The Kale Letter

7 things most people don't understand about Bitcoin.

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7 things most people don't understand about Bitcoin.

Kale Abrahamson

Feb 22, 2021

Hey everyone!

So, today, I wanted to just briefly go through a few things that most people don’t understand about Bitcoin, even if you’ve been “doing this” for a while.

My goal is to make this useful for you even if you are a beginner.

P.S. I’m also not going to go through all the typical ones

The Gov will ban it
It’s a Ponzi scheme
There’s no intrinsic value
etc.

For all those I will refer you to this EXCELLENT article that basically busts every single one of these arguments into little pieces… -> https://safehodl.github.io/failure/

1) Bitcoin is like a stock.

I hear this one way too much.

Technically, a stock is valued at the discount of its future CASH FLOWS.

Put simply, that means that the BUSINESS UNDERNEATH IT is supposedly what is determining the price of that stock.

Now, I know we’ve seen stocks go through the roof even during a pandemic, so obviously there is a lot of wiggle room there.

But Bitcoin is NOT like a stock, because it doesn’t get “overvalued” the more that the price goes up.

A stock gets overvalued because it values a company that only produces 100M in revenue at 700 Billion dollars or whatever.

That makes sense.

But Bitcoin actually gets MORE valuable as the price rises…

Why?

THINK OF IT LIKE FACEBOOK.

When Facebook had 1 user, how valuable was it?

Not very, right?

10,000 users?

Pretty valuable.

1 Million users? Really valuable.

2 BILLION monthly active users? You get the idea.

At its core, bitcoin is a NETWORK EFFECT, not a stock.

There are no “cash flows” underneath it, in which to value it.

Its value comes from the NETWORK, and as the NETWORK grows, the price goes up.

It really is that simple.

2) It’s in a “Bubble”

Saying it is in a “bubble” is like saying that Facebook was in a “bubble” in 2012.

That didn’t work out for people so well.

In fact, it’s kinda like saying that the “Internet is a bubble” in 1997.

Actually, it’s exactly like that.

Check this out

Willy Woo @woonomic

In terms of adoption, Bitcoin has roughly the same users as the Internet had in 1997. But Bitcoin's growing faster. Next 4 years on current path will bring Bitcoin users to 1b people, that's the equivalent of 2005 for the Internet.

3) It’s going to “crash soon” because it “always does”.

Actually, no.

Sure, there are ups and downs.

Anytime something goes from literally worth ZERO DOLLARS to 1 TRILLION DOLLARS in the span of 12 years, there will be some ups and downs, sorry to break it to you.

However, saying a crash is imminent honestly isn’t looking at the chart.

This is going to hurt your brain, okay?

Humans aren’t good at understanding exponential technologies (see my #1 most recommended book for 2021 -> Jeff Booth, the Price of Tomorrow)

If this cycle follows the pattern of the last one, we still have a LONG way to go.

See that blip in 2017 where the price went from 1k -> 20k?

That’s where we are right now…

The price peaked in December 2017.

Actually, 4 years ago today, on February 22, 2017, the price was $1,123.

So, if history repeats itself, we still have 20x up from here… this year…

I’m not saying that will happen but I sure wouldn’t be selling at this moment.

Insane. I know.

4) Grayscale buys an insane amount of Bitcoin, and those coins are never coming back on the market. Never.

For those that don’t know, Grayscale is one of the largest buyers of Bitcoin in the World.

As you can see from the chart, Grayscale currently has almost 35 BILLION dollars worth of Bitcoin.

Every time someone buys a share of Grayscale, Grayscale buys Bitcoin.

The CRAZY part is, even if someone sells their share of Grayscale, they don’t sell the Bitcoin…

It’s a complicated back end agreement, but here’s the just of it…

Without a redemption program, GBTC essentially can only purchase Bitcoin but not sell it. The only scenario that GBTC sells Bitcoins is to cover trust fees and expenses.
According to Grayscale financial statement, GBTC sold 3,469, 3,843, and 4,641 Bitcoins to pay fees in the years of 2017, 2018 and 2019, while buying 7,213, 32,281, 61,555 Bitcoins in these three consecutive years.

WHY THIS MATTERS:

Ever heard of supply and demand?

Obviously, there are only 21 Million Bitcoin. Having someone buying this insane amount of Bitcoin every day, with ZERO intention or even ABILITY to sell them, does only ONE thing for the price (it goes up).

5) Bitcoin is “Expensive” and Etherium & Dogecoin are “Cheap”

First of all, do you WANT Gold to be cheap?

If gold was cheap, wouldn’t that make it loose some of its allure?

What’s the point of a Gold necklace, if Gold isn’t actually valuable?

The same is true of the DIGITAL version of Gold, Bitcoin.

The more expensive it gets, the more rare it gets, and the more people want it.

Sure, Etherium and Dogecoin are CHEAPER in dollar terms right now.

But how many are there?

I’ll wait.

The answer is, no one really knows.

You’re buying something that doesn’t have a fixed supply.

That isn’t scarce.

And that has sketchy if not downright scammy technology behind it.

I could go into all the details here, but I think the best analogy is this.

Imagine you only get one shot at proposing to the woman of your dreams (ladies, you’re going to have to just go with this).

Are you going to present her with a DIAMOND? (Scarce, Rare, Valuable)

Or are you going to hand her a ring pop?

I personally prefer to go with the diamond, particularly where my money is concerned.

p.s.s.s for people that are VERY new.

You don’t have to buy a whole Bitcoin. You can buy $5 worth.

6) It’s “risky”, “volatile”, kinda like “gambling”.

Okay, I said I wouldn’t do the really common misconceptions that have been debunked multiple times by people way smarter than me.

DO YOUR RESEARCH.

Oh wait, that’s why I wanted to write about this one ^^^^

LITERALLY the only reason I’ve ever seen for someone to think that Bitcoin is akin to gambling is that…

They HAVEN’T DONE THEIR RESEARCH…

And that’s okay.

If everyone had already done their research, Bitcoin would already be $10,000,000 a coin and we wouldn’t be able to buy a whole coin to save our lives.

Also, one of the best responses to this is…

“It’s been the best performing asset over the past DECADE. Literally better than anything else. So, unless you are trying to trade it and make money in one day, if you would just have bought and held it you would have outperformed literally everyone. Remind me how that is risky again?”