Bitcoin discussion; Americans' rising interest payments; A 43-year-old became the world's top doubles player in tennis!

1) In yesterday's e-mail, I shared my friend's bull case for bitcoin – on which he's made 350 times his money (respect!).

He posted it on Wednesday (under his anonymous handle, "Katana") on my favorite stock-idea website, Value Investors Club. He also concluded his writeup with this table showing bitcoin's extraordinary performance over time:

As I said yesterday, Katana's extensive post (which you can read right here if you're a member of Value Investors Club) generated dozens of comments and questions – which he has gamely tried to answer.

As one member posted in response:

This take on Bitcoin has a bit of the GameStop flavor to it – the fund flows will keep coming due to institutional processes that have begun and are unlikely to be undone so the price will squeeze higher due to a distributed but collective commitment from longs not to sell seems like a quick approximation of the thesis.

Which, OK, I don't think it's a terrible thesis – in fact, I suspect it's a pretty good thesis. But what's the end-game?

You say you'll never sell your bitcoin but its price cannot go to infinity and, in fact, its reaching the point where it is so large that it cannot grow meaningfully more quickly than global GDP for that much longer without having very weird effects on the real world. Beyond which, the HODLers ["hold on for dear life" folks] all say they'll never sell but people get old, they need to consume, they die and heirs who like nice things (and haven't experienced the joys of HODL comradery) inherit. That is to say secular trends tend to have natural endings and fund flows never go in one direction forever.

And as the member continued:

So, with no intrinsic value what's the end game? What happens when the fund flow game is over and the model portfolios are full on BTC? Can it continue growing faster than GDP or M2 or what have you? If not, will the HODLers stick around when that happens? If not, can't the game of chicken come to an end at any time?

At the risk of getting sidetracked from what I think is a more interesting discussion, why do you think the US or China (to name a few) won't or can't ruin the network? You say it has no uses but it has plenty of uses – the problem is that they're all anti-social. Alternatively, if BTC is increasingly going to be held/transacted off blockchain how are miners going to be remunerated to keep the network safe?

As Katana replied:

At this point the U.S. and China have no more reason to attack the network than they do to attack gold. Bitcoin has been sufficiently mainstreamed and legitimized via (1) familiarity over time, (2) support from the very largest blue-chippiest financial institutions, (3) regulation or destruction of the off/on-ramps to fiat, the exchanges, the crypto-banks, the overleveraged players, the Ponzi schemers, etc., and above all (4) its proven usefulness in catching criminals.

For all the public BS from certain politicians about "only good for crime," law enforcement and the Treasury Department [anti-money laundering]/sanctions enforcers love bitcoin's traceability – it's often easier to follow the bitcoins than the U.S. dollar.

Relatedly, Tether, formerly the industry's biggest lying & insolvent bad boy, is now the enforcers' best buddy because (a) they now pretty clearly are fully backed by T-bills, and (b) when a criminal is dumb enough to convert any of his gains into Tethers, the enforcers make a call to the Tether guys and they just shut down those specific coins.

There is a real risk that someone attacks the network. An attack would be very hard to win today. It is important that ordinals and other applications and pseudo-applications that require network processing get layered on top of the basic mining and coin-transfer confirmations over time to reduce the vulnerability of an attack succeeding. I think it will happen.

Another member compared bitcoin with gold:

Bitcoin is digital gold. Almost any argument against bitcoin could also be leveled against gold, but its obvious that gold has held its value for a long time. That's becoming more true of bitcoin every day. It has held its value and increased it through a few huge multi-year sell offs. Most bubbles don't come back from the dead once they are burst. Why do people ascribe value to gold? Who cares! They do.

Regarding valuation, because it is like digital gold, I would look to gold for guidance. Its not that hard the look up the total market cap of gold and make an assumption that the total value of bitcoin goes somewhere similar. I think at $2,155 an ounce the value of all gold ever mined is around $11 trillion. I think that comes out to about $660k per coin if it reaches there.

Katana agreed – as he replied:

It's digital gold. A lot of people have thought gold is "useful" for a lot of years. Billions of people over thousands of years. Why is this hard?

There are like 10,000 other cryptoassets, most of which are useless or scams but a decent absolute number of which may end up contributing meaningfully to society.

Another member disagreed with the comparison of bitcoin with gold... and gave a few examples of problems that bitcoin faces that gold does not:

• Carry Cost – I think the biggest is that keeping gold "intact" does not cost ~3-4% of the value of all mined gold every year. BTC does (in the form of miner remuneration). That is a huge carry cost that Gold doesn't have (new gold production is like ~1% annually if you want to take the position this is the same thing but, [on the other hand], gold gets consumed in ways BTC does not).
• Existential risk – government intervention and technological advances seem like a much bigger risk for BTC than gold (quantum computers, improved protocols, 3rd party attacks on the network, adverse policy, etc.)

The member continued with these examples:

• Replacement/Dilution risk – BTC's current protocol calls for a limited # of Bitcoins but BTC could be replaced by a better version of itself or could (read: does) compete with other crypto protocols for investor/speculator mind-share/wallet. You compare BTC's $1.3trln MCap against gold's ~$11trln implied value but ignore the ~$0.5trln market cap of Ethereum for instance.
• History – Gold has thousands of years of history as a store of value, medium of exchange, and unit of account; in addition it has physical properties (read: it is shiny) that humans find appealing. Bitcoin has 15 years as a speculative curiosity. While it used to be made, no one is making the argument anymore that it is viable as a medium of exchange (or, based on this write-up a unit of account or store of value). My guess is that the likelihood of something which has no fundamental value but which people have collectively decided has value retaining its value is logarithmically related to the length of time that it has been deemed to have value. 7 years for BTC is better than beanie babies but isn't all that long.

Another member thought a better comparison is the tulip-bulb mania:

It's tulips and FOMO. Crypto is a religion. You believe or you don't. You throw away fundamentals and logic, or you don't. There are many extremely intelligent people who believe in it. There are many extremely intelligent people who don't believe.

It's an inefficient solution in search of a problem. It's only use case is speculation, and it is very good at that. Why? Because it has no intrinsic value. It offers big dreams and pie in the sky possibilities (which I do not think make much sense, but why get in the way of a good story?).

I've never once heard a logical case for any of it. When you have pepe coin mooning and cryptopunks trading for $15mm and dogecoin being pumped by Elon Musk, I think that's all you need to know.

I also think bitcoin will go up because of the halving, but only because other people believe the same thing, not because it makes any fundamental sense.

I think ethereum will go up too because of the upgrade and the ETF hype cycle ahead of it.

Again, I find it hilarious that crypto HODLers will have you believe that it's more valuable as the price goes up – this is the logic that we're dealing with.

Meanwhile, another member asked Katana what his target price is:

I get it. Bitcoins are not Tulips although you did leave out the possibility that they could be rat poison. But, who cares. Bitcoin is still here after all these years. If it is a pyramid scheme its a damn good one, genius. And that's the crazy thing about BTC. It is genius with many similarities to a goldmine, a 1975 Ferrari or a Tulip. Which ever you pick, it is still a genius scheme that taxes many aspects of your thinking. This thing was not invented by a monkey. That is for sure.

In your write-up you throw out the possibility of a 1000% upside and I have to ask what your thoughts are regarding a target price? (Asking for a friend.)

Katana replied:

Previous up-cycles have all literally yielded multiple thousands of percent in gains. The last one was $3,200 to $69,000, that's >2,000%. From the previous $17,000 top, it was a triple.

All us crypto ["degenerates"] understand that the percentages will probably keep smoothing out – to both the upside and downside – as absolute numbers get bigger and the institutional ownership increases. A lot of us are targeting "only" $150k-250k this cycle, which is +800%-1400% from the last bottom and is a double to triple from the last top.

And as he continued:

When I talk to personal friends who are genuinely curious, I keep it simple by saying the mental model is 10x the upside to downside. In earlier days that was 100% downside risk and 1000% upside. Now the more-probable numbers are like 50% and 500%.

Of course, this time we could all be wildly wrong and the price could cliff-dive starting today and never recover. We're OK with that. My second simple numerical heuristic for friends is, invest an amount such that you'd be content to lose 50% suddenly and permanently.

Thank you, Katana and other Value Investors Club members for such an enlightening and entertaining discussion.

I no longer think that bitcoin or Ethereum are worthless – even though they have no intrinsic value and are impossible to value – for the same reason that a Rembrandt painting isn't worthless: because enough people think they have value, they do have value.

But I think I can lead a long and happy life not owning either one...

2) Here's Charlie Bilello with an interesting chart showing that Americans are now, for the first time, paying as much in interest on non-mortgage debt as mortgage debt:

This reflects the fact that sharply higher interest rates have led to sharply higher interest payments for most types of debt – but not mortgages because most Americans benefit from 30-year fixed-rate ones.

Here's another post from Bilello on this:

So, should investors worry that rising interest payments will crimp consumer spending, which accounts for roughly 70% of our GDP?

No – because as Bilello shows, such payments as a percent of total household income are still low by historical standards:

3) As an aging, avid tennis player myself, I loved this story in the Wall Street Journal! A 43-Year-Old With Bad Knees Became the World's Top Doubles Player. He's Not Done. Excerpt:

The victory in Melbourne was [Rohan] Bopanna's first championship in men's doubles at a major tournament – aka one of tennis's four "Slams."

It also coincided with his ascension to the No. 1 world ranking in men's doubles – a position Bopanna never held before.

And the best part?

Rohan Bopanna did it at age 43 – more than two decades into his pro tennis career.

At an age when most professionals are retired, playing senior matches, or coaching others, Bopanna became the oldest male player to win a major in tennis's Open era. (Martina Navratilova won a mixed doubles major at 49.) He also became the Open era's oldest first-time No. 1.

Here's a five-minute video of Bopanna's on-court highlights:

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.