Ep 80: Why you should Love Blockchain, not Bitcoin Part 2

It’s not just because they’re famous or whatnot, so we make sure that they know what they’re saying, and that’s why we have actually quite a hard time trying to make sure we get good guests. But in this month, I think we have two very good guests in the crypto space that came on and they will come on to talk more about it.

So I’m not a pro, but I know many of you guys just want to hear my perspective. Just kind of how I see Bitcoin. So, like I said, Bitcoin is the traditional guy, the godfather in the space, it’s kind of where everything started. 

And how I look at Bitcoin, based on where I left off last week, it’s really just an incentive system. So to get people to participate in the blockchain, to put their computing resources, to put their time, their manpower, to go into this blockchain thing, essentially the by-product of incentivizing you is to give you a Bitcoin in exchange for your resources that you put in. That is kind of how I see it, of course, different people will see it differently.

And over time, Bitcoin has taken a life of its own way beyond the blockchain. People don’t even talk about the Bitcoin blockchain much anymore. People talk about Bitcoin as a digital asset, like, you know, a digital gold or a hedge of inflation, you know, the future currency of the world and what have you not .

So, Bitcoin has gotten past the technicalities of the blockchain and really gone into being seen as an asset on its own, and being seen as having its own characteristics, which is very interesting. But much like any other kind of investments out there, you really have to look beyond, you know, simple marketing taglines, like easy to onboard, very safe, you know, uh, compounded growth over time.

All those kinds of things are very, very marketing angles. And many companies fall into this problem of like brand building, marketing, angling, and all this kind of stuff, which I’m actually, I know why they do it because it’s very effective from a sales angle. But if you want. To be a very good investor, you got to see past all these things and kind of ask yourself what is going on, right?

What are the fundamentals of these investment strategies or these investment tools, and same for Bitcoin, same for the crypto space. There are a lot of, you know, people that are trying to hype this thing up. A lot of maximizers that are pushing this idea and they use all of these kinds of interesting tag lines to try to kind of mask up the fundamentals as to what is going on.

And I’m going to share with you some of them today, which basically forms, you know, my understanding of why I don’t want this thing, right. I’m not interested in Bitcoin. So the very first reason why I do not own Bitcoin is that I do not see Bitcoin as an inflation hedge, okay. So inflation hedging is something that people make it sound like this is the thing, you know, buy Bitcoin.

It’s going to, you know, hedge against inflation because the fed is printing a lot of money and all this kind of stuff. So to me, that is a little bit of a problem. You need to understand what is hedging, right. So essentially hedging is to try to mitigate price movements, try to meet, to get unwanted price movements, that is generally hedging.

So most people will hedge the downside, right? Which is they don’t want their US dollar to depreciate, so they will hedge, or they don’t want, you know, their stocks to go below a certain price. So they will hedge. They don’t want their portfolio to go down too much, so they will hatch. And there are many, many different ways to hedge.

If you don’t want your portfolio to go down too much, you want to reduce volatility, you hedge with bonds, right? You essentially, you dampen your volatility with non-correlated assets. If you don’t want your currencies to go down too much, most people will hedge with gold, they buy gold as a stabilizer against their currency movement.

Some people just outright buy options, they buy insurance. There are many ways to go about hedging. But the idea of hedging essentially is debt, right? So that you will not experience that kind of downside fluctuation that you want. 

But I think a lot of people when they are looking at Bitcoin, right, they’re not trying to hedge it, you know. They’re not trying to use it as a hedge. They are really trying to capitalize on, you know, the ride up. And that is not a problem, actually. If you’re trying to capitalize on, you know, the future movement, you are trying to capitalize on assuming more money is going to come in and, you know, Bitcoin’s going to be more and more expensive, and then you want to ride up this wave you know. I think it’s perfectly fine if that is what you believe in. You believe that there are fundamentals here and more money is going to come in and we’re going to push up the Bitcoin prices. You can participate, go ahead, do what you need to do. 

But the problem is when you kind of fall into this idea of, oh yeah, this is an inflation hedge, right? So when you fall into a certain marketing narrative, you know, that isn’t exactly doing what it says, to me, that is pretty scary. 

Of course recently Dalio and the Financial Horse, they both published a very good articles around this thing, and I briefly took a look. And I think Financial Horse specifically talk about this thing as an option, essentially means that you are trying to buy a potential upside. If one day Bitcoin becomes the dominant currency or, you know, if one day cryptocurrency becomes so accepted and Bitcoin continue to ride up this, you know, capitalization game, that means more and more money is going to come in and then Bitcoin prices are gonna go up. So you’re buying an option towards the upside, which is fine if you see it that way. But it is not fundamentally an investment hedge. 

But scary enough, a lot of people in the crypto community actually sees it this way. So if you look at it, whether is it talking about hedging inflation or whether you’re talking about like digital gold as an asset, you know, fundamentally all of them are pushing this narrative that, you know, it is here to preserve value and kind of protect yourself from inflation. So this is the central narrative that’s out there, but to me, because it is so volatile every day, it’s moving, every minute it’s moving. Every 10 minutes of transaction, it is moving like mad. 

I don’t see where the preservation is coming from. And I don’t think that this use case really work because if it is so volatile, it’s very hard for big money to come in. And if it’s very hard for big money to come in, it’s very hard for it to continue to flip and grow, which brings me to point number two.

Point number two as to why I do not own Bitcoin is that today net net is already a 1 trillion market cap. I don’t think it can 10x. Okay. Why is 10x so important? Because a lot of people in this space are trying to sell you the idea of digital gold, right? They’re trying to make you feel like yeah, yeah, this is the future because there’s limited number, cannot issue any more. It’s very stable. There’s scarcity and you know, you cannot overprint it. So this is digital gold. 

And when they do that, 10 trillion is always the benchmark, because 10 trillion is the overall market capitalization of gold, which means all the gold times current price is at 10 trillion on average. Because I do not see it as digital gold, I do not see as inflation hedge, I don’t think it can go anywhere near 10 T. 

And I’m sure you know a little bit about gold, right? Like everybody talks about it and it is the inflation hedge, you know, by nomenclature and trust standards, which means a lot of central banks, they own gold, right. A lot of big companies, they own gold, a lot of big institutions, they buy goal as that inflation hedge, and that’s why it confers it value. And the value really lies in a trust, because of history, because, you know, all the big boys give it that trust. 

You know, if today pebbles were what central banks collect, maybe it will be Flinstone age. But either way because the central banks own it, and they give it the trust, that’s why people conflate value because there’s no real use case for gold also. It’s barely 3% of overall usage, but if you want to translate that to Bitcoin being that digital gold of the future, firstly, all these big institutions have to own it. And all these central banks have to own it and they have to own it not in a way that they are trying to profit from this thing, but they have to own it in a way that they are trying to use it as a basis, you know, to hedge against whatever they are doing or use it as a basis of trust so that people will trust their currency issuance.

Which is why every time, you know, there’s like economic crisis or every time it seems like there is an increase of war, a lot of these central banks and these big companies, they will turn to gold. They will literally buy gold, you know, to kind of beef up that trust, where other countries will kind of have a good trust with them, which is why Russia, China they’ve recently been buying a lot, a lot of gold. 

So if Bitcoin does not share that same level of trust as gold, what makes you think that it can go from 1 trillion net capitalization today to 10 trillion capitalization, which is the total value of gold today? It’s crazy, you know? But of course, if suddenly one day, you know, the federal reserve, MAS, you know,  central bank, they all agree that eh, we are going to accept Bitcoin, we’re going to keep Bitcoin or something. Oh, and this is a whole different discussion altogether. 

But till then, I don’t see it really happening. And of course, if we have to bring it down to investment perspective, right. From 1 billion to 10 billion is very easy, okay. There are a lot of people that can participate in this.

But from 1 trillion to go to 10 trillion is, is… how much money needs to come in? 9 trillion more needs to come in, which is why Bitcoin today is still relatively volatile because it’s only 1 trillion. That means if you have a few billion, you have few hundred billion, you can kind of play around with this ecosystem, money can keep moving.

So essentially, if you think about it to really bring up the chances and the possibility, whether is it from a fundamental viewpoint or whether is it from a perspective that more money can come in, from 1 trillion to 10 trillion, it’s not going to happen. Objectively when we look at the probability of it happening.

So if it’s not going to happen, then why do I want to subscribe myself to this upside limitation with the downside risk? Okay, maybe I come from a different perspective because I can buy growth stocks that will, you know, I won’t say easily, but I can buy growth stocks that can 3x, 5x, maybe some can 10x. 

And it is not that foreign or not that weird for these things to happen in the stock market. Of course they do carry similar volatility. So because I’m more familiar with the stock market, I just stay with the stock market. I don’t really need to come to the crypto market to see anything. And if you want to see a parallel, right?

The crypto market, with Bitcoin being the crypto market, the parallel is kind of like buying an Amazon and hoping Amazon will 10x, you know. To me, it’s like, wow, how is that even possible? Maybe it’s possible, I don’t know. But at today’s price, you know, it’s not for me, it’s too expensive. 

If I was a believer, you know, 5 years, 10 years ago, which is what a lot of these guys are, you know, a lot of these guys that are propagating this Bitcoin idea, they are believers from many, many years ago. So it’s the same idea with like how our parents are propagating HDB, right. Same idea because they bought it at a very, very cheap price and they have gone past the, you know, the capital growth.

But in today’s price, is it worth it? I don’t think so. Will it 10x? I don’t think so, but I’m not a pro. Just take me in as an education and entertainment purposes only, don’t take me as reference, okay. 

Which brings me to point number three. And that is, I do not think Bitcoin will fundamentally take over the traditional financial system that we know it today. Why is this important to understand why this forms a very core pointer within my understanding of Bitcoin? Because there are a few narratives out there and one of the narratives of course, is the digital gold one, there is the inflation hedge, and both are fundamentally very weird because there’s no trust and, you know, it’s too volatile to be a hedge and we have talked about it earlier. 

But the biggest, biggest discussion out there is that Bitcoin can potentially take over as the currency of the future, where decentralization is the thing, right. There will be no central governance. There will be nobody that can easily manipulate money. And that is why a lot of people are buying into this idea, right. 

So it’s a lot more emotional, a lot more futuristic than it is a realistic and practical and strategic. So when I look at this thing, right, this is a very big problem because there’s a dichotomy here. The people that truly believe in the Bitcoin future, they don’t understand, many of them do not understand how broad the traditional financial economy is, with your primary dealers, your reserve currencies, and, you know, the Euro dollar system.

These are very, very big systems that it’s not so easy to kind of like flip around just like that. And then all these traditional guys that believe in the traditional financial system, I dunno, it’s because they are too comfortable, they’re so used to it. And it’s becoming their thing that if I am very hard to understand the other side of the story, which is the whole beauty of going on a blockchain, the beauty of, you know, making things happen in a digital space with much faster way of doing things, no clearing houses in between to kind of manage this thing.

So both sides are seeing their own story, but I actually stand closer to the story of the traditional guys, because if you go and understand how big this broad financial ecosystem is, you know that it’s very hard to adjust, because there’s too much political interest, financial interest, and a lot of things involved in this.

Which is why there’s the rise of the stablecoin, like Tether or whether is it with like the SG stablecoin with Xfers, they’re really kind of like in-between where they leverage on all the beauty of the blockchain, but they actually have central governance behind a lot of these things. They have to ring fence their money in a custodian account, or, you know, in Xfers’ case they have to put money with the MAS. 

So if you look at this thing, you realize that there’s too much political interest here, and it’s virtually impossible to shut down the current financial system, unless you go for war, unless there’s a political change, unless, you know, like China take over or something.

But if honestly, if China takes over right, I totally don’t think it will happen because if you think the US is not going to give a highly liberal decentralized Bitcoin to be your currency of the future, China will never happen. This one I can guarantee you. China will never give that. China is going to issue their own digital yuan to try to compete with the Bitcoin in their own space.

And that is a whole different, exciting discussion altogether. But precisely because the traditional financial system is too big to change, you can go and read on it, I’m not gonna elaborate more because it’s too complicated. If you are a big fan and you want to kind of go and like geek it out, right, go and search Eurodollar University, or Macro Voices. These two podcasts have very, very deep discussion on this.

But yes, because the system is too big. I fundamentally do not think that Bitcoin will take over. It will live within the ecosystem, it will live as one of the assets. It will live as one of the thing in the broader financial ecosystem, but to believe that Bitcoin will take over and become the currency that we use and we exchange with, a bit wild la, okay. Maybe I’m a bit be uncle. I don’t get it la, but you get the idea. It’s too big and this is why I do not own Bitcoin at this current moment in time, because I do not subscribe to all the narratives that people put out there. 

And I’m going to sum it up today, okay. Point number one. Why I do not own Bitcoin is that Bitcoin is not an inflation hedge, okay. Whether you believe that is a digital gold, or whether you believe in the whole idea of inflation hedging, I think it is too volatile. It is not a hedge. So it’s very hard for big money to come in and it is essentially a marketing statement, right. It does not align with the fundamentals of what is going on. So to me, it’s like, nah, does not serve that function. 

Which leads me to point number two. And that is, I think it’s very hard for Bitcoin to 10x, right? Because it’s a really a 1 trillion, hovering on 1 trillion, to go to 10 trillion is not a walk in a park.

You must have a lot money parking into this thing, right. And I think it’s not possible because I don’t really see the incentive for people to do it. People may park a little bit of money , but to make it 10 T, wow. Think about Amazon 10 times, right? It’s crazy. The world will be like Amazon world, right? So I think that’s not possible. 

And number three is that I do not fundamentally think Bitcoin can overtake the current financial system. Of course, some maximizers will tell you they can. But to me, if you understand how broad this system is, it’s very, very hard. So if it’s not a hedge, it’s not a digital asset, it does not really have the kind of capability to take over the financial system, then what it is… I don’t know.

At best Bitcoin will stay as one of those asset class that, you know, it’s around. And given the current pricing, given the current scenario, the risk reward return does not meet what I want. So that’s why I do not own it. Does not mean that you cannot own it. I’m just here to kind of educate you and share with you my perspective. 

Definitely check out the other interviews where they are the pros and they have very interesting perspectives. I picked up a lot of stuff learning from them. So yeah, check out our Thursday series and I hope you learned something useful today. See ya.