If we want to call Bitcoin a ‘Speculative Asset’ then this would necessitate us to first define what it means to speculate.
Were you first drawn to Bitcoin because you wanted to use it as a vehicle to increase your wealth? Did you come to it as a great looking investment that consistently posts outsized returns year on year?
Well, join the club.
One of the most interesting things about Bitcoin is how it leverages financial incentives to both secure its network and grow its userbase. It’s completely rational to come to Bitcoin in the hope of protecting and increasing your purchasing power. It’s kind of the whole point.
Bitcoin does of course offer a whole host of other benefits like improved privacy, censorship resistance and freedom, but without the right economic incentives in place, it simply wouldn’t function. So, whether they care to admit it or not, most Bitcoiners were first lured into learning about bitcoin in the expectation that it would grow their wealth.
“So, doesn’t this mean that Bitcoin IS a speculative asset? If you’re buying it with the expectation that it will go up in value relative to everything else, you’re speculating, no?”
Let’s explore these questions as we make the case that Bitcoin is NOT a speculative asset. In fact, we want to make the case that Bitcoin is the least speculative asset available to you.
If we want to call Bitcoin a ‘Speculative Asset’ then this would necessitate us to first define what it means to speculate.
The Cambridge Dictionary offers the definition:
“To buy and sell in the hope that the value of what you buy will increase and that it can be sold at a higher price in order to make a profit.”
There are two notable parts to this definition. First, there must be an expectation for the asset to increase in value. As we have already stated, this is a common expectation of people who buy Bitcoin and what attracts most people to it. Bitcoin absolutely ticks the box in this regard. The second part of the definition however is perhaps the one that’s more interesting. According to this definition, in order to speculate you must also plan to sell your Bitcoin at a higher price in order to ‘make a profit’.
So, for Bitcoin to be considered a speculative asset you must plan to sell in the future to realise a profit. But this surely begs the question…
“Sell it and take profit in what exactly?”
If your answer is “Dollars” then this signals that you consider fiat currency to be ‘money’, and Bitcoin to be the speculative bet that allows you to profit by selling it for more $ in the future. This requires you to use dollars as your denominator and your underlying measure of profitability.
But is this a logical way to measure the value of Bitcoin? Most of the reason Bitcoin has gained value relative to the dollar and practically everything else is because it is a superior form of money. It combines the scarcity and durability of gold with the ease of use, storage, and transportability of fiat currency. So why would you buy a superior form of money in the hope of generating and realising more of the inferior money it is set to replace?
Perhaps instead of using inferior money to measure profits it would actually make more sense to use Bitcoin as the denominator. So, what happens if we flip things and consider Bitcoin to be money? What if we use Bitcoin as the universal measuring stick of value instead?
If we view Bitcoin as money instead of as a ‘speculative asset’ then when it comes to speculating, we should use it as the denominator instead of the numerator. With Bitcoin as the denominator, any speculation undertaken should be done in the expectation of accruing profit measured in more Bitcoin.
Let’s consider some practical examples of how using a different measuring stick might change our perspective when it comes to speculation:
In the spring of 2019 two investors called Peter and Spencer both decide they want to protect and grow their wealth and are concerned about rampant inflation. Both have $100k to invest. Peter has always been a gold bug so decides to allocate 100% into gold. Spencer on the other hand has been listening to ‘crazy conspiracy theorists’ on the internet and to this dismay of his financial advisor decides to go all-in on Bitcoin.
Both make their investment on April 22nd, 2019, and Peter buys $100k of Gold at a price of $1,281 while Spencer allocates his $100k to Bitcoin at a price of $4974. As they both correctly anticipated, inflation was not transitory and both assets rise in value against the dollar. By April 22nd, 2024, Gold is trading at $2,390 while Bitcoin trades at $66,703.
Now if we use dollars as our denominator and unit of measure, we can argue that both Peter and Spencer made a handsome profit. Peter could now sell his gold for 87% more dollars than he started with, and Spencer could sell his Bitcoin for 1,241% more dollars.
But what happens if we change our perspective and use Bitcoin as money, as our denominator?
Peter’s original $100k could have bought him just over 20 Bitcoin in 2019. However, by 2024, even with the increased $ value of Gold, he could now only afford to buy 2.8 Bitcoin. If we measure his profitability using Bitcoin as the denominator then he has in fact made an 86% loss.
Conversely, Spencer who bought just over 20 bitcoin in 2019 still holds the same amount in 2024. If we measure Spencer’s profitability over the period with BTC as our measure, then his performance is flat.
1 BTC = 1 BTC.
Bitcoin is a superior form of money to fiat currency and gold, and it makes absolute sense to use it as the denominator. If you are measuring profit in anything but Bitcoin, then you aren’t really measuring profit. If you speculate in any asset that loses value in relation to Bitcoin, then you made a loss.
You lost money….
It’s easy to fall into the trap of viewing Bitcoin as a speculative asset because since launching in 2009 its value in relation to everything has skyrocketed.
People who invested in Bitcoin and held for a reasonable time frame have seen their purchasing power increase dramatically. One good example of this is housing. A median sized house in the US in 2017 would cost 125 Bitcoin. By 2022 that same house could be purchased with only 20 Bitcoin. Today? Even less.
These huge increases in purchasing power lure people into seeing Bitcoin as a speculative investment. You wouldn’t normally expect to see outsized ‘returns’ like this through anything other than high-risk speculation. This leads many Bitcoin ‘investors’ to conclude that they must be speculating and that they are making huge ‘profits’.
“I know I shouldn’t sell Bitcoin for dollars, but it’s going up in value so I can buy a lot more stuff…..surely I must be making a huge profit.”
Well, yes, your Bitcoin will now buy you many more things than it would 5 years ago; more land, more oil, or even more sandwiches, but purchasing these things with Bitcoin is not akin to you ‘realising a profit’. You can buy more of these things simply because you saved (not invested) in sound money and these goods depreciated against it. This is what happens on a sound monetary standard. You’re just not used to it because our money has been broken for so long that it feels alien.
It doesn’t make sense to take or measure profits in land, oil, or sandwiches. By this logic, it would mean that profits can be measured in anything at all. That’s no use to anyone. You couldn’t have some investors posting P&Ls in PB&Js while others post profits in Big Macs. That’s not a workable system. This is simply another example of using bitcoin as the numerator instead of the denominator. To measure profit properly we need to use a mutually agreed upon and stable measuring stick. We need to use money. Bitcoin, being ultra-sound money, is the best available measuring stick and certainly better than using dollars or sandwiches.
When you spend your Bitcoin instead of saving it you are either engaging in basic consumption or you are making an investment. Any investment you make has only been a successful one if you can later sell it for more of the ultimate denominator (Bitcoin) than you started with. Otherwise, you lost money and would have been better off simply saving it instead. Like it or not, even if an investment you make increases in $ value, if it doesn’t increase in relation to Bitcoin, you’re losing money.
If you still view saving in Bitcoin as speculation then the risk is that you continue to not use the correct denominator, the best monetary asset, as your unit of measurement. Like in our example with Peter above, this could lead you to think you are ‘making money’ when in fact your wealth as measured in Bitcoin may in fact be reducing.
It’s in your best interest then to accept Bitcoin as your monetary standard rather than view it as a speculative asset that you can seek to profit from. You should view it as your unit of measure and simply money that you can save in.
We get it, that’s a paradigm shift. In a fiat world where the value of money is constantly inflated away you are forced to constantly speculate just to even maintain your wealth. Hell, you can even speculate on our broken fiat currencies themselves as you try to predict the whims of various central banks. In the current system saving makes no sense and speculation is your only option.
Bitcoin has changed this. It creates a world where you are no longer forced to speculate. You can simply save and store your wealth in sound money knowing that over time goods and services depreciate on a sound monetary standard and your purchasing power will increase.
Don’t overthink this or get too cute with it. You can stop checking the charts every day and simply accumulate and save in sound money.
Keep it simple. Stay humble and stack sats.
Start Saving in Bitcoin with The Bitcoin Way
If you’re ready to stop constantly speculating and just want to diligently save and measure your wealth in ultra-sound money, then we can help show you how to do that.
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