by Steve Outtrim, March 2021
Throughout my career I’ve usually been ahead of my time. Sometimes too far ahead. If you get into a new market too early, you solve the most difficult problems, fight the toughest battles and bear all the scars – but usually don’t survive long enough to reap the most rewards. For example, the guy who wrote DOS didn’t make the money from DOS. Microsoft bought it for $25,000 and created the most lucrative monopoly of all time. Nikola Tesla died penniless and his rival Thomas Edison also said his income had “nearly disappeared” in his final interview. Usually inventors get screwed by predatory capitalists who get bought out by corporations who get bought by even bigger corporations…who then milk the invention for all it’s worth.
In the case of Bitcoin, its pseudonymous inventor “Satoshi Nakamoto” is still considered the largest individual holder with 1.1 million Bitcoin – which remains untouched in the original wallets. Recently a stir was caused when 50 BTC ($3m) was transferred from a 2009 wallet, prompting a public denial by Australian Craig Wright who has claimed to be Satoshi, has been involved in multi-billion dollar lawsuits for being Satoshi, and is widely ridiculed in the industry for these claims. For all we know Satoshi is a Chinese hacking crew or a team of wizards operating in a chamber deep in the vaults of the Bank of International Settlements in Basel. Satoshi’s stake is currently worth almost $60 billion – about as rich as Carlos Slim, Michael Bloomberg or Jeff Bezos’ ex-wife MacKenzie Scott. We don’t know if Satoshi’s lost his password or is even still alive.
Bitcoin seems to be flipping the traditional model on its head. The inventor may be the biggest owner, but since Satoshi many millions of people have been profiting from Bitcoin – with many hundreds of millions more to come in the near future.
On October 5 2009 the first trade of Bitcoin on an exchange took place – 1309.03 BTC for $1. 11.5 years later that is worth a little over $75 million.
Innovation Usually Comes From the Fringe
Bitcoin has followed the idea lifecycle framework described by futurist Watts Wacker in “The Deviant’s Advantage: How Fringe Ideas Create Mass Markets”. It’s an idea that’s come in from the Fringe to the Edge, through the Realm of the Cool and is now The Next Big Thing solidly making its impression towards mainstream consciousness and Social Convention. The parodies have already begun:
I first heard about Bitcoin from Max Keiser. I knew of Max from his 1996 invention of the Hollywood Stock Exchange, which sought to apply market-based price determination models to celebrities (and really anything). In the early 2000’s, retired young and with more money than I’d ever dreamed of burning a hole in my bank account, I used to trade precious metals and stock derivatives as a hobby – so the HSE seemed like a great idea to me. Pick up and coming stars, take a bet on their career prospects, look for outsized returns. Get a feeling their next movie is going to flop, short them. Max sold his patents to Cantor Fitzgerald whose offices were in the World Trade Center on 9/11; the technology fizzled out after that.
Max Keiser was promoting Bitcoin on the InfoWars show when it was less than $10. Max was someone I’d respected for a long time, his arguments made sense, and yet, for some reason…I didn’t buy.
In 2012 I was thinking about getting into silver again. Show me a silver trader and I’ll show you a conspiracy theorist. When the silver bugs started to trash Bitcoin, that got my attention. “Whatever they’re telling you, do the opposite” is often a trading strategy to consider. Still, for some reason…I didn’t buy.
In August 2012 when the image above was emailed to me, Bitcoin was $9.55. Silver was $27.72 As I write this, March 2021, Bitcoin is $58,099.78 and Silver is $25.14 – even after a month or so of Wall Street Bets unprecedented social media-driven #SilverSqueeze. BTC could easily go 2x from here in the next 12 months but Silver is unlikely to go 2x from here in the next 12 years.
In 2013 on a trip to London some of my mates who worked in tech showed me the Silk Road. I marveled at the Amazon-like 5-star peer reviews of all manner of dark web items – even sneakers. Still, for some reason…I didn’t buy.
By August 2014 I’d been watching Bitcoin for a while. It was just going up, and up, and up. I finally caved, buying 6 BTC for US$500 each at Coinbase. Bitcoin promptly crashed to $250, and stayed there for about 2 years. I wasn’t exactly convinced this was the future of investing!
In 2017 a friend of mine in Palo Alto, Gordon Fuller (Bucky’s grand-nephew) told me about the Brave browser’s ICO (Initial Coin Offering) for BAT, their Basic Attention Token. Today, the thing that amazes me about Brave is you can earn free tokens just by browsing the Internet. It’s like Chrome except they pay you crypto based on your usage. The crypto itself keeps going up in value against the Federal Reserve Note USD. At the time, this “Web 3.0” aspect of the idea did not resonate with me quite so much as hearing they raised $35 million in less than 30 seconds from an Internet-based crowdsale.
Brave sold 1 billion BAT at a price of $0.035 each. Today BAT are $1.16, so this was a 33x return in less than 4 years for anyone lucky enough to get in the door in those 30 seconds.
Bringing Blockchain Down Under
I saw exciting opportunities to help companies tap into this new financial world and in July 2017 moved from Silicon Valley, a regulatory nightmare for crypto, back home to New Zealand, where the regulatory environment seemed quite favorable – so long as you didn’t try to sell any tokens to New Zealanders. Enthusiastic about the potential for the “next Internet”, I gave a public lecture about “Demystifying Blockchain” in Auckland. A few dozen people came, and I boldly told them I thought Bitcoin was a great buy at the then price of US$11,500.
The next week I sent out a follow-up letter saying “I hope you followed my advice” as Bitcoin went up +53% to $17,600. It peaked at $20,000 then crashed again and we were back to the crypto winter for a couple more years . There was another run up in 2019, but it peaked and slid down again. The people who bought tickets to hear me speak may well have been cursing me, but if they took all the other advice I gave they’re probably thanking me now.
I made some recommendations in my 2017 talk which I stand by today. Anyone who followed them would have survived the “crypto winter” and profited enormously.
- HODL. You only lose when you sell. It can be awful sitting on 70% paper losses, but it feels great when they bounce back. When you sell, you cement the loss and eliminate any chance of upside.
- Set aside a fixed amount every month to invest into crypto. Put maybe half into bitcoin and the rest into whatever looks good that month. A strategy of steady accumulation is likely to perform well for most; a trading strategy requires more skill, time, and risk.
- Buy the dips. Bitcoin and other crypto charts seem to fit the patterns of technical analysis more purely than stocks. Use Relative Strength Index to see whether a token is overbought or oversold at any given time(frame).
- Use a hardware wallet, don’t keep your savings on exchanges. Cybersecurity is one of the greatest underappreciated risks in modern society, as usually the victims don’t announce it. The hackers are getting more sophisticated all the time.
- Profit from alt-coins and put savings into Bitcoin. Look for emerging coins that have more potential for high multiple gains than more mature tokens like BTC and ETH
How Can You Buy If It Might Go Down?
Will crypto markets crash again? Yes! In the last month there have been at least 2 days where Bitcoin dropped around 10%. In a day! The volatility can be gut-wrenching. Will it go up again? Yes! How can I be so sure?
Because Bitcoin is something that has been dreamed about in financial circles for a long time. A hedge against inflation. If you think central banks will continue to increase the infinite supply of fiat currency, then the dollar’s value will continue to decline against the fixed supply of Bitcoin. I see governments around the world going crazy with money printing over COVID. More dollars in circulation = less purchasing power per each dollar; this is the essence of inflation. Gold can protect you from hyper-inflation…until it’s confiscated. Bitcoin is much harder to confiscate.
If you think that Central Banks have issued all the dollars they ever will, and their printing presses will now be mothballed…then Bitcoin is at its peak. If you think that monetarism means more money printing in the future…then there’s still plenty of time to buy Bitcoin.
Early Days With Early Adopters
Bitcoin has followed the Diffusion of Innovation Model, also knows as “Crossing the Chasm”. My 6-month consulting engagement with the Chasm Group in 2006 was some of the best money we ever spent. The “chasm” recognizes that for a technology to move out of the hands of the nerds and into every day life of regular people takes more than just adding some new features in the next release.
Applying the Diffusion of Innovation model to Bitcoin, you can see we are still well into the “Early Adopter” stage. It has not yet crossed the chasm into the Early Majority, but major events like the Coinbase IPO and Tesla accepting Bitcoin are bringing us there. There’s still a long way to go before every person in the shopping mall is holding some crypto in their smartphone, let alone their retirement funds.
The chasm here is things like call center support, government regulation, banking system acceptance, tax treatment, and so-called professional advisers touting it. All of this is under way, but we’re not there yet. Cryptocurrency is drawing the attention of consumers but is not yet a consumer item.
Last week Max Keiser went on InfoWars again. He is predicting Bitcoin will hit $288,000 before the end of this year. Max said that there are now about 200 million people with cryptocurrency. This is still FAR from mainstream adoption – in contrast, there are about 5 billion people with mobile phones and about 4.7 billion with Internet access. These are both technologies I’ve seen develop in my life time. Facebook has more than 2.8 billion users; it has only been available to the public since 2006. The iPhone didn’t even exist before 2007 and now there are more than a billion of them.
User adoption has a long way to go, but no matter what there will only ever be 21 million Bitcoin. Right now 18.7 million of them have been mined.
Every 10 minutes a new Bitcoin block is mined, and whatever mining pool got to write it earns 6.25 Bitcoin. This works out to 900 Bitcoin per day. Pantera Capital estimates PayPal is buying 70% of the daily allocation and Square’s Cashapp is buying 40%.
There are now multiple Bitcoin Exchange-Traded Funds, with many more filing with the SEC including Fidelity ($5 trillion AUM).
Cryptocurrency hedge funds and decentralized venture funds are emerging. Institutions and corporations are putting some of their treasuries into Bitcoin, with spectacular results. We are not yet even at 1% of Institutions and large corporations doing this with 1% of their treasuries. What happens when 90% do it with 10% of their treasuries?
The US Dollar and other fiat currencies are relatively free from volatility, but their purchasing power decreases over time. Bitcoin is highly volatile, but its purchasing power increases over time. Gold has traditionally been used as a store of value, and a “gold standard” is considered superior to the money printing of Keynesian economics. This is because gold is finite and relatively scarce. However the history of metal-based currency is also a history of debasement, fraud and theft. Supposedly all the gold ever mined in human history would fit into 3 Olympic sized swimming pools. What happens if new mining techniques lead to large increases in supply? The discovery of ancient civilizations in jungles or beneath deserts or oceans has traditionally led to increases in the gold supply in the past. Who knows what might be hidden deep in the earth? Today gold can be made in nuclear reactors, created from copper, 3D printed and grown by bacteria. Plans are well underway to mine gold from asteroids.
Just as we have been promised “peak oil” since the 1950’s, but technological innovation has led to a combination of increasing oil supplies and improving efficiency; so it is likely that time and technology will yield increases in gold supplies in the future. While it is relatively scarce, its scarcity is actually difficult to calculate. Bitcoin’s scarcity is mathematically pure and transparently traceable by all market participants.
There is still a great deal of upside for Bitcoin, and there is even more in the world of blockchain, cryptocurrency and fintech.
First of all, forget about the price of “a” Bitcoin. You don’t have to buy a whole one. Each Bitcoin is divisible into 100 million units called a Satoshi. There will only ever be 21 quadrillion Satoshis in the world. Right now you can pick up a million Satoshis for about five hundred bucks – stack ’em while you can.
Although as the price goes higher, the potential upside reduces; at the same time, as Bitcoin matures, the risk goes down. 5 years ago there were legitimate fears that governments may ban it, the IRS and SEC may go after people promoting it, hackers may steal large amounts, people might forget passwords, competing technologies might emerge, large players may launch 51% attacks to create fake transactions, whales may manipulate the price by dumping, futures contracts might be added to the market with price manipulation around their expiry dates. Today, all of that has happened and Bitcoin is stronger than ever. There is little existential risk for Bitcoin now. If the SHA-256 public/private key encryption it is based on is hacked, this would be a problem (for much more than just the crypto world), but the nature of the immutable blockchain lends itself to preventing large-scale abuses.
Bitcoin is the “apex predator” of the financial markets. As an asset class it is getting very close to being larger than silver.
Bitcoin is a “better gold” than gold; if the markets wake up to that then a 10x (and bey0nd) is still ahead of us.
Bitcoin’s market cap in excess of 1 trillion dollars puts it in the elite league of Microsoft, Google, Apple, and Amazon. However the value of those companies is correlated with revenues and earnings per share; whereas Bitcoin’s price is set by supply and demand. The supply is fixed and demand is exploding, Economics 101 says this leads to price rises.
Alternative Tokens for Edgy People
When Bitcoin goes up, the rest of the cryptocurrency market goes up – often by proportionately much more than Bitcoin. The opportunity for another 10x growth in Bitcoin is still there but may take some time to realize. The opportunities for 10x growth in alt-coins are everywhere. Many coins are going up this much in weeks or months. One token in our portfolio went up 55% yesterday:
In my Dec 2017 talk I predicted there would be more than 10,000 alt-coins within a couple of years. The last crypto winter slowed that down, but today we’re getting close:
The success of the alt-coins is driving enormous amounts of innovation, sweat equity and financial capital to pour into non-bitcoin markets. These are now taking on a life of their own.
Uniswap is a project on the Ethereum blockchain. One token may be exchanged for another without having to go through Know Your Customer Requirements of centralized exchanges. Users can also deposit pairs of tokens in Liquidity Pools and earn returns from a share of trading fees in the pool as well as appreciation of the tokens. Yields in excess of 100% APY are not unusual – I know of one pool at the moment getting 210%. UniSwap are about to launch Version 3 of their protocol which provides similar returns for less capital commitment. Some predictions say it could be 4000 times more lucrative than Uniswap v2.
It took Uniswap 30 days to process $1 million in transactions. 2 years later it is doing > $1 billion per day. This is completely decentralized, meaning a government can pass a law “we forbid Uniswap” and everything would just continue on exactly as before. This can’t be shut down so it is not going away. It only gets bigger from here. Even so, this is a fledgling area, a frontier in the crypto space for pioneers and early adopters. We haven’t even reached our first hundred thousand Liquidity Providers, let alone a million. Getting involved with DeFi now is like getting involved with Bitcoin in 2015.
Funge Me, Baby
As the underlying infrastructure for the crypto world is built, it becomes faster, cheaper and easier to launch new innovations. This year has seen an explosion of NFTs: non-fungible tokens. Fungible means divisible – if I have a barrel of oil, I can give you a gallon of oil and we both have a quantity of oil. Non-fungible means unique – like an original painting. NFTs tap into the popular collectibles craze and are making inroads in the art and sports worlds. Last October the artist Beeple had never sold a print for more than $100, despite painting a new painting every day for decades. In March the venerable auction house Christie’s, founded in 1766, sold his collage The First 5000 Days as an NFT for $69 million – putting him in the Top 3 most valuable living artists.
Another NFT work of Beeple’s just sold for $6.6 million – 100x what the seller paid for it 4 months previously. You don’t have to be the artist to make money from trading collectibles. Twitter founder Jack Dorsey auctioned off the first ever tweet for $2,915,835.47. Someone invested $175,000 in basketball NFTs that are worth $20 million 6 months later. Opportunities to “buy low, sell high” are increasing in frequency, and the timeframe for rewards keeps decreasing.
Conclusion: CRYPTO 2021 = INTERNET 1998
In 1994 when I first got on the Internet it took me months to figure it out and get started. I had to use “Trumpet Winsock” and understand modems, IP addresses, and the Windows registry and operating system. Today getting on the Internet is just taken for granted. So many layers of application and user interface have been built on top of those initial protocol stacks, which are still there…just less visible than in the olden days. Crypto is in a similar place. User interfaces and help files are improving, the experience is becoming more consumer friendly. Some of the smartest minds in the world are building out the application layer for this new financial world, not just new apps but entirely new business models.
Comparing crypto to the Web, it feels like we are in about 1998. We’ve had a couple of big crashes, there’s maybe an even bigger one to come but the genie can’t be put back in the bottle: this invention is here to stay. The infamous “dot com” crash of 2000 sent Apple and Amazon’s stock plummeting below $10. And yet, here we are, trillion dollar companies today. Did the dot-com crash prove the Internet was a passing fad? There were certainly many business journalists reporting that at the time. They were wrong and many of their publications have gone broke or are on their last legs…while those who embraced the Internet even after it crashed went on to do well from it.
Was it a bad idea to invest in Amazon stock in 1999, because it might go down? If you bought before the crash you probably felt awful for a few years. But if you put your stock certificate in a drawer, didn’t sell any, and waited for it to come back around because you saw the long-term potential of the idea…you’d be laughing all the way to the bank.
This is where we are with crypto. Don’t put your life savings in, but put a small % of them. Put a small % of your pay packet into crypto every month. Start accumulating. In 5 years you’ll be thanking me, whatever the market does in the short term.