A Big Reason Why Bitcoin Prices Are Headed Higher
Editor's note: By now, you've likely heard the phrases "bitcoin" and "cryptocurrency."
But if you're like most Americans, you may not know the ins and outs of this new asset class.
That's why in this weekend's Masters Series, we're featuring a two-part interview with cryptocurrency expert Tama Churchouse, editor for our Stansberry Churchouse Research affiliate. In the first installment, Tama explains what "cryptos" are... why they're real money... and why they're here to stay...
A Big Reason Why Bitcoin Prices Are Headed Higher
An interview with Tama Churchouse, editor, Stansberry Churchouse Research
Sam Latter: I'm here speaking with Tama Churchouse of Stansberry Churchouse Research. Tama, thank you for joining us today. First things first, can you explain in layman's terms what exactly a cryptocurrency is?
Tama Churchouse: Sure. A cryptocurrency is just a type of digital asset. And the differentiator between a crypto and a regular digital asset is that it is transferred and stored on a distributed ledger, the blockchain. That's basically it.
Sam: You've also mentioned in the past that the word "cryptocurrency" itself is a misnomer. Can you explain why that is?
Tama: Maybe it's just me being fussy, but I can't tell you how many people have started conversations with me about crypto, and then five minutes in, they say something like, "Oh, wait. You mean they're not all just currencies?"
People don't realize that of the approximately 1,200 cryptos trading right now, only a handful of them are what we would view as currencies, or have attributes similar to traditional fiat currencies.
I generally like to refer to the "crypto asset" space. And then within crypto assets, we have cryptocurrencies, like bitcoin or litecoin. Then we have crypto protocols like ethereum, which are kind of like platforms for blockchain enterprises to build – kind of like an operating system, in a way. And then we have crypto enterprises. These tokens are more related to a business on a blockchain. So cryptocurrencies, protocols, and enterprises fall under that crypto asset umbrella.
Sam: Going off that, do you consider bitcoin and other cryptocurrency investments money, or not, and why?
Tama: Absolutely. Let's take a look at the characteristics of money. Money is portable, durable, divisible, scarce, uniform, and accepted. And I'll just run through those briefly.
Portability means: can you carry it around, and can you transfer it? With bitcoin, absolutely. You can transfer it at the push of a button. You can transfer it from a mobile phone to the other side of the world in moments. So yes, it's portable.
The bitcoin blockchain ledger is absolutely durable. Hackers have tried everything to bring it down, all without success so far. And bitcoin's divisible. One bitcoin is divisible all the way down to eight decimal places.
It's also scarce. Central banks continue to print money out of thin air. That's why currencies around the world collapse time and time again. But only 21 million bitcoins will ever be mined. And only 16.5 million are in circulation today. Nobody can simply "print" more bitcoins. With a finite and known supply, it's certainly scarce. And of course, it's uniform. One bitcoin is the same as another.
The only place where bitcoins don't hold up as real money compared with the U.S. dollar is acceptability. Bitcoin's acceptability in day-to-day merchant activity is not high yet. But in Japan, for example, merchants have already begun to accept bitcoin as a form of payment. So that's changing.
Sam: We've covered why bitcoin is real money, but you just mentioned a big drawback, which is that it's not as accepted all over the world. What advantages does bitcoin have over cash or credit cards?
Tama: Well, the first thing is, cash plus distance requires intermediaries. And by that, I mean banks. Banks are dinosaurs when it comes to the international transfer of money. As we speak, my paycheck, which comes to me from an overseas bank, is 10 days late from when I'm supposed to have received it. This is thanks to international transfers and human error.
Credit cards have the advantage of being accepted globally at millions and millions of points of sale. But there are debit cards out there that are funded by bitcoin wallets. So you put bitcoin into a digital wallet and it issues a card which you could then go and use at a point of payment, paying in whatever currency, and then the bitcoin conversion is done automatically behind the scenes. So bitcoin does have the capacity to piggyback on existing global payment networks.
Sam: One of the big points that skeptics bring up about bitcoin is that it's backed by nothing... that it has just been created out of thin air.
Tama: Well the first thing is, the U.S. dollar and any other fiat currency can be created out of thin air. And in fact, over the last few years, trillions of dollars have been printed with the click of a button. So when it comes to bitcoin versus money, it's no different in that respect.
But there's a huge difference when it comes to bitcoin scarcity. Again, it has been mathematically and cryptographically proven that only 21 million bitcoins will ever be mined. That cryptographic scarcity is a form of backing. And that scarcity behind it is why bitcoin has utility and is trading around $5,000.
If it didn't have that scarcity behind it... if it wasn't backed by transparent, rigorous, and open cryptography... if there wasn't a clear blockchain protocol... if it wasn't scarce... then it wouldn't be valuable. There's a good reason why the cryptocurrency market is worth $80 billion today.
Sam: Some folks are interested in owning bitcoin as a bet on precious metals. You just mentioned its scarcity, which is one of the big arguments to owning physical gold. What are the reasons someone would buy bitcoin instead of gold bullion?
Tama: The folks that I like to call "bit bugs" share a lot in common with gold bugs. Both parties have a common distrust for fiat currencies in general, and a distrust of governments. They highly value personal freedom and privacy. Bit bugs are real, hardcore bitcoin enthusiasts who will never sell, just like gold bugs will never sell gold. Bit bugs are expressing a lot of the same philosophical sentiments that gold bugs are, but they're doing it through technology rather than something tangible.
There is no doubt in my mind that between bitcoin and gold, gold is going to be around longer. But I own bitcoin the same way I own gold. For the most part, it's out of sight, out of mind. My bitcoin is stored on a hardware wallet next to gold in a bank safety deposit box. If you look at bitcoin versus gold and what's likeliest to be up 1,000% three years from now, it's going to be bitcoin.
A friend of mine is a total gold bug. He told me, "I prefer a currency that has survived 5,000 years, wars and fires, survived everything, and is used in every country in the world." You can't argue with that view of gold. But gold is a lot less convenient to transfer and use than bitcoin is.
Sam: But what is stopping another coin from coming along and replacing bitcoin and totally wiping out its value?
Tama: Well, the first thing is bitcoin's network effect, and its first-mover advantage. It was the first cryptocurrency. At the moment, it's the most durable. So it has a huge moat around it in terms of its brand.
But the other thing is that bitcoin is the "on ramp" to all other cryptocurrencies. It's the first crypto that everybody buys. When institutional money starts pouring in – and it hasn't yet, at all – the big money will buy bitcoins.
Given that bitcoin is 50% of the cryptocurrency market share right now, you could say that at least $0.50 of every new dollar invested in the crypto market will go into bitcoin. And that's hugely bullish for bitcoin.
Editor's note: Bitcoin and other cryptocurrencies are ripping higher right now. If you aren't participating in the rally – or at least learning about these opportunities – you may be missing out on some of the biggest gains of your lifetime. That's why on Wednesday at 8 p.m. Eastern time, Porter and Tama are hosting our first-ever live bitcoin webinar. You'll learn everything you need to know to get started. Reserve your seat here.