To be the “Apex predator of assets”
That is a great statement, but it`s not just a phrase.
If we go to the root meaning of being and apex predator, we will understand it more clearly.
What is an apex predator in nature? Essentially, it refers to a species that faces no natural predators itself. It stands at the pinnacle of the ecological pyramid, with no other organisms or creatures attempting to hunt it.
With that in mind then let me tell you why i think bitcoin is the apex predator of assets. Just to be clear, not just “crypto”.
I mean all assets.
“It is 2024, and the current state of the world in terms of economic policy is unprecedented.
As Ray Dalio emphasizes:
Some of the events unfolding now may be unique to our lifetimes, but that doesn’t imply they haven’t occurred in the past. This is why studying history is crucial.
The conundrum we face today is that, even if we look back 50, 100, or 400 years, we won’t find a situation similar to what we are experiencing in terms of economic conditions.
The unparalleled implementation of ‘Quantitative Easing’ or money printing in most major economies worldwide, coupled with the fragility associated with interest rates and a significant debt bubble that seems unmanageable.
The Eurozone grappling with unprecedented challenges, particularly in relation to interest rates.
Japan’s economic landscape is characterized by its prolonged struggle with deflation and an aging population, contributing to a unique set of circumstances.
In this era, we witness gold prices reaching historic highs, a phenomenon driven by a combination of economic uncertainty, inflation concerns, and shifts in global trade dynamics.
Meanwhile, the extraordinary occurrence of bonds yielding negative interest rates has become a defining feature of the financial landscape, challenging conventional notions of investment and highlighting the complexities of our contemporary economic environment.
This has led us into a major debt spiral, triggering more money printing, accumulating more debt, and perpetuating this cycle indefinitely. Consequently, this process is leading to more currency debasement.”
What are the options?
After we understand all the previous, we are now faced with the question, where to invest our hard earned but weak currency?
Let’s start with the first asset class.
Gold- Market Cap 10 trillion
I´m starting with gold as its the most “obvious” in a sense, as Bitcoin is by many called Gold 2.0.
This because bitcoin resembles some of the properties of gold but also improves on others.
For example, Gold is scarce, it can´t be printed out of thin air unlike fiat money, still the supply is not completely capped. The more the gold prices go up, the more miners are incentivized to double down on efforts and mine more gold.
Unlike Gold, Bitcoin supply is limited to 21M.
No matter the amount of demand, or the price of Bitcoin. The supply won´t increase at all. In this sense being harder than gold.
Now let’s talk about portability. Probably if you have two gold coins worth no more than 5K you are in good shape traveling and moving around with them.
But what about trying to transfer 100 million from Tokyo to New York on a Saturday night?
If you try that with gold, means costs, security, inconvenience, multiple failure points, etc.
The again, same scenario with Bitcoin, means a couple of minutes and a minuscule fee.
I could go on but let’s leave it at this.
Now, I won’t make any “predictions”. I will just let the reader imagine if Bitcoin could EAT some of that Market Cap of Gold.
Stocks- Market cap 104 trillion
Now we go about the next asset, which is stocks, normally seen as more “risky and volatile” asset, which normally is more suited for investors that are looking to get more return on their investment.
This type of investment come with different types of risks than say owning an asset like gold.
Risk of owning stocks is mismanagement of the company, fraud, stock dilution, bad execution, downward revenues, excessive debt and risk of bankruptcy, changing market trends, disruptive innovation by a competitor, etc.
As you can see stocks come with a large set of risks, and the worst part of it is that the higher returns are on individual stocks which possess more of these risks.
The option then turns out to be owning a lot, through an Index fund / ETF.
But then we are facing the returns for an index like S&P500 that are on average 9%, which is far too low, if you are taking that kind of risk.
Compare that with an asset that has none of the previous mentioned risks, that allows you to store your wealth in a sovereign way, and that is ruled by code, not by humans.
So then again, I won´t speculate, but will let the reader decide if at least some % of the 100´+ Trillion of stocks, could/should be better off being invested in Bitcoin and how much of it will it finally eat.
Bonds- Market cap 140 trillion
This for me is one of the most interesting and compelling assets that bitcoin can prey upon.
Normally Bonds are seen as the “Safe” investment.
Think about it, if you have already 10 million, do you want to preserve them or risk them a lot by investing in high-risk stuff? Probably for most people is just to preserve it.
That is why a 3-6% on bonds can sound pretty good deal!
But the reality is most Bonds worldwide are yielding a negative real rate of return. Meaning they 3-6% returns when money supply is expanding by 10%+ is in reality still making you lose money.
They are also part of traditional finance since a very long time, part of traditional portfolios, heck part of MOST portfolios.
Then again it can seem like pension funds, sovereign wealth funds, insurance companies, are just “entities” they are made up by people who really individually dont care if they are losing money on a “$400” billion bond portfolio, at the end, they all get paid their salary, their bonuses, etc.
OH, but here comes Cannibalism, i mean Capitalism.
What happens when your fellow insurance competitor, the fund next door, start to allocate some of their resources to Bitcoin ?
Oh boy, and with how bitcoin works, if that allocation even if small 1-5%, starts making the competitor outperform you, then money flows out of your fund to go to the competitors, then your bonuses get cut, then maybe even your job is at risk, for not foreseeing the risk and the “alpha” that bitcoin entails.
Then the fun begins.
Now again the question becomes how much of the 140 trillion will Bitcoin be able to eat? I mean i don’t expect it to be all, of course.
But to think it won’t be a 1%, 5%, 10% ?
I´ll let you decide…
Real estate- Market cap 400 trillion
I understand the point where real estate has more value than just as an investment has, is a place where you can live and will always at least give you that.
Having said that, many people use real estate as a form of investment, thinking in ROI, location, rentals, etc.
But after having your desired portfolio allocation to real estate. I would argue and encourage you to think for example cases like Argentina, Lebanon, Turkey.
Those are countries with millions of people, not just a small town.
What about their “real estate” when the government devalues their currency by 99%?
Most of the young people want to move to other countries, the older people tend to suffer the worst as their lifelong efforts/savings are melted away.
It serves us to think globally, as if something hasn’t occurred where we live, doesn’t guarantee it won’t ever occur.
Bitcoin could be seen as real estate in cyberspace.
What will bitcoin eat ?
There may also be other alternative asset classes, and by no means I’m saying all of the value will be transferred to bitcoin-
But even if a small portion of it does, it is going to be incredible what we are about to experience.
It is something unprecedented in multiple ways, as this is not seen just as a new investment but as a whole new asset class.
Take care.
Zifush