GM frens,

It was another great week for bitcoin. The largest cryptocurrency by market cap is well and truly in all-time high territory, breaking through USD73,000 on Wednesday.

Now that we've entered a new bull market, bitcoin is once again getting a lot of media attention and a lot of people are asking where bitcoin is going and what it's good for.

So let's take a closer look.

DISCLAIMER: This newsletter is not financial advice. It does not take into account your financial situation, is general in nature, and is for educational purposes only.

Understanding inflation

When you hear about inflation in the media, you usually hear something along the lines of "inflation is up X percent". Take this example from AP's coverage of US inflation in February.

So consumer prices (aka inflation) rose 3.2% in February. All right. But what you have to keep in mind is that this number is just the year-over-year inflation rate.

However, inflation is cumulative. Since the start of the coronavirus pandemic in 2020, cumulative inflation in the US has been over 21%.

This means that your US dollars or investments in US dollar-like assets have lost more than one-fifth of their value in the last four years.

If you live in Australia or Europe, your money has suffered the same fate. About a fifth has gone down the drain. You can check the numbers for Australia here, for the UK here, and for the Euro area here.

Remember, this is what inflation has done to so-called strong currencies like the US dollar, the Euro, or the Australian dollar.

If you live in a weak currency economy like Turkey, your money has been hit with cumulative inflation of between 300 and 400% over the past four years. Good luck staying afloat.

Famed economist Milton Friedman called inflation a "hidden tax" because you pay for it unknowingly after the taxman has charged you.

Now compare that to bitcoin. Let's say you invested in bitcoin over the same period from 2020 to 2024. Your money would have grown by over 900%.

Why does inflation occur?

Inflation is not well understood in economics, and there are many factors at play.

But one thing is certain: Inflation occurs because governments print more money, expanding the money supply. With more money chasing the same amount of goods and services, prices go up.

Many governments around the world, especially those of the so-called developed economies, face similar challenges:

1. They have aging populations entitled to health care and social security.

2. They have shrinking workforces, which means less income tax revenue.

3. They have to spend more on defense, especially since the start of the war in Ukraine and the crisis in the Middle East.

The bottom line is that most governments can't fund these challenges (and the occasional black swan event like a pandemic or a banking crisis) with their revenue sources. So they print more money out of thin air. They drop helicopter money on us like they did during the pandemic. And they monetize their debt by issuing bonds that central banks buy with newly printed money.

It all sounds more complicated than it actually is. Adrian Orr, the current governor of the Reserve Bank of New Zealand, put it bluntly before a parliamentary committee in February. He said: "It's a great business to be in, central banking, where you print money and people believe it. Touch wood."

The reason governments can print more money is that modern money (fiat money, as we bitcoiners call it) is not tied to anything.

Over centuries, money has evolved from commodity money (like shells, salt, or later gold), to paper money that was tied to commodities (like during the gold standard), to paper money that is not tied to anything. Central banks print money and people believe it. Touch wood.

Why bitcoin is different

Enter bitcoin.

Bitcoin is different because it is the ultimate hard money. Its supply is not elastic. It cannot be manipulated. There will only ever be 21 million bitcoin.

Modern money is soft money. Governments and central banks manipulate its supply all the time.

Gold is much harder than paper money because only 2,500 to 3,000 tons of new gold are mined every year. But bitcoin is the hardest money mankind has ever known. With every halving, the amount of new bitcoin coming into circulation is going down. And once the cap of 21 million bitcoin is reached, the production of new bitcoin will stop.

My investment thesis is that as governments continue to manipulate their soft money supply, debt levels rise, and inflation remains at the forefront of people's minds, more and more people will begin to appreciate hard money. And with bitcoin ETFs now available, investing in bitcoin is so much easier than before.

On the list of top assets by market cap, bitcoin has overtaken silver in recent days and now ranks 8th with a market cap of USD1.4 trillion.

Gold as a scarce asset is the natural competitor to bitcoin. It is the largest asset in the world with a market cap of almost USD15 trillion.

I believe that bitcoin as the hardest money that we’ve ever known will catch up with gold, and will ultimately eat it. Don’t ask me when this is going to happen, but this is why I’m a bitcoiner. That's a 10x from where we are now.

Hard money is eating the world.

Why hard money is the killer use case

Now that bitcoin is at an all-time high, pundits and ordinary people alike are trying to make sense of what bitcoin can be used for. They are asking: "What is the use case for bitcoin?"

I agree with what Michael Saylor says in the video snippet below. Don't be confused by people who say that bitcoin has failed because you can't pay for your coffee with it.

Bitcoin has not failed. Paying for your coffee is not the natural use case for a hard asset. You don't pay for your coffee with gold nuggets. Or with a fraction of your beachfront property.

The use case for bitcoin is to be hard money. It's to be a store of value. It's to protect your capital from inflation and debasement.

Bitcoin is volatile, but between 2013 and 2023, bitcoin was the best asset class in 8 out of 11 years, beating all other major asset classes.

I can see other use cases for bitcoin in the future (such as a digital notary), but for now, bitcoin's killer use case is hard money.

I hope this helps bring clarity to where bitcoin may be going and what bitcoin is doing.

Have a great weekend everyone. See you all next Friday!

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