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> A lot of people are investing expecting 1000x returns based on historical data, but that ship has long sailed.

You are right. A more reasonable expectation is a 5x return. Analysis below.

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There have been approximately 187,200 tonnes of gold ever mined (+/- 20%, I know I know), which at current spot prices of $41.56 / gram means that the value of all gold ever mined -- almost all of which is held in circulation, or ownership -- is $7.7 trillion.

Bitcoin is a similar store of value in that its worldwide existence increases slowly. It is expensive and a pain to transfer bitcoin, but so is gold when used for monetary purposes.

Likely a good estimate for the "proper" market cap of bitcoin is $7.7 trillion, matching the market cap of all gold ever mined. While many bitcoins were lost, the bitcoins still in circulation are substantial in quantity and have a higher velocity than gold.

Bitcoin is susceptible to technical problems, but the price of gold is predicated on the difficulty of transmogrifying any other element (aluminum, say) into gold. But I include this paragraph just to say that in no way is there some metaphysical guarantee that gold will be equally scarce forever, just as there are issues that could happen to the bitcoin network.

For the next 3-4 years, a decent target for an "appropriate" price of bitcoin is parity with gold - $7.7 trillion, say, or about 40 times its current price.

In my personal opinion you should consider the fundamental price of bitcoin to be around 40 times its current price, which you should then discount by certain systemic risk.

If you have gold it cannot just disappear (without being stolen), but bitcoin can disappear if its network has some kind of systemic problem.

An extremely safe way to generate 5x return on any amount of money (up to about fifty billion dollars) in the next five years, is to buy bitcoin after finding an credible insurer who will sell a policy against a systemic problem that causes it to go to 0, or against your personal bitcoins being stolen.

The risk of the bitcoin network having some unforeseen problems is vastly undervalued today - nobody seems to consider that possibly it will not be a functional network in five years, at all.

Bitcoin is essentially distributed (peer2peer). I searched Google to see if 5 year old p2p networks typically still are up and healthy - you can read the author's findings here: https://www.vice.com/en_au/article/vdqepm/illegal-downloadin...

In terms of technology few p2p networks survive 5 years. I would take a 5-year position on bitcoin only if I could adequately protect against this risk.

Bitcoin is certainly not a bubble and there is next to no risk of an adjustment of losing, say, 98% of its value, while containing to remain healthy at 2% of its current value by its legitimate users. It is not a ponzi scheme. It is not subject to sudden hyperinflation.

You do not have to worry about this eventuality if you are considering a long position in bitcoin. You don't have to watch its price day to day. You do have to have a very active policy against its going to zero for technical reasons. If you don't have a signed contract with a traditional, brick-and-mortar insurer, you should not have any position in bitcoin, period.

Nobody is giving technical network problems the correct probability of surfacing. They're idiots.

Let me put it in these terms for you:

-> I would bet better than even money that the price of bitcoin on December 3rd, 2021 will be more than 5x its current price, if it is at least 10% of its current price.

-> I would not bet even money that the price of bitcoin will be >= 10% of its current price.

Do you understand these two constraints? You can get a 5x return, easily - as long as you ensure against a total loss, which is very, very likely.




I get it, I just don't know who would sell such insurance? It'd probably be extremely expensive to purchase, extremely expensive to write the contract, extremely expensive to litigate when they want to claim the losses weren't caused by systemic tech failure, etc.

Those costs would take so much off the top that you'd probably need to make this play with tens of millions just to offset those costs and make the potential returns worthwhile.

Also, by your argument, if bitcoin is going to be treated as a stable deflationary value store like gold, then that should put downward pressure on the price of gold (because they would be competing asset classes). It should also mean that bitcoin will eventually stabilize and merely reflect inflation.

But the appeal of gold is that it's a hard asset and it's stable. Bitcoin is the opposite of that. Why would its price be based on it being treated like gold when it isn't and will never be anything like gold?


No real comment on anything you've written (which seems a good reply to me). Right, I think it could be quite expensive to insure. My point is that if you are investing $10 million into bitcoin today you will likely make a great return by Dec' 2021 if you actually spend literally $6 million of that (60%) on insurance that pays out only if it goes to less than 10% of its current price or gets stolen from you. So out of $10 million invested, only $4 million makes it into your position * 5x = $20 million, or 2x return over 4 years for an 18.9% year over year return. (1.189^4 = 2, i.e. the left side is the compound interest formula.)

I also have perhaps these two quite minor points,

- Why do you say gold is stable? (You write "the appeal of gold is that it's a hard asset and it's stable"). Here is its real price over just the past 10 years: https://www.kitco.com/charts/popup/au3650nyb.html - doesn't seem particularly stable to me. It seems more likely that the appeal of gold is 1) its historical use, and general acceptance as value, and 2) its inherent scarcity, i.e. its value reflects its scarcity.

- Also you say bitcoin would "reflect inflation" - but where do you think inflation comes from? Wikipedia says it's just a direct effect of an increase in the money supply, but bitcoin doesn't have such a mechanism.


What makes the market cap for gold a good estimate for bitcoin? I would like to know the price of bitcoin where the dollar cost of a transaction was roughly inline with a credit card transaction.

Another systemic risk: government regulation and/or shutting down exchanges to combat money laundering and tax evasion. Good luck insuring against that.




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