1 bitcoin (BTC). You can’t divide up a gold nugget and send $10 to a friend.

For market size reference, all of the gold in the world has an estimated value of around 11.5 Trillion US dollars (40% of Gold is for Financial use) as the World’s reserve asset (store of value) for 1000s of years. Bitcoin is about to cross 1 Trillion US dollars and has been around for 12 years. Most countries around the world hold gold in their reserve assets, I think they will eventually HODL (bitcoin slang for hold) bitcoin as well, if they don’t already.

I feel extremely grateful to be growing up in a modern gold rush.  


Inflation = Increases In Prices

To better understand why there is a need for a store of value, like Bitcoin, you have to understand inflation. The stated goal in the USA by the Federal Reserve is to have 2% inflation each year. That means each year that goes by you’ll have to spend more dollars to buy the same good or service. Inflation is why the price of your favourite chocolate bar costs more now than when you were a kid.

The rise of bitcoin is set against the back drop of unprecedented fiat money printing/creation from all the countries around the world (which they did to try to help people get through COVID). Some estimates say 22% of the total M1 money supply in the USA has been created in the last 12 months.

Unfortunately, a lot people predict this will and seems to have already caused an increase in prices (inflation) of the below things. The result is more money in the system chasing the same amount of assets which drives the price higher.

Interest rates are also at all time lows which enables individuals, businesses, and governments to take on more debt for lower repayment costs. This contributes to and increases the wealth gap due to something called the Cantillon effect - where wealthier people get access first to this new, cheaper money. Great thread by Sahil Bloom below.

Some people have suggested that the Chapwood Index (@crypto_martian) is a better measure of inflation than CPI (Consumer Price Inflation). Below is how the Chapwood Index measures inflation.

Over two years, we collected data from friends and associates across the country on over 4,000 items to see what they spent money on in their daily lives.  We then narrowed these items down to the top 500 most frequently used and relevant items. Those items became the basis of the Chapwood Index.

Every six months, we take the precise price for the same item quarter by quarter and calculate the increase or decrease, then developed a weighted index based on price. These items include basically everything that most Americans consumer during the course of their lives.

The Chapwood Index has a different inflation rate for each city in the US. They put most cities’ inflation rates over the last 5 years in the 7-12% range.

Michael Saylor (MicroStrategy CEO who has bought 71,000+BTC for his company) talks about how everyone’s personal inflation rate is different depending on what you’re buying in an incredible podcast with Preston Pysh. For example, the inflation rate for a college kid living with his parents (tuition, netflix, take away food) will be different than a family of 5 looking to buy a house (house, healthcare, baby supplies).

In Australia, property prices have grown at a compounded annual growth rate of 7.7% in Melbourne and 6.95% in Sydney over the last 40 years (h/t Ben Kingsley, Property Couch Podcast). If you want to buy a house and prices are going 6-7% a year - that goes into your personal inflation rate along with anything else you want to spend your money on in the future. It makes it really hard to save for a deposit if your wage isn’t growing at that same 6-7% rate each year.

When a house goes up in value with no improvements made, it’s not the house that is getting more valuable, it’s the land that the house is on. Land is a scarce asset like bitcoin, people can’t create more of it. When there is an increase in the money supply it flows into scarce assets.

The more inflation grows (or fiat money that floods the system), the less purchasing power you have. Bitcoin is a way to hedge against inflation and store the value of your hard earned money. While bitcoin has a fixed supply of 21 million, there is no limit on the amount of dollars created. That is what makes investing and personal finance hard. If you are financially conservative, want to be safe and take no risks, just saving in dollars is like a guaranteed loss of purchasing power of:

  • 2% a year if you go by the CPI (Consumer Price Index)

  • 7-12% per year by the Chapwood Index the last 5 years

  • Saylor estimates in the last year it has been 15%+!!

In the interview below with Saylor, the host, Julia Chatterly asks him “So you’re basically saying you would prefer to have a volatile appreciating asset (bitcoin) vs a stable depreciating asset (cash).”

Something that people say contributed to inflation is when the USA went off the gold standard in 1971.

  • what that means: You used to be able to redeem an ounce of gold for $35 dollars, now it’s just fiat money not backed by gold or any other asset.

  • what has happened since then: https://wtfhappenedin1971.com/ . Check out this link to see some crazy graphs.

Bitcoin, in a way, helps you to think longer term because you can store the hard work you do now, and know that you can use it in the future, instead of your hard work melting away in cash.


Why Is Bitcoin Going On A Crazy Run?

The crazy runs bitcoin goes on seems impossible unless you know these three things:

  • 4 year halving cycle

  • Why bitcoiners HODL (hold long term, try not to sell) 

  • Rate of bitcoin adoption

4 Year Halving Cycle (Approximately)

There will only ever be 21million bitcoin.

There are 18.6m bitcoin currently in circulation or about 88.5% of the total supply.

In 2012-2016= 3600 were released per day

2016-2020= 1800 a day

2020-2024= 900 a day

2024-2028 = 450 a day

2028-2032 = 225 a day

2032- 2036 = 112.5 a day etc

All 21 million bitcoin will be released by the year 2140.

2012 price at halving $12, spiked to a high of $1023 in December 2013, dropped back to $170 in January 2015.

2016 price at halving $663, spiked to a high of $19,700 in December 2017, dropped back to $3,257 in December 2018.

(There was a drop of $4,860 in the market sell off on March 12th 2020).

On the 11th of May 2020 price at halving $8,600, and the price at the time of writing is around $47,000. (h/t -StormGain)

Because the market is impossible to time, one strategy I’ve read that is recommended is to Dollar Cost Average and set up daily, weekly or monthly automatic buys. If you try to sell at the top and buy at the bottom, you will also create a tax bill for yourself. There were 6 29+% drops in the 2017 run up (h/t @real_vijay)

Here is a really interesting chart from PlanB tracking the progress after the halving and what happens if bitcoin follows the 2012/2016 growth after halving and his different pricing models.

In February 2020, the supply on exchanges (considered liquid, can sell at a press of a button) was around 3 million. A year later the supply on exchanges is around 2.35 million. So about 650,000 bitcoin has been moved off exchanges and been put into cold storage/other places which is the equivalent of buying gold and putting it into a safe (holding onto it, not trading it in the near future) (Chart: Glassnode).

This drop in supply and increase in demand from companies (MicroStrategy, Tesla!! can keep track here), institutional investors, university endowments and now cities like Miami has caused the price to spike. I think countries will be next, I hope Australia is one of the early adopters!

Dan Held, thinks that this cycle could be a Bitcoin Supercycle in his article, here.


Why Do Bitcoiners HODL(Bitcoin Slang For Hold)?

I saw a lot of passion on Twitter for bitcoin but didn’t fully know why the term HODL (hold) is important.

  1. Bitcoiners think the price will go up

  2. You can earn interest or borrow money against your bitcoin

The thing that changed my thinking was investing in BlockFi, a Crypto Platform (thanks Pomp for the intro!) You can earn 6% interest annually on your bitcoin (first 2.5 bitcoin, 3% after that) paid out in bitcoin or stablecoin monthly or you can borrow money against your bitcoin. This means that you have more options than selling your bitcoin - I’m not sure if this was around in the last cycle? Just like people can borrow money against their house if it goes up in value, platforms like BlockFi are now enabling people to borrow money against their bitcoin. This allows people to HODL their bitcoin. Something I have learned is wealthy people don’t sell their assets (stocks, real estate, etc) unless they really have to because when you sell you create a taxable event.

Last month BlockFi paid out 400 bitcoin in interest to customers. That is roughly 1/67th of the new supply for that month coming into the system. If they pay out the same 400 bitcoin a month in 2024 after the halving it would be 1/33.5th of the new supply for that month.

They also are coming out with a credit card that people can earn 1.5% back in bitcoin rewards on all purchases so that will further eat into the supply. Do your own research, I’m a very happy BlockFi investor so I’m biased!

If you see negative things about Bitcoin, you should ask yourself why is the person or the article spreading FUD (Fear, Uncertainty, Doubt) about Bitcoin. Potential reasons are:

  • They don’t understand it

  • Bitcoin’s success could effect their job or disrupt their industry

  • They are trying to buy bitcoin at a lower price

Check out the timeline of Guggenheim CIO, Scott Minerd’s comments below.


Am I Too Late? No. It’s Still Early.

Bitcoin has the same amount of users (135 million) as the internet had in 1997 but Bitcoin user adoption is growing faster. Do you remember in the late 90s/ early 2000s that dial up tone when you wanted to get on the internet? Now look at what is possible.

It took the internet 8 years to reach 1 billion users in 2005.

Willy projects bitcoin to hit 1 billion users in 4 years in 2025. @Woonomic, great follow on Twitter! 

Bitcoin will eventually eat a little bit of other assets that are used to store value (real estate, stocks, bonds, art, etc), just like the mobile phone is now used for your calendar, alarm clock, newspaper, listening to music etc.

It is a global store of value that is available to everyone with a phone and internet connection, you can buy $5 (or less maybe) or 1.5 billion dollars like Tesla. I’m not sure if there has been a global asset that has been so accessible to so many people around the whole world.

There are a lot more options of where to buy and it is easier to buy than in 2017. Do your own research on where is best but make sure you are able to send your bitcoin off the platform to other people/addresses.

Whenever I hear someone say Bitcoin is too risky or a gamble, (THERE IS RISK TO EVERYTHING), I ask them if they know that the current market cap (total value) of Bitcoin is more than the current market cap (total value) of Facebook.

If You Want To Own Bitcoin But Don’t Have Any Spare Cash

Check out the Fold App (I am NOT an investor) - you can spin a wheel to win free bitcoin (or sats) or get bitcoin back in rewards for purchases you would make anyway for a couple of extra steps (Amazon etc). 

1 BTC (Bitcoin) = 100,000,000 Sats (Satoshis)


Frequently Asked Questions Or Concerns

“Can’t see or or touch it”: Just a number on a screen the same as your bank account. When you get paid from your employer, do you get to “see or touch” that cash?

You don’t have you buy a whole coin: It is possible to buy $5 or $10 worth.

Energy consumption concerns: Follow @Melt_Dem and her website with resources https://www.bitcoinwillnotboiltheocean.com/

BTC= Bitcoin

Other cryptos: I don’t know and haven’t done enough research to have an opinion. Bitcoin has a great 12 year track record so far. I would learn more about Bitcoin before moving on to others. When looking at other cryptos, check their price denominated against Bitcoin (BTC).

Volatility: “It’s too volatile”- Yes, it does go up and down but it continues to climb (see the graph below). You could look at it like a basketball season, would you rather:

  • Alternate between a win and a loss for the whole season and finish with 41 wins, 41 losses with less volatility.

  • Win 5, lose 2, win 4, lose 3, win 8, lose 4 etc and finish the season with 60 wins, 22 losses with more volatility.


Top 4 Things I Send To People To Learn More (Currently)

These are the 4 things I’ve been sending people as an intro to why bitcoin is important (if you have good resources please send to me):

  1. Pomp’s letter - The Investment Case For Bitcoin

  2. Preston push - Michael Saylor Podcast - lot of topics covered but really dives into inflation

  3. @Croesus_BTC article - Am I too late for Bitcoin

  4. Pomp Podcast - Episode #236 with Raoul Pal

Also, it is complicated but at some point it is important to read the original Bitcoin whitepaper.


Conclusion

I hope you learned something. I’m still learning, so please send any corrections you have. This was NOT FINANCIAL ADVICE. Bitcoin is something you have to do your own research on.

Final Thoughts:

  1. Do Your Own Research (DYOR) - your money, your responsibility

  2. Security on accounts - use a strong password that is different to other accounts, set up 2 Factor Authentication (2FA)

  3. Learn about how to keep you bitcoin safe and treat it like it could be worth more in the future, not what it is worth now - others can better explain that

  4. There are a lot of places to buy bitcoin. Make sure you can take control of your bitcoin and send it off the platform (Robinhood doesn’t offer this currently)

  5. “Not your keys, not your coins” - having complete control of your bitcoin, not an exchange, other people can explain this better, so you will have to DYOR

For Aussies, follow Alex Saunders (NuggetNews) on where the best options to get bitcoin are in Australia. CoinSpot is one option, DYOR.

For the USA, 3 of the biggest exchanges are Coinbase (CoinbasePro has lower fees), Gemini and Kraken, DYOR.

Thanks to everyone who has helped me learn about bitcoin through conversations or their tweets/podcasts/articles, in particular Pomp, Reuben, Alex, Michael, Zac, Bryan, Katelyn and Adam! The best way to say thank you is by paying it forward and help others who want to learn about bitcoin 👍

Also, big thanks to Pomp, my family, and friends for reading this over and giving me their feedback!

Topics I’m looking forward to learning more about:

  • Lightning Network

  • Mining

  • Energy

And if you want a glimpse into the future, check out what @JackMallers is doing with his company, Strike.

Thanks for reading, make sure to subscribe here and to The Delly Podcast - Delly 👍

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