Tag Archives: Cryptocurrencies

Can Bitcoin Protect You From Inflation?

Bitcoin is often referred to as digital gold. Unlike fiat money such as the US dollar, its supply expands at a slow, steady rate.

The Federal Reserve has printed so much money during the COVID crisis that money supply is up over 25%. This has led to fears of inflation. The consumer price index (CPI) jumped by 4.2% in the first quarter of this year, the highest since 2008.

So can bitcoin, with its steady supply, provide protection from inflation? Bitcoin hasn’t existed long enough to provide a good test, but the evidence we have indicates that it doesn’t really correlate with the price index and thus is unlikely to provide a good inflation hedge.

Take a look at the Fed’s preferred measure of inflation, the personal consumption expenditures (PCE) index excluding volatile food and energy prices. It’s been pretty consistent in the last decade, bouncing around the 2% level:

At the end of 2020, prices plummeted, pushing the US economy into deflation for the first time since this data series began in the 1950’s. If bitcoin is to provide an inflation hedge, it would need to drop when prices do and increase when prices rise. But we saw the opposite behavior, with bitcoin going vertical:

If you look at CPI as an inflation measure, you see the same pattern, with a noticeable decline in 2020 that wasn’t reflected in bitcoin:

Bitcoin doesn’t seem to perform well as an inflation hedge, although it could be useful for other purposes. If you’re worried about inflation, I’d suggest Treasury Inflation Protected Securities, which pay you a fixed rate plus the rate of inflation, protecting your interest payments from erosion by rising prices.

Dig into these posts for more on Bitcoin:

Photo: “Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo” by antanacoins is licensed under CC BY-SA 2.0

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Bitcoin Is Worth More than the GDP of Switzerland

Ah, Switzerland. Home of fine chocolate, discreet bankers and pharma giants. It’s one of the richest countries on earth per capita, and home to world-leading companies like Nestle and Novartis.

But this entire nation of nearly 9 million people with a history going back to the year 1300 has a GDP smaller than the total value of bitcoin, which has existed for just 13 years. The IMF pegs Swiss GDP at $824 billion, versus $921 billion for bitcoin.

The total value of all cryptocurrencies is over $2 trillion, comparable to the GDP of Italy, the number 8 economy worldwide.

These stats show just how accepted cryptocurrencies have become. They’ve gone from a fringe technology to a size comparable to the entire economy of major countries.

Will they someday pass the biggest GDP heavyweight, the United States?

Dig into these posts for more on bitcoin:

Photo: “Switzerland” by T@H!R – طاھر is licensed under CC BY-NC-ND 2.0

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Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! I’ll also get 5% of however much you spend, at no cost to you.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. I’ll also get $10.

Bitcoin Is Now Bigger Than Facebook

As you cruise down the tree-lined road, the first thing you see is a giant thumbs up. You pull into the winding driveway and an endless panorama of multicolor buildings appears. This is the headquarters of the one of the most powerful companies on earth: Facebook, Inc.

1.8 billion people use Facebook every day, and its profits last year totaled nearly $30 billion. It controls news and social relations across the globe.

But all this is worth over $100 billion less than bitcoin. The total value of all bitcoin is $1 trillion. The total value of all Facebook stock trails far behind at $892 billion.

Mark Zuckerberg invented Facebook, but no one really knows who invented bitcoin. Its creator called himself Satoshi Nakamoto, but he has never appeared in public and may not exist. “He” could even be several people working together.

I find it interesting that despite all his entrepreneurial genius, what Zuckerberg has built is worth less than what was built by an extremely obscure man who may not even exist. There is no monument like the palatial Facebook headquarters to mark bitcoin’s ascendance, but ascended it has.

I don’t invest in cryptocurrencies. Still, I can’t help but be impressed at what bitcoin has achieved. It reminds me of a quote from Godfather II:

“Michael, we’re bigger than US Steel.”

Hyman Roth

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To Replace Gold, Bitcoin Needs a Massive Increase in Transaction Capacity

Bitcoin is often referred to as “digital gold.” A major attraction of the cryptocurrency is its fixed supply and lack of connection to fiat money like the US dollar. But unlike gold, bitcoin has no storage costs and is hard to steal. Given these facts, bitcoin could be poised to replace gold as a store of value and inflation hedge.

But it faces one huge hurdle in doing so: the bitcoin system can only process seven transactions per second:

As a piece of global financial infrastructure, the Bitcoin network is hobbled by severely limited capacity. The worldwide network of miners can process a maximum of only seven transactions a second, and today the rate is running at around five, according to de Vries’s estimates. In comparison, Visa can process up to 65,000 payments per second. Hence, any spike in the volume of payments or transfers causes a backlog.

De Vries adds that Bitcoin performs poorly at the checkout counter. If you were to buy $100 in groceries using Bitcoin, it may take an hour to receive adequate confirmation.

Not only does this make bitcoin unsuited to processing daily transactions like grocery trips, it may even limit its use as a store of value. There are currently $22 billion in bitcoin transactions per day, and transactions already take a long time to settle.

Gold does $146 billion in transactions daily. To match that, bitcoin would have to increase its transaction throughput approximately five fold (if the current $22 billion in transactions represents 5/7ths of possible volume). Is that feasible when trades already settle so slowly?

And what if bitcoin becomes a lot more widely held? It’s very difficult to determine the number of bitcoin holders, but some estimates put the number at around 100 million people out of a world population of over 7 billion. That’s a ton of new potential bitcoin buyers, but the currency is likely to struggle to accomodate them given its low transaction bandwidth.

In all, this rapidly growing currency faces some significant barriers to wide adoption as a store of value like gold. I’m curious to see what workarounds blockchain developers come up with to meet these challenges.

Dig into these posts for more on bitcoin:

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Photo: “Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo” by antanacoins is licensed under CC BY-SA 2.0

How China Could Attack Bitcoin

China is creating its own cryptocurrency, which will allow much easier surveillance and control of their population than existing coins. In order to push bitcoin off its throne and replace it with a digital yuan, China could launch a powerful sneak attack on bitcoin.

In order to push bitcoin off its throne and replace it with a digital yuan, China could launch a powerful sneak attack on bitcoin.

Bitcoin transactions are handled by “miners,” or powerful computers that perform calculations to verify transactions. A report from scholars at Princeton University and Florida International University notes that 74% of this mining power is in groups, or “pools,” managed by China.

That much computing power, also known as hash rate, gives China an unrivaled ability to hack the currency:

One broadly understood security property of Bitcoin is that no single party can control more than 50% of the hash rate, so this statistic is worrying.

Cheap land and energy have helped China dominate bitcoin mining:

These facilities are primarily located in remote areas with inexpensive electricity and cheap land, such as Sichuan province and Inner Mongolia. These advantages allow Chinese miners to achieve greater profit margins than their competitors in other countries; a study in early 2018 found that one bitcoin could be mined in China at 2/3rds the electricity cost of the same operation in the U.S.

One way China could attack bitcoin and its users would be to refuse to deal with certain addresses controlled by dissidents or geopolitical rivals. China could connect IP addresses and e-commerce data with bitcoin wallets in order to crack bitcoin’s anonymity:

With control of at least 51% of the hash rate, Chinese mining pools could simply announce that they will not mine on chains containing transactions from their list of censored addresses.

China could also use a variety of techniques to double-spend coins, which would undermine faith in the bitcoin system as a whole, perhaps paving the way for their own cryptocurrency.

One silver lining is that although nearly 3/4ths of mining capacity is in Chinese-managed pools, this doesn’t mean the computers doing that mining are all physically located in China. Miners can and do join pools managed by groups in other countries. The Communist Party will likely find it much more difficult to control miners abroad.

In all, China’s authoritarian government and massive influence in bitcoin mining represent a real risk to the currency. Crypto enthusiasts should begin preparing responses to possible Chinese attacks before they happen.

Dig into these posts for more on bitcoin :

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Photo: “President Kagame and President Xi Jinping of China Joint Press Conference | Kigali, 23 July 2018” by Paul Kagame is licensed under CC BY-NC-ND 2.0

This Congressman Is Buying Dogecoin

Dogecoin has become so popular, even Congressmen are getting into the game:

U.S. Rep. Mark Green purchased Dogecoin on April 1 and April 14 according to Congresstrading.com. The purchases were in the amount of $1,001 to $15,000 on each occasion.

A $1,000 purchase each time would now be worth $17,078 based on today’s price of $0.4009. A $15,000 purchase each time would now be worth $127,985.

More here.

As cryptocurrencies including dogecoin become increasingly mainstream, with more investors holding them and more companies accepting them as payment, it will become harder and harder for the government to ban or even regulate them. Congressmen won’t want to hurt their own portfolios, nor those of their wealthy contributors.

For more on dogecoin, check out these posts:

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You Can Now Buy a Rolls Royce with Dogecoin

Post Oak Motor Cars is now accepting dogecoin, a cryptocurrency that recently gained new heights of popularity following support from Tesla founder Elon Musk, as a form of payment. New Bugatti, Bentley, Karma, and Rolls-Royce vehicles are sold at the boutique sales location next to Houston’s only five-star hotel, The Post Oak Hotel at Uptown Houston.

This is the second form of cryptocurrency the Houston dealership has accepted. In 2018, Post Oak Motor Cars announced that it would allow customers to pay using bitcoin after integrating cryptocurrency processor Bitpay into its payment system.

More here.

Given the enormous price spike in the currency recently, I imagine quite a few holders are in the market for Rolls Royces.

This is the same pattern I saw with bitcoin: increasing acceptance in the real world as the price increases. I don’t own cryptocurrencies due to their volatility and lack of an income stream. That said, in the crypto market, dogecoin has long seemed like one of the better bets. Its market cap is a fraction of bitcoin’s, despite using the same underlying technology.

Its biggest disadvantage was a lack of acceptance as a form of payment, but that too is changing. Perhaps this coin has a lot further to run.

For more on dogecoin, check out these posts:

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Photo: “Mansory Conquistador Rolls Royce Phantom – Team 93 – Team Rolls Royce Austria” by daveoflogic is licensed under CC BY-ND 2.0

“Everybody Thought I Was Crazy”: How Brian Armstrong Built Coinbase

“Everybody thought I was crazy.”

That’s Brian Armstrong, CEO of Coinbase. When he started the company in 2012, it was a small and quirky startup. Bitcoin had only been in use for three years and remained relatively obscure.

But now, it’s safe to say not many people think Armstrong is crazy. His company just went public yesterday and its valuation currently sits at $66 billion. Coinbase holds $200 billion in cryptocurrencies, around 11% of all crypto in existence. So how did Armstrong go from lunatic to visionary?

Armstrong had to build interest in his new product. He settled on a cost effective and attention getting marketing tool: send people free money. But not just any money; bitcoin, of course! He sent tiny amounts of the cryptocurrency to countless people. One of them was angel investor Garry Tan, who became one of Coinbase’s first backers. His $300,000 bet turned into $2.4 billion yesterday.

In an interview with Jason Calacanis on This Week in Startups, Armstrong emphasized the importance of entrepreneurs being scrappy and doing whatever it takes to get the job done. His original approach to investors, repeated countless times, paid off in a major way and Coinbase was accepted to Y Combinator, the most prestigious startup accelerator in Silicon Valley. Armstrong’s resourcefulness and persistence definitely inspire me.

To build a major business, Armstrong had to make sure not to run afoul of regulators. Unlike, for example, a social media app, finance is heavily regulated. Armstrong ditched the anonymity most people expect from cryptocurrencies, abiding by “know your customer laws.” In turn, he offered users a much more secure way to store their cryptocurrencies:

The selling proposition here is security—security conspicuously lacking at some of the exchanges with which Coinbase has competed. The Mt. Gox exchange in Japan went bust in 2014 after hackers spirited away coins worth $480 million. Customers of QuadrigaCX, which was one of Canada’s largest exchanges, have been unable to retrieve $150 million in crypto since the founder supposedly died suddenly in December 2018, holding the only set of keys to unlock their money. They now want the body exhumed.

Armstrong wasn’t afraid to reimagine the crypto business in a way that could grow big, and he doggedly pursued anyone who he thought could help him do it. I find his extraordinary career quite instructive.

For more on Coinbase and crytocurrencies, check out these posts:

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The Ultimate Score: Turning $300k into $2.4 Billion on Coinbase

In 2012, investor Garry Tan got an e-mail. A young Airbnb engineer named Brian Armstrong had sent him a tiny fraction of a bitcoin, worth just a few cents. But this message piqued his curiosity. How many people send you money for nothing?

Tan happened to be one of the few people other than Armstrong paying attention to bitcoin at the time. The digital currency had only been in use since 2009. Tan had actually bought some before, using a janky website called Mount Gox. The process was frustrating. He knew there had to be a better way.

So Tan tried Armstrong’s new system. He found buying and selling bitcoin a breeze, and happily wrote a $300,000 check to Armstrong’s nascent company, Bitbank. That company became Coinbase, which went public today on the Nasdaq. Its current market cap is nearly $100 billion.

Tan’s initial investment is now worth $2.4 billion, making him one of the wealthiest men in America. But why did he spot Coinbase when other investors turned them down?

Tan’s familiarity with cryptocurrencies and the problems in buying and selling them was a major factor. He could see Coinbase’s technology was better than what he and other users had had to put up with, so using it would be a no brainer for others. He had also studied the removal of the gold standard in 1971 and was convinced fiat money was risky.

What do I take from this experience, as an investor? It tells me to look for products in sectors I’m familiar with, and use the product myself if possible. And if a product solves a problem for me, it’s likely to solve it for others as well.

It also makes me want to read widely and keep up with current technologies as much as possible. The more familiar I am with the new technologies businesses are using, the more good shots at a great investment I will have.

I hope to have my own 6,000x bet some day!

For more on startups, venture capital and crypto, check out these posts:

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NBA Top Shot: An Overnight Succcess 8 Years in the Making

NBA Top Shot’s popularity is exploding. Users pay to own an iconic basketball image or video clip, such as Lebron James dunking on someone (plenty of those choose from!). Their ownership is recorded on the blockchain in what’s called a Non-Fungible Token (NFT).

NBA Top Shot is a creation of Dapper Labs, a Canadian blockchain company. It started selling NFTs of cats called CryptoKitties. From these humble beginnings, Dapper Labs has grown to a million users on NBA Top Shot alone and recently raised $300 million in venture capital at a $2.4 billion valuation.

In an interview with CEO Roham Gharegozlou, angel investor Jason Calacanis marveled at how far this company has come:

Another 8 year overnight success in the making. It’s so funny how, as a founder, you can go from being like a punchline of a joke to the absolute belle of the ball.

Calacanis noted that video games have already sold digital items for real money for years, so the NFT business model is really not that much of a stretch. What’s more, for the young, owning a digital asset feels much more natural than owning a baseball card.

Dapper Labs plans to branch out to other sports leagues, and ultimately to recording ownership of items beyond video clips and images. If Dapper controlled the ownership records of, for example, cargo, this could be a truly massive company.

I was impressed with Gharegozlou’s perseverance over nearly a decade, going from obscurity to a partnership with a top sports league and a unicorn valuation. I was also impressed by how forward thinking the NBA is. If the creator of CryptoKitties came up to most major businesses with a proposition, they wouldn’t even get a reply. In its work in the crypto industry, as well as its highly successful COVID protocols, the NBA is clearly doing something right.

Give this intriguing interview a listen!

For more on NFTs and crypto, check out these posts:

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Photo: “LeBron James New York City More Than a Game 3 by David Shankbone” by david_shankbone is licensed under CC BY 2.0