To understand and decide whether bitcoin is a good store of value, consider first: real estate, commodities and other asset classes.
The real estate market.
About twenty years ago, I remember hearing folks talk about property being a store of value, something that has that ability to stand the test of time. In some ways that is true - real estate has not only been a good store of value but an instrument that has proven ability to deliver steady returns through capital appreciation and the accumulation of rental income.
Within Asia, the real estate market has not only demonstrated resilience through the ups and downs, but also a beneficiary of strong and steady economic growth, buoyed from the prosperity of its regional titans: China, Japan, Korea, as well as Southeast Asia. A rising tide lifts all boats.
Today, that thesis still holds to a certain extent. The returns are not as attractive but property is still pretty much the go-to choice for investors in search of a relatively safe-haven, even during a recessionary phase.
Property - especially in the residential segment - is an asset class that survives relatively well during times of turbulence and economic downturn. Rain or shine, the brick and mortar asset stands. People continue to 'trade' and invest in real estate because fundamentally, they know that a roof over the head is a basic foundation of life (at least based on Maslow's hierarchy of needs).
It is also a good proxy to the overall global economic cycle i.e. the more resilient the economy, the higher the value of the property.
Although the initial investment outlay can be high, real estate is a relatively liquid asset in a manner of speaking. And liquidity is an attribute in valuation that tends to be severely overlooked. In layman terms, this loosely translates to how easy it is for an asset to change hands. You can list your second-hand car for a million dollars on Carousell but at the end of the day, it's still worth nothing if it can't be sold. The price of a company's share is only as accurate and realistic as what it trades for, not the bid-ask price. Liquidity, furthermore is also driven by the concentration of buyers and sellers in the market and also shaped the perception of the asset by the broader market.
Lab grown diamonds.
Consider for a moment:
A diamond is valuable only because people say it is, not because of its clarity or cut.
Jewelers and advertising companies around the world have done an extremely successful job in positioning the diamond at the apex of all precious stones. But the raw material for diamond is carbon - one of the most commonly available elements found on earth, ranked many times above gold, silver and platinum. Yet despite being available in relatively large quantities, consumers continue to pay absurd amounts of money for a small rock mounted on a ring or co-joined in a necklace.
To add to the paradox, lab-grown diamonds are significantly cheaper than their natural counterparts, even though they share the exact same properties and make. In fact, according to this website:
"If you buy a lab-created diamond, you’d have a beautiful stone, yet no jeweler will buy it back."
Bitcoin as a store of value.
There's much talk lately about bitcoin being a store of value. I know very little about the world of bitcoin and cryptocurrencies - only limited to the banter that I read on Twitter and the news.
Is bitcoin a good store of value? Only time will tell.
Just like property, gold and other precious stones, it is considered a safe haven only as much as others see it. In this case, the devaluation (or eventual demise) of the dollar is one of the key catalysts in the appreciation in value of bitcoin i.e. investors are buying bitcoin and other cryptocurrencies largely because they have lost faith in fiat currency. And to take it to a certain extreme, they believe that the guy over the McDonald's counter will take only a bitcoin-equivalent and reject cash as you know it today.
While this may not mean much to most people, for a billionaire or any large institutional investor sitting on heaps of cash - a commodity that the US government has committed to producing even more over the next few years - this implies an erosion of their financially advantageous position.
Cash is no longer king.
I think that crypto-exchanges were created largely because of this phenomenon. These platforms are only viable and commercial if there is a sizeable market i.e. a significantly large pool of investors willing to seed the initiative and make the market. This is similar to early stock exchanges. They serve to provide an avenue for companies to raise capital, but also functions as an alternative route for investors looking to 'diversify' or park their money somewhere where they can (at some point of time in the future) re-allocate them to other asset classes. Everyone else in the 0.001% of the liquidity makes the market — smaller funds, family offices, retail investors, sheep, etc.
If you have written code before, you'll understand how painful and tedious is it to do software development.
There's a reason why successive versions of Microsoft Windows in its early days were so slow and buggy. One can of course attribute it to processor speed and memory space (software blaming hardware), but the reality is that it's simply too lengthy and costly to eliminate the bugs by re-writing and building an entire operating system from scratch. Why demolish and re-build something when customers are willing to settle for a product with some occasional bugs and flaws? Far easier it is to patch the errors than to re-invent the wheel.
So our financial system is not perfect: Benchmarking (or rigging) interest rates, opaque currency controls, money laundering, fraud, etc. But the undeniable truth is that paper currency (since its inception a thousand years ago) still works as a medium for the exchange of goods and services. To revamp today's highly complex financial system with bitcoin would take several generations of change and reforms; or a "grand reset" involving the total collapse of fiat currency (and breach of trust on a global scale), sending us all back to the barter trade economy.
Just like how asset values move in cycle with the economy, bitcoin will probably follow the same trajectory. However little we think about the value of cash, there are many commodities and asset classes out there which serve as good alternatives to what we define as a "store of value" and Bitcoin is only one of them.
I miss Blatage cafe in Shanghai.
Throwback: Blatage Cafe is located on the Pudong new area side, approximately 30 minutes by taxi (off-peak) door-to-door from where I usually stay in Shanghai (which is on the Puxi side). The small cozy cafe is along 滨江大道 on the Pudong side. From Superbrand mall (正大广场), it is at least a 20 minutes cycle on Mobike or a 40-minute leisurely walk along the river. During the spring and autumn mornings, this is an extremely therapeutic exercise especially on the weekends. The indoor seating capacity is no more than 10 and they serve an excellent flat white for 30 yuan. Although situated close to some private condos in the vicinity, somehow, there isn't a morning coffee culture where people get up early to grab coffee. Most times when I arrive at 830am, I am their first customer.
Back home, the "Blatage-substitute" is 40 Hands cafe at Tiong Bahru. A lot of people ask me why I 'spend' so much on coffee when I can invest in a Nespresso machine and enjoy a cuppa from the comfort of home (I have one by the way).
But just as people sign up and spend their money on regular yoga classes, I spend mine on 'coffee yoga' i.e. a faux yoga session where I substitute stretching exercises with sipping coffee (also note that a single yoga class ranges anywhere between $15 to $25 while an artisanal coffee is about $6).
Just as people find inner peace and tranquility in an hour or so of meditation, I find mine through sitting by the street or in a quiet corner where I am able to reflect and declutter my inner thoughts. Not everyone understands this.
But everyone needs their own Blatage coffee place. Similar to how religion provides spiritual closure to occurrences in life that we cannot rationalize, people who do yoga probably believe that it is the antidote to de-stressing from work. For me, this equates to having coffee in an undisturbed ambience even if I have to get up at 6:00 am.
So, there isn't a need to architect a pricey escape into the Himalayas to seek private retreats. A lot of these can be found at your doorstep.
You don’t need to fine-dine in order to enjoy good food. My favourite local hawker fare is the bak chor mee at Tiong Bahru market.
You don’t need to own a car to have convenience. Even if I use Grab everyday my traveling commute expenses will probably never exceed $500 a month. And sometimes all you need is to buy a house in the right place with good access to public transportation.
You don’t need to stay in a private condominium or landed property to enjoy your spatial environment. You just need the right renovation decor at home.
What is the use of real estate if you wear it with a huge financial burden and/or can’t share it with your closest friends and family?
You don’t need lots of money to be wealthy. In fact, you don’t even need to prove to anyone that you are wealthy. The wealthiest people are those who are comfortable in their own skin and do not give a f&*k about opinions from the rest of the world.
Some of my new year resolves include:
* Drink less (no more than a glass day).
* Run a marathon (an offline one).
* Be selectively ignorant to people, projects and information that drain my energy and time.
* Remain focused on my personal goals and the big picture. But above it all, stay humble.