There are fundamental misunderstandings around the inherent value of Bitcoin and L1 blockchain tokens. The common mistake is that people think these cryptocurrencies have no fundamental value because they do not create any cash flow the way a company does. This narrative usually dominates market sentiment during prolonged bear markets, but it’s a misguided and lazy concept that needs to be finally put to bed.
My counter-argument is this: How much cash-flow does the internet bring in? The answer is zero. Only the applications that are built on the internet generate value. Still internet is very valuable.
So we can’t keep thinking about Bitcoin, L1 tokens (or basically any Web 3 endeavour) in an overly simplistic, conservative way. Bitcoin, or Ethereum are not companies, therefore their value is not based on profits. They are more like shares in the building blocks of an entire new ecosystem. Now, let’s consider that we’re in the early days of the Internet, and you not just have an opportunity to invest in the infrastructure of this new system but to actually own a part of the network... Would you invest? Or you would you argue that no cash flow means bad investment?
And here's the trick: a blockchain is a system that maintains records of all transactions, and it can be used to create any number of decentralized applications. Therefore owning a part of that network — the building blocks of the entire intstructure — carries a ton of value. And that value is going to be appreciated in the long run as the gap between crypto assets and FIAT will get bigger and more visible.
Let’s talk about that gap for a bit. A decentralised blockchain is censorship- resistant and in many ways free of prying eyes and crippling bureaucracy. We are essentially acting as our own banks, responsible for our assets and transfers. It a system that’s completely transparent, yet highly secured, with not a single outside entity able to mess with our hard earned money. These answers that blockchain networks provide to real world problems have such a value that we can’t even fathom at the moment.
Think about this; currently there are no methods for transferring a billion dollars from India or Morocco, or to any other nation, without gaming or corrupting parts of the system to make it happen. Don't trust me on this, just try moving a large chunk of your own hard earned money and see the bureaucracy arise to redefine what an invisible hand really means.
Then comes the entire debate of governments having the power to drive down your savings by hyper-printing currencies. Sri Lanka, Venezuela, Zimbabwe, Turkey, Mexico, Lebanon etc. are some examples of hyper inflating economies, with a lot more to join them in the coming years. What can regular folks in those countries invest in that will not be depreciated with their country's currency? People can’t lay back in economies like that. We have to stay ahead of the curve, understand the markets, and hedge against the changes that can deplete our purchasing power.
That brings us to another argument about Bitcoin being a “digital gold” that can hold value over the long run. Many people see the volatile price movements as a proof that it will never be the case, but in reality we’re talking about an asset that only existed for over 13 years and YTD is hitting 11,000%.
Of course, the lows can be painful, the highs can be exhilarating, and volatility can be frustrating, but we’re talking about something that’s at the heart of a brand new economy that we’re still failing to completely understand and accurately value. But the bottom line is this; at least Bitcoin has a limited supply and there’s no power on Earth that can change that.
And if you think gold is better as a reserve asset, try to move it out of your country and see the bureaucracy play out again.
My point is simply that money, or gold is not as sacrosanct as it seems and in a gradually more muddy world, an asset class that provides answers on
1.) how to be more in control of our finances,
2.) how to simplify the movement of our money,
3.) and at the same time provides alternatives for us to be able to hold on to our purchasing power
should be met with at least an excited curiosity, and not a disdain backlash.
I think it is fine to buy a bit of bitcoins, whatever Buffet says ❤️