“Bitcoin for $400” please, David

The best performing asset which has never posted a negative four-year return, has a 15-year track record, the highest Sharpe ratio and an almost zero correlation to traditional assets like stocks, bonds, gold, and commodities. Umm, what is Bitcoin?? Right!

About 10 years ago, being aware of the bitcoin price, although knowing very little about Bitcoin as a technology, I had noticed the chart had served up a pullback in the neighbourhood of $400. I planned to buy 1 bitcoin for each of my three boys, but I couldn’t figure it out. Foreign wire transfers and complications made it seem too hard to sort out and I skipped over the idea. Then, it went to $60 odd thousand and I thought, wow. After making a couple of dollars in the ’18 rally from the OTC GBTC stock exchange bitcoin, I dug in with more seriousness. Clients made some money in the rally into ’21, then took profits on a technical basis. But when the pullback in ’22 got underway, I was ready to accumulate and became an eager buyer, especially in the fall, when the price was below $20K. We bought stock exchange bitcoin for clients on November 30, 2022 around $17,200 U.S., after there was an impulsive bar after oversold conditions on the daily chart. We’ve never sold any stock exchange bitcoin. And I’ve never sold any actual bitcoin.

If you are reading this right now thinking bitcoin is volatile, or bitcoin isn’t backed by anything, or it’s a waste of energy, leave your pre-conceived notions at the door. Take a deep breath and read on with an open mind. Quit thinking of it as a volatile asset, you’re missing the point. You’re being misled by the media. Did you know the mainstream media has declared Bitcoin dead 402 times over the years?

Bitcoin is innovation. An innovative tool that provides freedom: freedom from central banks intentionally destroying the purchasing power of our money, freedom from the powerful Western financial forces intent on crushing the poor countries into perpetual slavery, freedom from “them” telling us what we can say, and to whom, and how we can spend our money. Bitcoin is available to the poor and the wealthy, and it knows no barriers and holds no grudges. It is available to everyone on Earth, and there are no divisions based on race or class or income. All are welcome.

It's decentralized. It’s not controlled by any government or large owner or set of colluding institutions. It’s owned by millions of addresses, controlled by thousands of users and owners, all of whom share the collective desire to transparently verify and protect the network. There are literally billions of people in the world that aren’t allowed to bank, haven’t been invited or granted permission to participate. Bitcoin is permissionless.

Bitcoin can facilitate the transaction of any amount, no matter how small (from less than $1 to tens of billions) with incredible speed and at a cost that makes the current banking environment look like the horse and buggy transportation system of decades ago. You can buy as little as one hundred millionth of a bitcoin, called a “sat” after founder Satoshi Nakamoto. As such, it’s divisible and much more practical than either cash or gold (or stones, or rocks, tulips or whatever else you know of past monetary instruments).

For those in high inflationary countries, or countries where conversions to foreign currencies are limited, or even disallowed, it’s a solution to the monetary dictatorship. What other asset has provided such a store of value that its purchasing power has become greater as time ticks on? None. It’s backed by nothing, you say? Well, what exactly do you think U.S. dollars are backed by? Nothing. They’re based on the trust of the government and the financial industry that provides a growing number of reasons and opportunities with which to question their motives, their own pursuit of profit at the expense of the average customer, and everything is hidden. We deposit our monies into the bank and it’s no longer ours. Sure, they have an obligation to us, but if they decide they won’t or can’t fulfill those obligations, they reserve the right to just say no. Just like in the most recent banking collapses in early ’23 in the U.S. I’m sure you realize there is no money. Fractional reserve banking, governments and outfits like the Federal Reserve (which most don’t even realize isn’t the government and instead is a powerful group of banking elites looking out, ultimately, for their own interests), have flooded the system over and over again with bailouts, band-aids and stimulus cheques, all of which serve to devalue the very pieces of paper that so many work so hard to save. As time passes, that paper buys less and less.

It's time you dig in to see what Bitcoin is and learn more about its value, its potential and its future. Demand and supply, the simple economic principles that move prices, need to be understood because bitcoin’s supply is capped at 21 million bitcoins (which will occur in approximately 2,140) and yet the demand is growing. Unlike the demand or supply of cash (fiat), we can’t easily see who does what with their cash, but bitcoin? Sure, it’s all on the blockchain. Every transaction, every transfer, no double-spend, no funny business, no passing around counterfeit bitcoin.

We have an opportunity to take responsibility for ourselves, our families and self-custody of our own assets like bitcoin. You get to hold your own keys, you have to protect those keys and you don’t need to then rely on others to say you can or can’t spend what’s rightfully yours.

What should you do next? Start reading and doing research. As a first step, I’d suggest reading “The Bitcoin Standard” by Saifedean Ammous, which is a must-read. So, order it now and open it up. Ignore the price, ignore the volatility and seek to learn about the technology. I always suggest that the best way to learn about something is to get some skin in the game; so, buy some. Buy $100, buy $1,000, $10,000, whatever a small piece is to you, and if it goes to zero, big deal, it won’t blow you up. Do I think it will go to zero? No, I do not. Learn about self-custody and cold-storage wallets.

Institutions are coming and some of the savviest investors are talking, increasingly louder: Stanley Druckenmiller, Paul Tudor Jones, Larry Fink, BlackRock, Fidelity, sovereign wealth funds in Norway and Singapore, the UAE and Japan, and a growing number of state and company pensions are now involved. Supply is limited and as demand grows, the price will have to rise. A rising price will reduce volatility in the future.

When ordinary Canadians had their bank accounts and access to the financial system, on which they’re dependent, frozen for participating or even contributing some nominal amount to the trucker convoy in 2020, I knew it had the potential to accelerate this movement and the event, which was visible to the rest of the world, would end up moving Bitcoin forward, more quickly, and it did. And then, when the U.S. and European governments froze Russian (a G20 nation) assets, it further offered evidence that financial assets, even those that we think are ours, really aren’t. If you trust someone else to look after them for you, then when you least expect it, you may not be able to count on them. Thank goodness for Bitcoin.

And while I told you not to focus on it, is there an upside? Imagine, if all (or even most) of the 50 odd million millionaires in the world decided to own a single bitcoin. They couldn’t. There simply isn’t enough and there never will be. Sure, the central bank can print fiat to meet demand, but bitcoin mining is capped and set for its future. Imagine all the pension fund managers decided to put 1% of their pensions for diversification purposes into bitcoin, again, there simply isn’t enough. Prices would have to rise precipitously to accommodate such demand. Think bigger picture, not to the twists and turns from day to day or week to week, Bitcoin is here to stay.

Sincerely,

David Cox, CFA, CMT, FMA, FCSI, BMath
Senior Portfolio Manager, Wealth Advisor
Raymond James Ltd.
Phone: 519.883.6031
Unit 1 – 595 Parkside Drive | Waterloo, ON | N2L 0C7
david.cox@raymondjames.ca
www.financiallyinsync.com
 @DavidCoxRJ

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