At Strawman we’re all about small-cap investing. “Crypto”, in the main, isn’t much of a focus for most of our members.

Magic internet tokens are almost antithetical to any notion of sound, time-honoured investment principles. And it’s hard to think of an industry that has a worse history of blow-ups, Ponzis and grift.

But with Bitcoin now back at all time highs in over 30 countries — including China, Australia and India — it’s getting more and more difficult to make the comparison with tulips. Bubbles just don’t tend to re-inflate; certainly not 4 times in 10 years, and to ever higher levels each time.

Looking beyond various hype-cycles, and taking a broader view, it’s clear that something is going on:

What, exactly, that is, is super hard to say.

But now Wall St is here, and they have effectively IPO’d bitcoin with the new ETFs. Already the most successful ETF launch in history, Blackrock’s IBIT fund (NYSE:IBIT) alone has hoovered up more than 85,000 coins in the first month. The 9 new US-listed Spot ETFs are already over half the value of all gold ETFs.

It’s pretty wild.

So, whether you like it or not, this thing doesn’t seem to be going away. And although you might prefer to avoid owning it (which would be completely valid), we’re at a point where you need to at least have an informed awareness of it.

It’s the same with AI, EV’s or any potentially disruptive technology that is showing rapid adoption. The economic implications can be profound and present all manner of second- or third-order risks (and opportunities) for investors. Even for those not directly exposed.

The point is that when you see genuine and growing traction with a new technology, it deserves more than just a passing contemplation. As Steve Ballmer found out, knee-jerk dismissals can be very costly.

Let me be clear; this is NOT a pitch for Bitcoin. You can’t even add it to your Strawman portfolio.

However, I did want to get ahead of what looks to be a growing hype-cycle, and inoculate curious members against the coming deluge of ill-informed media coverage and speculation.

Of course, as Bitcoiners tend to say, you should “verify, not trust”. Be sure to test any of the assertions you read here (as a ‘hodler’ I am biased).

But hopefully the following will help guide your own investigations.

There is only one

Like electricity or the internet, Bitcoin is a one-time invention. Don’t get distracted by scammy “alt-coins” which promise faster block times, or smart contract functionality or whatever.

Whatever technical gimmick they do posses, at this point none of them can catch Bitcoin in terms of decentralisation, security, adoption and distribution. The internet’s value protocol layer is as baked-in as TCP/IP.

There is no second best, and a lot of people lost a lot of money for failing to understand that.

It’s not a share

No it doesn’t have cash flow. It’s not a company, and you can’t value it as such. 

It’s a monetary good. Like any one of the 160+ national currencies in existence today it serves as a store of value and medium of exchange to those who choose (or are forced) to use it.

Whatever “intrinsic value” bitcoin has, it’s impossible to calculate. As a pure monetary good its value can only be known by reference to the market; it’s worth whatever price buyers and sellers agree on. 

Don’t avoid thinking about value, but frame it differently than you would a productive enterprise (gold is perhaps a useful analog). Ultimately, value will depend on the degree to which you think people, businesses and capital opt into the network.

Not a straight line

Without earnings or sales to reference against the price discovery process is going to be messy. And that’s exactly what we’ve seen over the last 15 years as bitcoin bootstrapped itself from zero to over US$1 trillion dollars in total market value. To describe that ride as volatile is a big understatement, but then again what would it seem like — if it did seem like — a global, digital, sound, open source, programmable money was monetizing from absolute zero?

Even if the bulls are right, know that bitcoin will always be crashing.  And, as is often the case with stocks, you’ll see that 90% of the gains are made in less than 5% of trading days (or something to that effect). As we’ve seen over the last month, when things move, they do so quickly and in unexpected ways.

If you’re going to allocate some capital to bitcoin, the only rational approach is to long-term “hodl” and, if you can, regular DCA.

Trading this thing is a losing game.

Signal and Noise

It’s always the price of bitcoin that captures people’s attention. And there is some signal in that.

Still, as we know from our adventures on the ASX, there can be large and lasting disconnects from the underlying fundamentals. So it pays to have an eye on other important data points if you’re to have any sense of whether your investment thesis is on track.

Indeed, it was only those that looked to the underlying growth of the network, and not the 70% drop in its market price, who had the conviction to hold through and add to their positions in the depth of the bear market (something for which they have been well rewarded). And only those with a reference to more than just price will have the strength of conviction not to sell if the thesis continues to unfold.

If not now, when?

There’s no harm, no foul if you decide that bitcoin is not for you. It may, ultimately, prove to be the smart move.

But things might change.

Remember, Buffett was very late to tech, having famously avoided it for years. Today, Apple is Berkshire’s largest position. 

Bitcoin may not interest you now, but would that change if Google integrated bitcoin lightning payments into its wallet and app store? What if a G20 central bank added it to their balance sheet?

Dismissing the internet in 1995 wasn’t an obvious miss. Most people couldn’t see it at the time. But doing so today would brand you insane.

Keep an open mind, and ask yourself what you’d need to see before you took it more seriously.

Where next?

We may not be talking about shares, but Peter Lynch’s encouragement to “know what you own and why you own it ” is as relevant as ever.

If you’re curious to take some tentative steps down the rabbit hole, this talk by Andreas Antonopolous from 8 years ago is a good place to start.

Ok, back to our regularly scheduled programming.

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