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Analysis
27 Feb 2024

My long term investment case for bitcoin

There are short-term factors like the new U.S. ETFs and the upcoming Bitcoin halving. But the longer-term case rests on larger macro factors, says Torbjørn Bull Jenssen.
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I believe that bitcoin will appreciate in the coming years as I expect that the demand for bitcoin will increase due to two main reasons: 1. Bitcoin becoming a global reserve currency; a borderless and neutral alternative to national currencies2. The U.S. dollar falling in value as the U.S. debt overhang is too high for the debt to ever be repaid, without letting inflation eat away the real value first, and investors will allocate to bitcoin as a liquid non-inflationary asset

When should you buy bitcoin?

Fundamentally, there are only two situations in which you should buy bitcoin: 1. If you believe that bitcoin will appreciate over time.2. If you believe that you may want access to the unique capabilities of bitcoin at some point in the future, and that there is a risk that you will not be able to buy bitcoin when you need it. You don’t have to be certain of either of the points above as investing is all about probabilities, expected value, and uncertainties. You also don’t have to invest all your money or none. For most, a small allocation is what would be sensible.To identify whether buying bitcoin is right for you or not, you need to figure out your expectations for bitcoin’s future price movement and the utilities you potentially could derive from owning it yourself.There are already hundreds of millions of people all over the world who have decided that bitcoin is right for them. All of them, presumably, expect that bitcoin will appreciate over time and/or believe that they will need to leverage the unique features of bitcoin at some point in their lives. The different reasons for these views are as many as there are owners of bitcoin. 

Why I believe that bitcoin will appreciate

Over the coming years I see a lot of different triggers that could drive up the price of bitcoin, including: 
  • The halving of the bitcoin production rate in April 2024.
  • Increased inflows to bitcoin ETFs as the big players on Wall Street start marketing their products 
  • Increased demand following from the continuous wealth transfer to the younger generation, who are more inclined to invest in bitcoin. 
These triggers, however, can only explain changes in demand, given that there already is demand. If there were no other drivers, the value of bitcoin would be fragile as it would only rest on the shared illusion that it has value and not any underlying utility. If that were the case the critics would be right, and bitcoin would just be like Beanie Babies, NFTs, or tulips for that matter; a financial bubble that eventually would burst.I’m not a fan of trading financial bubbles, yet I am one of the hundreds of millions of owners of bitcoin. The reason is that I see a lot of fundamental value derived from the unique properties of bitcoin, and my long term investment thesis is fairly simple. I believe that bitcoin will become an important asset serving as a part of the infrastructure in the global financial system, and that this will drive substantial investor demand, eventually pushing bitcoin to a valuation of at least several hundred thousand dollars a unit.I’m not certain of this and have not allocated all my wealth to bitcoin, but I’m convinced enough to take what many would describe as an irresponsibly large long position.

Collapsing trust internationally 

The way I see it, we are moving towards a multipolar, fragmented international political settlement. The days with the U.S. as the clear hegemon are gone. In a world of more balanced, competing geopolitical interests, I don’t see how China would trust the dollar, how the U.S. would trust the yuan, how Russia would trust the Euro, and vice versa.When Russia invaded Ukraine, its assets were frozen, and political interests are now working to confiscate the assets and use them against Russia. The whole world is noticing this, and nation states all over the world are now looking for seizure resistant assets like gold, which they hold within their own borders. It is against this backdrop I believe that bitcoin will rise to the occasion. I believe that trade will continue globally, meaning that there will be a need for global payment rails. But how will companies and individuals be able to pay when the receiving party of the payment operates from a different country or geopolitical cluster? What happens if an exporter only accepts yuan, but you only have dollars? By definition, you cannot simply exchange the dollars to yuan, because the entities that are willing to trust dollars, which at the end of the day are claims on US banks and the US,  would not be willing to trust yuan in a scenario where international trust breaks down. Dollars do not get transformed into yuan when you exchange them. What happens instead is that the one with dollars tries to find someone who has yuan who can sell these in exchange for the dollars. When you have no one who trusts both China, and the U.S., i.e. are willing to, or able to, hold claims on both U.S. and Chinese entities, you also will have no one willing to exchange directly between dollars and yuan. The solution in such a scenario, however, is simple. You need a neutral and mutually trusted asset in between. Gold could serve this role, and has done so historically, but it is inconvenient and expensive to send gold around physically. Oil could also be used, but is not divisible enough and is expensive to store and protect. Lastly, one could imagine small neutral countries like Switzerland acting as intermediaries, but they are likely to come under too much pressure from the larger centers of power. Bitcoin, however, is in many ways designed for the job. 

Bitcoin as a trustless alternative

Bitcoin is a digital bearer asset with intrinsic value, meaning that the value rests within the bitcoin itself, not as a claim on any counterparty. The value may fluctuate and be uncertain, but it's intrinsic to the sats making up a bitcoin, nonetheless.Bitcoin is not controlled by any states or centralized constellations of power. Bitcoin is also traded all over the world, against every currency, and can be stored and transferred digitally at almost no cost. In other words, you could easily take your dollars, buy bitcoin, send the bitcoin to the receiver, who then could buy yuan. That way you would be able to cross a geographical trust border and have efficient and final settlement any time of the day, any day of the week, any week of the year.This cannot be done with traditional national currencies or bank money, as they only exist as claims on a given counterparty (typically a bank). Before bitcoin every digital asset was a claim. Bitcoin is the first digital bearer asset without counterparty risk the world has seen. A claim can circulate as money within a jurisdiction which can enforce the claim, and its associated trust circle. A claim will however not circulate as money or be accepted outside of its jurisdiction or trust circle, as there is no way you can ensure that it would be honored. Not only that, but you also run the risk of the money being deprecated in your hands for political reasons should the issuer or its nation state not like what you are doing or classify you as a high-risk user. I believe that bitcoin will become the neutral international currency, serving as the glue for global trade in a fragmented world. If so, it will succeed because it can serve the role of the least common denominator. It is unlikely to be the favorite of any nation state, or commercial entity for that matter, but it would be preferred over the currency of a competing nation state and over the alternative of no trade.

Replacing the dollar in international finance

For decades the U.S. dollar has served as the world's reserve currency, but I believe those days are numbered. I believe the main reason is the growing fear of the US leveraging its currency as a weapon, censoring those that they disagree with. In addition, the massive U.S. debt does not help the position of the dollar. The US has a debt of more than $34 trillion, a deficit of $2 trillion, and exploding interest payments, now at $1 trillion a year. This is not sustainable. There is no way the debt will be settled in dollars with today’s purchasing power. In other words, either the U.S. defaults on its debt, or the U.S. lets inflation eat away the real value of the outstanding. In 1971, Nixon left the gold standard when Charles de Gaulle sent ships to pick up the gold the U.S. owed to France. In 2021 and 2022, the Fed and policymakers insisted that the inflation was transitory while it exploded to around five times the target of around 2%. They know the consequences of defending the value of the currency given the massive debt overhang, and will instead let the purchasing power deteriorate over time, eating away at the real value of the debt.As a result, it is becoming increasingly unattractive to hold dollars, and investors are looking for an alternative. Among the alternatives, bitcoin is starting to look increasingly attractive to ever more investors.My plan is to buy my stake now. You know, in case it catches on.
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