Why I invest in Bitcoin for the long term | CoinDesk JAPAN

I expect the demand for Bitcoin (BTC) to increase for two major reasons, and I believe the price will rise over the next few years.

• Bitcoin will become a global reserve currency: it will be a borderless, neutral currency that replaces each country’s legal tender.
• The U.S. is so deeply indebted that it is impossible to repay the debt without its real value being eroded by inflation, causing the value of the U.S. dollar to decline and investors to use Bitcoin as a liquid, non-inflationary asset. invest in

When should you buy Bitcoin?

Basically, there are only two situations in which you should buy Bitcoin.

• If you believe that Bitcoin will rise over time.
• If you think that at some point in the future you might want to take advantage of Bitcoin’s unique features and you don’t want to risk not being able to buy Bitcoin when you need it.

Investing is all about probability, expectation, and uncertainty, and you don’t have to be sure of any of the above. Also, you don’t have to invest all your money or nothing at all. In most cases, a small allocation would be wise.

To determine whether buying Bitcoin is right for you, you need to understand your expectations for Bitcoin’s future price movements and the utility you will get from owning Bitcoin.

There are already hundreds of millions of people around the world who have decided that Bitcoin is right for them. All of them probably expect Bitcoin to rise over time, or believe they need to take advantage of Bitcoin’s unique features at some point in their lives. There are as many reasons to hold these views as there are Bitcoin holders.

Why I think Bitcoin will rise

I believe there are a variety of factors that will push Bitcoin’s price up over the next few years, including:

• Bitcoin halving in April 2024.
• Large Wall Street companies start selling Bitcoin ETFs, and capital inflows to Bitcoin ETFs increase.
• Increased demand due to continued wealth transfer to younger generations who are more likely to invest in Bitcoin.

However, these factors only explain changes in demand on the assumption that demand already exists. If there are no other drivers, Bitcoin’s value is fragile because it only shares the illusion that it has value and its value is not rooted in fundamental utility. becomes.

If that happens, Bitcoin will be nothing more than a bubble that will eventually burst, like Beanie Babies, NFTs, or tulips, as critics say.

I don’t like bubble trading, but I’m one of the hundreds of millions of people who own Bitcoin. The reason is that I believe a lot of intrinsic value can be derived from Bitcoin’s unique properties, and my long-term investment thesis is quite simple.

I believe Bitcoin will become an important asset in the global financial system, serving as part of the infrastructure, and this will drive significant investor demand, ultimately pushing Bitcoin to a valuation of at least several hundred thousand dollars. I think it will push it up.

I’m not convinced of this, nor am I allocating all of my money to Bitcoin, but I am convinced enough to take long positions large enough to be considered reckless by many.

internationally collapsing trust

As I see it, international politics is moving toward multipolarization and fragmentation. Gone are the days when America was the clear hegemon. In a world with more balanced and competing geopolitical interests, it is hard to believe that China can trust the dollar, the US with the renminbi, Russia with the euro, and the EU with the Russian ruble.

When Russia invaded Ukraine, Russian assets were frozen and political interests are now trying to confiscate them and use them against Russia. The world is aware of this, and nations around the world are looking to seize assets like gold held within their borders.

Against this background, I believe that Bitcoin will rise. Trade will continue globally and global payment instruments will be needed.

But how can companies and individuals make payments when the recipients of the payments operate in different countries or geopolitical clusters?

What if the exporter only accepts RMB and you only have dollars?

After all, no entity (person or business) that would trust American banks or the dollar, which is a debt owed to the United States, would trust the renminbi in a scenario where international trust collapsed.

Even if you exchange dollars, you won’t get your money back. What happens instead is that people with dollars try to find someone to sell them renminbi in exchange for dollars.

If no one trusts both China and the US, that is, no one is willing or able to hold claims against both US and Chinese entities, then the dollar and yuan can be directly There will be no one willing to exchange it.

However, the solution in such a scenario is simple. A neutral and mutually reliable asset is needed between them. Gold can and has historically played this role. However, physically sending gold is inconvenient and costly.

Oil could be used, but it is not divisible enough and is expensive to store and protect. Finally, a small, neutral country like Switzerland could act as an intermediary, but the pressure from major powers would be too strong. But Bitcoin is in many ways designed for this.

Bitcoin as a trustless alternative

Bitcoin is a digital bearer asset with intrinsic value, and that value lies in the Bitcoin itself, not in a debt owed to a counterparty. Value may be volatile and uncertain, but it is inherent in Bitcoin.

Bitcoin is not controlled by any nation state or centralized authority. Additionally, Bitcoin is traded around the world against all currencies, and can be stored and transferred digitally at almost no cost.

In other words, you can use your dollars to buy Bitcoin, send the Bitcoin to the recipient, and the recipient can buy RMB. This would enable efficient and final payments to be made at any time of the year, regardless of geographical boundaries of trust.

This cannot be done with traditional fiat currencies. This is because they exist only as claims against a specific counterparty (usually a bank).

Before Bitcoin, all digital assets were bonds. Bitcoin is the world’s first digital bearer asset with no counterparty risk.

Debts are negotiable as currency within the jurisdiction in which they can be enforced and within the associated trust. However, bonds do not circulate or be accepted as currency outside the jurisdiction or circle of trust. There is no way to guarantee that you will be respected.

Not only that, but if the issuer or state doesn’t like your behavior or classifies you as a high-risk user, you run the risk of losing your money for political reasons.

I believe Bitcoin will become a neutral global currency and serve as the glue for global trade in a divided world. If that happens, you will be successful because you will be able to fulfill the role of the lowest common denominator.

It will not be the favorite of any nation or commercial group, but it will be preferred over competing national currencies and the option of no trade.

replace the dollar in international finance

For decades, the US dollar has served as the world’s reserve currency, but that won’t be the case for much longer. The main reason for this is growing concern that the United States will use its currency as a weapon to censor those who oppose it.

In addition, America’s huge debt burden does not help the dollar’s position. The United States has debts of more than $34 trillion (approximately 5,032 trillion yen, equivalent to 148 yen to the dollar), a deficit of $2 trillion, and exploding interest payments are now reaching $1 trillion a year.

This is not sustainable. It is impossible to settle debts with dollars of current purchasing power. In other words, either America defaults on its debts, or inflation erodes the real value of its outstanding debt.

President Nixon declared the withdrawal from the gold standard in 1971. French President Charles de Gaulle sent a ship to collect money owed by the United States to France.

In 2021 and 2022, the Federal Reserve and policymakers insisted that inflation would be transitory, but inflation exploded to five times its target of about 2%. Ta. The Fed and policymakers know the consequences of protecting the value of their currency while taking on massive amounts of debt, and instead seek to reduce the real value of debt by reducing purchasing power over time.

As a result, holding dollars becomes less and less attractive, and investors are looking for alternatives. Among the alternatives, Bitcoin is starting to look attractive to more and more investors.

My plan is to buy now. Just in case it becomes popular.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: André François McKenzie/ Unsplash
｜Original text: My Long-Term Investment Case for Bitcoin