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May 19, 2021

All you need is Bitcoin

Mr George Harrison didn’t get into the film business to make money. The former Beatle set up Handmade Films in 1978 for one reason only: to finance Life of Brian after Monty Python had struggled to raise the required funds. And it wasn’t just because Chapman, Cleese and Idle were friends of his. He’d read the script, wanted to see the movie and – because he could – bought what has been described as “the most expensive cinema ticket in history”.

The story of Handmade Films harks to a happier age when investment was about real value. Back then, if you bought a house it was for the prosaic reason that you wanted to live in it, not to treat it as a cash cow. If you invested in stocks and shares, it was because you believed in the company and saw an opportunity to be a part of its long-term success. And if you founded a production company – well, you wanted to make something worth watching.

How times have changed. Both the housing and stock markets are becoming ever more divorced from reality: shoeboxes in the suburbs now cost a king’s ransom, and corporations are valued at more than they’ll earn over the next half a century or more. And the reason for this distortion is simple: it’s because people are searching for somewhere safe to stash their wealth.

But then, today’s Alice in Wonderland economics were inevitable from the moment we moved away from protecting our wealth with gold. That’s not to say we should return to precious metals, gems or other commodities. Gold has been losing its lustre as a store of value for decades: it is confiscatable, hard to protect, difficult to transport, and incompatible with our modern digital world without the introduction of trusted intermediary.

The history of money has been about finding a way to adapt to the growing demands of society, which gold has been unable to do. So the “total addressable market” of once-dominant gold – currently valued at about $11 trillion – continues to decline as a percentage of the estimated $1,247 trillion total addressable “store of value” market, as gold becomes a less and less useful mechanism for holding and transferring wealth.

But though gold may be a shadow of its former self, the workarounds we created in its stead have created their own problems, with housing and stock market bubbles being just two examples. And the result is a great fiction, a whole series of lies we tell to ourselves: Yes, this one bedroom flat in not-even-central London is worth a million pounds. Yes, the company that hasn’t yet turned a profit does deserve its multi-billion dollar IPO. As George sang all those years ago, It’s All Too Much.

For years now, we’ve been creating a zombie economy, with assets and stocks inflated far beyond their true value because, for want of a better alternative, they represented the best way of hedging against inflation. And this made it easy to ignore that none of these assets were designed for such a purpose. Houses are for living in, for creating a home; the stock market is
for raising capital. In treating them as stores of value, we lose the link between something’s price and its true worth; this helps explain why the global real estate market – already massively overpriced – is predicted to rise a further 40% in the next few years.

And that’s another reason why Bitcoin is so transformative. Gooder than gold, its finity makes it a superb store of value, and its digital nature means it is also tailormade for our present and future needs. What’s more, Bitcoin can expand to accept any amount of value, making it perfect for anyone from hedge funds to small-scale investors who have been pushed out of bubble markets. In time, this will allow Bitcoin’s total addressable market to expand far beyond that of Old Gold and as more investors turn to Orange gold, it will act as a much-needed corrective, lancing the engorged, overinflated valuations of other assets and bringing them more in line with their true worth.

Bitcoin bashers love to call it a speculation, a bubble in its own right. How little they know – or care to know. Bitcoin reminds us that an asset’s price is ultimately proportionate to its value. That’s a lesson many markets seem to have forgotten: How can we bring these overpriced assets down to earth & restore some sanity to these markets gone mad? All you need in Bitcoin.

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