Why Bitcoin Offers Freedom and Long Term Value for Citizens of the World

When reflecting upon 2018, it is hard for the average American to feel optimistic about the future of Bitcoin. After decreasing by more than 80%, many Americans have given up on the asset as a store of value and have little faith in Bitcoin’s long term use cases. Recently, Mark Dow wrote in a tweet,

“I’ve yet to hear a positive, credible use case for #bitcoin. Plus, I see a lot of delusional arguments & scammy promotion. However, truth is I know very little about it. What I do know is it has been highly tradeable based on patterns, and I suspect it will continue to be.”

Mark Dow’s tweet may be a microcosm of the American perception of Bitcoin. After all, his criticisms are common and somewhat valid. Americans will often wonder, “Why do I need Bitcoin if I have Visa, Mastercard, and a stable currency?” The reality is Americans don’t need Bitcoin at this particular point in history. However, the alternative cannot be said for the citizens of Venezuela and many others living under authoritarian regimes.

Below Dow’s original tweet, another user commented, “Venezuela.” Dow responded, “Why not use USD, it’s not down -80%.” This is a reasonable argument, but a recent article from Time Magazine (Why Bitcoin Matters For Freedom) countered this point very specifically by stating, “a wire transfer from the United States can now encounter a fee as high as 56% as it passes from dollars to bolivares in a process that can last several weeks.” For a Venezuelan, or any other refugee, it would be safer and faster to use a Bitcoin transaction with little to zero fees. Waiting 30-45 minutes for a Bitcoin transaction as opposed to several weeks for a wire transfer makes a big difference when attempting to escape an authoritarian regime. Most importantly, no government can censor a Bitcoin transaction. However, a government can censor an exchange service such as Western Union.

Tom Lee, CEO of investment firm Fundstrat, recently gave an excellent presentation regarding the future value of Bitcoin. Lee pointed out, “less than 1% of the world’s population has ever used Bitcoin and more than 50% of the world’s population lives under an authoritarian regime.” Additionally, the average fiat currency (any government issued currency) has a lifespan of only 27 years. Imagine spending a lifetime building a family fortune only to have it lost as a result of an irresponsible government. This is the unfortunate reality the majority of the world experiences.

Lee also highlighted the direct correlation between a citizen’s trust in their government and a citizen’s interest in Bitcoin. Statistically, the more a country distrusts their government, the more likely they are to be interested in Bitcoin.

Lee also cited a PEW research survey which asked Americans, “Do you trust your government to do the right thing?” Data concluded that the level of trust in the US government is at its lowest point in the last 60 years. When the rest of the world was asked the same question, many prominent countries exhibited less trust in their governments than the US. For example, Mexico, Spain, France, Italy, Greece, and Brazil trust their governments less than the United States. It is interesting to note that cryptocurrency development is flourishing in these countries.

In extreme situations, Bitcoin provides freedom for citizens living under authoritarian regimes, but how will Bitcoin provide long term value for 1^st world citizens?

Bitcoin is still in its infancy and will grow and expand overtime. The baby boomers and GenX will not power Bitcoin, but the millennial generation will.  Earlier in 2016, Facebook researchers conducted a study ‘to evaluate the beliefs and thoughts of today’s youth on traditional banking and financial systems.’ The study found that ‘92% of millennials firmly expressed distrust for the traditional banking system.’ In other words, millennials don’t trust banks. This widespread opinion is a direct result of the 2008 financial crisis in which millennials watched many of their parents lose a decade worth of savings, investments, and in many cases, their homes.

When evaluating Bitcoin’s value proposition in the long run, it is noteworthy to examine the impact millennials will have on the future of finance. Millennials have already influenced advertisers and have transformed markets. They are the largest generation EVER and they dwarf the baby boomers who peaked at around 80 million. This year, the average millennial turns 26 which means they will soon enter their prime income years, their investing years, and their home buying years.

When the silent generation first entered their prime income years they invested in gold. In 1971, President Nixon dissolved the gold standard and as a result, the price of gold increased from $40/oz to $600/oz. (A 15x increase in one decade, just from one generation buying gold).

In contrast, the baby boomers bought equities. The first year the boomers turned 35 was 1982. From 1982-1999 the baby boomers single-handedly created a stock market boom. Subsequently, GenX was not a large enough generation to make a significant economic impact to power the stock market.

In Lee’s presentation he noted that millennials will soon have a trillion dollars worth of savings flow as they enter their prime income years. Bitcoin’s rise in 2016 coincides with the first millennial’s entering their prime savings years. If millennials put 10% of their savings flow into crypto, the result will be a 2 trillion dollar market cap increase per year. Lee followed this point by claiming, “at the end of the cycle, Bitcoin could be $10,000,000 per coin.” It is fair to assume Lee holds a significant amount of cryptocurrency, so $10M per coin sounds like a bit of a stretch.

Additionally, Lee prides himself on being a contrarian. He also claimed, “Bitcoin is a contrarian investment by nature.” It is safe to assume many individuals in traditional finance have a negative persona of Bitcoin. The value of being a contrarian cannot be understated, primarily because making the most unpopular choice, although difficult, can sometimes pay off in the long run. One of the most extreme instances began in 1950, shortly after an entire generation fought a brutal war against the Japanese. At this time, one of the most profitable investment opportunities was in the Japanese stock market. One could imagine what a baby boomer was hearing from their parents. “We just fought a war against the Japanese, why would we help their stock market by investing in it?” Although this opinion was the majority consensus at the time, the Nikkei went on to increase 40x from 1950 to 1972. The Japanese stock market continued to rise for another twenty years from 1972-1990. From 1950-1990 the Nikkei experienced a 400x total increase. Ultimately, the young adults who didn’t listen to the previous generation ended up doing well, at least when it came to investing in the Nikkei.

Similar to the Japanese Stock Market in 1950, we must look at Bitcoin with an open mind. Since millennials will be the primary driver of cryptoassets, it is important to understand the worldview of a typical millennial.

Overall, Bitcoin’s development can have an immense impact on the lives of billions of people. In western nations with reliable currencies, it is easy to dismiss the use cases of Bitcoin. For the people of Venezuela, and other oppressive regimes, it has helped many escape their crisis. If millennials invest in cryptocurrencies the way previous generations invested in gold and equities, Bitcoin will serve as a favorable investment and a store of value for decades to come.

Disclaimer: I am not a financial advisor. This is not financial advice. Please do your research independently and make objective decisions. This article is intended to educate readers on Bitcoin’s use cases and future potential as a store of value asset. The author of the article owns cryptocurrency.

Sources:

Time Magazine: Why Bitcoin Matters For Freedom

Tom Lee: The Economics of Cryptocurrencies