Bitcoin, Emotion, and HODLers of Last Resort

This Post is from Pomp's Daily New Letter off the chain.

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To investors,

Every great capital allocator knows that the best investors are able to remain unemotional about their portfolio. They don’t succumb to fear or greed. They simply evaluate the data available to them, form an investment thesis, and follow the plan in a disciplined manner.

This understanding is why so many traditional finance folks are scared off by Bitcoin and those that invest in the digital currency. In fact, one recent thread really brought this to light (Jared Dilan)

This is not a one off perspective in my experience. Many professional investors feel that Bitcoin investors are too emotional. They are religious about the investment. And if the facts changed, these emotionally attached investors would be unable to recognize the change, which would lead to an unwillingness to abandon the trade.

While this is a generally rational assessment, there is one fundamental flaw — Bitcoin isn’t an investment. A good portion of the largest owners of Bitcoin are not making a decision to store their wealth in the digital asset with a plan of selling the position later. They are evaluating two separate financial systems.

(1) The fiat currency system and (2) the sound money system. 

These alternative options provide opposing value propositions. One empowers fractional reserve banking, artificial expansion and contraction of the monetary supply, human-led monetary policy, and enormous amounts of leverage. The other provides an artificially capped monetary supply, algorithmically disciplined and transparent monetary policy, and a lack of high degrees of leverage.

The proponents of Bitcoin aren’t making a trade. They are choosing to live their life, and store their wealth, in the deflationary world of the second financial system. That system’s unit of account is Bitcoin. 

This individual decision of “which financial system should I participate in?” is a crucial nuance that legacy finance folks need to understand. The fanaticism isn’t about Bitcoin necessarily, but it is more about the increased value provided by an alternative to the legacy financial system.

These enthusiasts use memes like “Plan B,” “Bitcoin fixes this,” and “Long Bitcoin, Short the Bankers.” The message is clear — the existing system is flawed and likely to be unable to persist forever. Finally, an alternative system, along with a new monetary structure that returns us to sound money, is available.

Quite literally, Bitcoin is the scarcest money ever invented. The individuals who have chosen to store vast percentages of their wealth in an alternative system are truly the “HODLers of last resort.”

They aren’t concerned with the USD price volatility of Bitcoin. They are unfazed by fear, uncertainty, or doubt. They can’t be shaken out. They will continue to participate in the alternative system, regardless of the issues that the new system faces.

This isn’t because they are religious about an investment. It is because they see the potential for a better, more equitable world. They are making an active decision to escape from the legacy system and participate in the new one. 

Bitcoin is the vehicle that allows this decision to become reality.

Traditional asset managers will struggle to understand the obsession around Bitcoin. They have historically seen everything as a trade denominated in dollars. For the HODLers of last resort, this is not the case.

One Bitcoin equals one Bitcoin. Assets are measured in satoshis. And there is nothing that will change that.

Over time, even the most conservative people will see the structural issues of the legacy finance system. They won’t be able to ignore them. And when that happens, we’ll add more HODLers of last resort as the number of people seeking a Plan B increases.

The “Off The Chain” podcast has been downloaded in every country in the world, with more than 1,500,000 combined downloads. You can listen to the latest episode with Mark Yusko, Founder & CIO at Morgan Creek Capital Management here: Click here for Off The Chain podcast

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