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Critics still claim that bitcoin is a bubble, but the bubble has burst many times and come back each time. Is bitcoin the first bubble to inflate itself again, time and again, or is there something fundamental driving bitcoin that its critics haven't picked up on?
Torbjørn is CEO of K33.com and Arcario AB, listed on Nasdaq First North. Previously he worked in Menon Economics, consulting entities like the Norwegian Central Bank, the Ministry of Finance and the NFSA on digital assets and blockchain. Torbjørn has an MSc in Economics and Econometrics from the University of Oslo with a master's thesis on Bitcoin.
This is what Torbjørn Bull Jenssen asks about in a comment that he has called his “Investment thesis for Bitcoin”. Bull Jenssen is CEO of Norwegian crypto company K33 and of its parent company Arcario AB, which is listed on the Swedish stock exchange.
Bull Jenssen continues his comment below:
Personally, I think bitcoin will rise in value in the coming years as a result of two fundamental factors that will drive increased demand:
Basically, there are only two situations in which you should buy bitcoin:
1) If you think that bitcoin will increase over time.
2) If you think that you may want access to the unique properties of bitcoin at some point in the future and that there is a risk that you will not be able to buy bitcoin when you need it.
You don't have to be sure about any of the points above, as investing is all about probabilities, expectation values and uncertainties. You also don't have to invest all your money or none. For most people, a small allocation is what will make sense; a bit like when you buy an insurance policy.
To identify whether buying bitcoin is right for you or not, you need to figure out what you expect from price movement and what utility values you can potentially gain from owning bitcoin yourself.
There are already hundreds of millions of people around the world who have decided that bitcoin is right for them. Everyone expects that bitcoin will rise in value over time and/or believe that they will need to exploit the unique properties of bitcoin at some point in their lives. The different justifications are as numerous as that of the owners of bitcoin.
Over the coming years, I see many different drivers that could lead to an increase in the price of bitcoin, such as:
● The halving of the bitcoin production rate in April 2024.
● Increased inflows of capital into bitcoin funds now that the major players on Wall Street are starting to promote their products
● Increased demand as a result of the continuous wealth transfer to the younger generation, who are more inclined to invest in bitcoin.
None of these drivers, however, can provide a basic rationale for why anyone should buy bitcoin in the first place. The drivers can only explain changes in demand, given that there is already demand.
If there were no other factors, the value of bitcoin would be very vulnerable, as the shared illusion that bitcoin has value and not underlying properties would have been the only thing that would have kept bitcoin up. If that were the case, the critics would be right, and bitcoin would only be like Beanie Babies, NFTs or tulips for that matter; a financial bubble that would eventually burst.
I am not a fan of trading financial bubbles, but I am at the same time one of the hundreds of millions of owners of bitcoin. The reason is that I see a lot of fundamental value derived from the unique properties of bitcoin, and my long-term investment mission is quite simple: I believe that bitcoin will become an important cog in the global financial system and that this will drive significant investor demand. If this were to play out, I expect the price of bitcoin to pass several hundred thousand dollars.
I am not sure about this and have not allocated my entire fortune to bitcoin, but I am convinced enough to take what many would describe as an irresponsibly large position.
The way I see it, we are moving towards a multipolar and fragmented international situation. The days of the United States as the clear hegemon are over. In a world with more balanced and competing geopolitical interests, I don't see how China would trust the dollar, how the US would trust the Yuan, how Russia would trust the Euro and vice versa, etc.
When Russia invaded Ukraine their foreign exchange reserves were frozen by the US and EU, and political interests are now working to confiscate the assets and use them against Russia. The whole world is watching, and nation-states around the globe are now looking for assets that cannot be easily confiscated, like gold that they keep within their own borders.
It is against this backdrop that I believe that bitcoin will show its true face. I believe that trade in goods and services will continue globally, which means there will be a need for global payment systems.
But how will businesses and individuals be able to pay when the recipient of the payment operates from another country or another geopolitical cluster? What happens if an exporter only accepts yuan, but you only have dollars? By definition, you can't just swap dollars for yuan, because the market participants who are willing to rely on dollars, which at the end of the day are claims on US banks and the US, would not be willing to trust yuan in a scenario where international confidence breaks down.
Dollars don't get turned into yuan when you exchange them. What happens instead is that the one with dollars tries to find someone who has yuan who can sell these in exchange for dollars. When you don't have anyone who trusts both China and the US, i.e. are willing or able to hold claim to both US and Chinese players, you also won't have anyone willing to exchange directly between dollars and yuan.
However, the solution in such a scenario is simple. You need a neutral and mutually trusted value object. Gold can serve this role, and has done so historically, but it is impractical and expensive to ship gold around physically. Oil can also be used, but is not divisible enough and is expensive to store and protect. In the end, one can think of small neutral countries like Switzerland and their currency as a link, but they are likely to come under too much pressure from the larger centres of power. Bitcoin, however, is in many ways designed for the job.
Bitcoin is a digital carrier instrument with intrinsic value, meaning that its value rests in the bitcoin itself, not as a claim on any counterparty. Its value may fluctuate and be uncertain, but it is equally inherent in bitcoin itself.
Bitcoin is not controlled by any states or centralized power constellations. Bitcoin is also traded worldwide, against all currencies, and can be stored and transferred digitally almost at no cost.
In other words, you can easily take your dollars, buy bitcoin, send bitcoin to the recipient, who can then buy yuan. That way, you will be able to cross a geographical trust boundary and have effective and final settlement at any time of the day, any day of the week, any week of the year.
This cannot be done with traditional national currencies or bank money, as they exist only as claims on a given counterparty (typically a bank). Before bitcoin, only digital assets existed in the form of receivables on counterparties. Bitcoin is the first digital carrier instrument without counterparty risk the world has seen.
A claim may circulate as money within a jurisdiction that can enforce the claim, and its associated trust circuit. However, a claim will not circulate as money or be accepted outside its jurisdiction or trust circle, as there is no way you can ensure that it will be satisfied.
Not only that, but you also run the risk of your money being confiscated or rendered worthless for political reasons if the issuer or its nation-state doesn't like what you're doing or classifies you as a high-risk user.
I believe that bitcoin will sail forward as the preferred neutral international currency, and serve as the glue for global trade in a fragmented world. If so, bitcoin will succeed because it can serve the role of the lowest common denominator. Bitcoin is unlikely to become the favorite of any nation-state, or commercial player for that matter, but bitcoin could still be preferred over the currency of a competing nation-state and over the no-trade alternative.
For decades, the US dollar has served as the world's reserve currency, but I think those days are numbered. I think the main reason is the growing fear that the US is going to exploit its currency as a weapon, and censor those with whom they disagree.
Plus, the massive US debt isn't helping the dollar's position. The United States has a debt of more than $34 trillion, a $2 trillion deficit, and exploding interest expenses, now at $1 trillion a year. This is not sustainable. It's not going to happen that the debt is made up in dollars with the current purchasing power.
In other words, either the US defaults on its debt, or they will let inflation eat away the real value of the outstanding.
In 1971, Nixon abandoned the gold standard when Charles de Gaulle sent ships to retrieve the gold the United States owed France. In 2021 and 2022, the Fed and policymakers insisted that inflation was transitory while exploding to around five times the target of around two percent. They are familiar with the consequences of defending the real value of dollars, given the massive debt overhang, and will instead let their purchasing power weaken over time, thus eating away at the real value of the debt.
As a result, holding dollars is becoming increasingly unattractive, and investors are looking for an alternative. Among the options, bitcoin is starting to look attractive to more and more investors.
My plan is to buy my stake now. You know, in case it hit.
Kaupr's blog column is open for posts, analyses and debate in Norwegian, Danish or Swedish, and in some cases also in English. Send your article or idea to morten@kaupr.io.