202102111106

The Asymmetry of Bitcoin

Here’s something:

Okay sure whatever. Here’s my advice to Apple, though: If you are going to announce that Apple Wallet will now be a crypto exchange, you should buy Bitcoins first. Apple has close to $200 billion of cash and marketable securities; you gotta put at least tens of billions of dollars into Bitcoin. Then you put out a press release like “we’ve thought about it for a while and it’s the official position of Apple that Bitcoin is the good money now, everyone should use Bitcoin.” Then the price of Bitcoin like … really really really predictably doubles immediately? Then you could sell some of your holdings for a huge easy profit, though you might want to hang on to some of them for when the next giant company does this and it doubles again.

I should never be allowed near a public company; isn’t financial engineering so much more fun than, like, making phones?

[…]

Basically we are in a time, for Bitcoin, where mainstream acceptance is the obvious catalyst to drive the price higher:

Michael Novogratz, the founder of cryptocurrency investment firm Galaxy Digital, sees Bitcoin more than doubling to $100,000 by the end of the year, spurred higher as more companies allow customers to use the token to make purchases. …

“You’re going to see every company in America do the same thing,” Novogratz said Monday in a Bloomberg Television interview. Between corporations adding Bitcoin to treasury funds and the city of Miami also considering adding the cryptocurrency to its balance sheet, “It doesn’t have to be a lot. It’s the messaging that matters, you’re seeing the herd here, and it’s coming.”

If you are in a position to provide that mainstream acceptance—if you are a giant normal mainstream company whose acceptance of Bitcoin would be big news—then you are in a position to profit from it.

Then more recently:

We have talked a lot recently about the Reddit-fueled rally in meme stocks like GameStop Corp. One thing I have said about this rally is that it reflected Reddit traders’ correct understanding of a simple market dynamic, which is that if they all bought the same stock at once then it would go up. So they did. Institutional Bitcoin adoption, as we have also discussed, has a somewhat similar dynamic: Each time a big institution says “we like Bitcoin now,” Bitcoin goes up, because widespread mainstream institutional adoption is clearly bullish for Bitcoin at this point.

[…]

With the meme stocks the natural thing was to worry about the endgame for that process; you can’t have a stock price that is divorced from fundamental value forever. With Bitcoin, you … can? Like if the endgame for Bitcoin was “universal adoption by corporations and institutions as a digital store of value,” then that sounds like a good and permanent and somehow fundamental result?

It’s all so weird. Like, I think a first-order reasoning says that there’s this curious asymmetry right now in terms of Bitcoin, being outside the perimeter, and it sort of feels like there’s really only upward trajectory (since you can’t really have a company make the opposite statement, that they’re going to “promise never to touch Bitcoin”, which, I don’t even know if that would decrease the price). So really the only possible random events are those that push the price upwards, in which case, in the long run, it’s just going to go up. Of course that ignores the possibility of it dropping.

Finally, here’s the weird conundrum of Bitcoin:

What makes Bitcoin worth $47,000 is not that its code is somehow worth that amount; what makes it worth $47,000 is that people are willing to buy it for that price. And the reason that they’re willing to buy it for that price is—in part, in increasingly important part—that it fits in with the rest of the financial system, that the traditional systems of trust that make up the mainstream financial system have accepted and incorporated Bitcoin. (I mean, the asset-management bits of the financial system; you still can’t, like, spend Bitcoins.[5]) Nothing can really be a reliable store of value until you can custody it at BoNY Mellon. Now you can.

It really does feel like GME – one of those paradoxes that just keeps giving, until it doesn’t, but BTC sort of can hold on for much longer.