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The Case for Bitcoin and FIRE

Updated: Dec 2, 2020

The FIRE community has shunned the idea of Bitcoin for some time now. It has become a taboo subject because it has been perceived as a get-rich-quick Ponzi scheme. I have been doing research for the past 3-4 months on Bitcoin and its future, and have decided to invest. Bitcoin has been around for 11 years at this point, and it has been building its network and trust in the financial services space as well. It just crossed the all-time-high price on 11/30/20, close to $20k per Bitcoin. As of right now (12/2/20), the price is $19,156 per Bitcoin.


Bloomberg, Fidelity, and Deutsche Bank are all endorsing Bitcoin and see huge potential. PayPal and CashApp allow users to buy and sell Cryptocurrencies. Soon Venmo will allow this as well (early 2021).


Large public companies have put in millions of dollars into Bitcoin as a hedge against inflation. Square has invested $50 million. MicroStrategy has invested $425 million. Because of the COVID-19 pandemic, countries around the world have been printing fiat (paper money) as a band-aid to protect their economies. This is going to cause catastrophic inflation over the next 10-20 years or more. The United States debt is $27.3 trillion as of right now. We're not going to ever pay this back (my personal opinion).


Right now, the government needs to continue printing money in order to keep people and businesses alive. Their potential plan is to increase inflation from 2-3% to 4% or more over the next 10-20 years. That means money sitting under your mattress or in a checking account are losing value at around 4% per year for the potential foreseeable future.


Inflation increases all asset values, like real estate and stocks and gold, because it costs more dollars to purchase the same amount of the given asset. I see real estate, stocks, and gold doing very well because of this inflation, but not as well as Bitcoin.


Bitcoin's main purpose as I see it right now is a "store of value." There are only 21 million Bitcoin (BTC) that will ever be produced. Several million have already been lost, and the vast majority have already been mined (produced). Every 4 years, BTC has a halving event, which cuts in half the BTC that can be mined per day. This creates an increased demand each time this happens, as it becomes more and more difficult and less profitable to mine more BTC.


BTC price predictions are anywhere from $100k to $350k by the end of 2021. If the price goes to $300k per BTC and you happen to own 3.33 BTC, you have just become a millionaire. The cost of 3.33 BTC would be close to $64k with today's price. If you invested $64k into an index fund, such as VTSAX, and earned 10% per year, it would take you 28 years to become a millionaire.


What I really like about Bitcoin is the fact that you can self-custody your assets on a hardware wallet (glorified USB device). This protects you from hackers online who may attack various exchanges. You can have multiple back-up devices and you will also get a 24-word key-word phrase that can be used to restore your Bitcoin if you lose all your hardware wallets.


If you are in the FIRE (Financial Independence, Retire Early) community, you should do some research and consider BTC to be a part of your investment portfolio. Fidelity has published a 29-page document describing Bitcoin as an investment. There is risk, but there is also huge reward possible. The risk of investing in BTC has decreased over the years, but it does have huge volatility. So, the best strategy is to buy and hold. BTC enthusiasts call this the HODL strategy (Hold On for Dear Life!). If you never sell, similar to index investing, you can't lose money (unless BTC becomes obsolete). Please do your own research before investing. But, don't wait too long!


Resources:


YouTube

"What is Bitcoin and Why is it Important"

"Open Letter to Ray Dalio"


Podcasts

"The What Bitcoin Did Podcast"

"Bitcoin Audible"


P.S. I haven't done extensive research on the numbers I've put down here, so please fact check me if you would like. I ain't got time fo' dat.


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