Bitcoin has been the top-performing asset for seven of the last ten years, yet less than 9% of financial advisors feel confident advising clients within this asset class. This underscores a massive educational gap between traditional finance and this emerging monetary system. Bitcoin is heading towards its fourth halving, due to happen around April 16, 2024, where the difficulty of mining the coin increases and the reward decreases by 50%.
Satoshi Nakamoto, the anonymous developer of Bitcoin, first released the Bitcoin whitepaper in 2008 describing his or her vision for a “peer-to-peer electronic cash system.” At a high level, the Bitcoin blockchain can be thought of as a decentralized database or distributed ledger comprised of a network of computers called nodes that simply record and keep a local copy of who paid what, to whom, and when. Such payments are denominated in bitcoin, a digital asset by the same name with a 21 million maximum supply, and the network uses cryptography and a consensus mechanism to record transactions in a trustless, open, and transparent manner.
A key tenant of Bitcoin’s investment thesis is its status as the non-sovereign digital reserve currency. Given its leading decentralization and security, large network effects, and first mover advantage, it is highly unlikely that another crypto-asset can challenge Bitcoin in this regard. Bitcoin may act as a non-sovereign hedge against government policy missteps, and it may inexpensively add diversification to well-balanced portfolios to improve overall risk-adjusted returns.
In conclusion, Bitcoin is truly a novel creation. Tens of thousands of computers around the world come together to keep a decentralized, trustless, permissionless, censorship-resistant, and immutable ledger of payments that reimagines the financial rails and gives rise to novel use cases and benefits. Bitcoin is the non-sovereign reserve currency of the digital realm, and its role and importance should only grow with compounding network effects and as the world becomes more digitized.