The False Promise of 'Economic Immortality'
Big promises... 'Burn the key'... A 1,000-bagger example... You can't create real wealth by shuffling money around... Speculating is more difficult than investing...
When you're promoting an asset bubble, you have to make big promises...
The standard vow is that investors will get rich.
Sometimes, like in the phony green-energy bubble, you also promise to help "save the planet" from a made-up catastrophe.
Of course, bubble promoters never keep their promises...
Whenever anyone starts promising you that buying a certain asset is the surest thing in history, the asset in question is likely already way too risky and overvalued. Folks may get rich quick for a few minutes, then lose it all by hanging on throughout the bubble.
Now, I've read a fair amount about bubbles. But I don't remember ever reading about one where the most flagrant promoters promised "economic immortality" – until now.
That's what Michael Saylor, the world's most famous bitcoin advocate, is promising. Saylor is the former CEO of Strategy (MSTR)... the software company that sells debt and equity and buys bitcoin.
To reach "economic immortality," Saylor says all you have to do is throw away "the key" – the string of letters and numbers that let you access your bitcoin.
In a recent Coindesk interview, Saylor said:
If you burn the key, you will have made an economic contribution pro rata to everyone else in the bitcoin network forever.
Saylor might be taking a cue from Satoshi Nakamoto, the person (or persons) who created bitcoin that has 1 million bitcoins that remain untouched. Saylor said:
What Satoshi is offering us is economic immortality. You may not live forever, but your economic energy will live forever.
Saylor's interviewer asked him if he would ever burn his own keys, to which he replied:
I think that I've just answered the question... in the most responsible way that anybody would ever answer the question.
We don't know if Saylor has burned his personal bitcoin keys...
But it seems like he intends to do so at some point before he dies, or maybe he'll let the keys die with him.
The idea, of course, is that bitcoin is scarce and by burning the keys to your bitcoin, you will theoretically make it even scarcer, which will make all the other bitcoins more valuable.
Saylor is clearly suggesting that long-term bitcoin holders could wind up like long-term shareholders of Texas Pacific Land (TPL), which earns royalties from oil and gas production and uses the money to pay dividends and buy back shares. Since 1995, it has reduced its share count by roughly half, which has greatly contributed to its 1,000-fold rise in share price.
But Texas Pacific shares are repurchased from existing shareholders. The shareholders aren't lighting money on fire. They're exchanging their shares for cash. Then the corporation is canceling the shares.
If Saylor ran Texas Pacific, he'd be telling shareholders to lose their brokerage-account passwords and forget they own shares. There would still be the same number of shares outstanding, and the small dividend yield would still be paid into dormant accounts. But the dividend yield would be even smaller if the share count hadn't fallen over the years. It's also unlikely the share price would have risen anywhere near 1,000-fold over the past 30 years.
Telling folks to destroy their wealth to help others is bizarre...
Saylor says it's better than giving your money to charity because a charity can choose to use the money for something you won't like. But by destroying your bitcoin keys, he says you're allocating spending power to "everybody that believes what I believe."
I suppose the idea is that everybody who owns bitcoin believes the same things. That's a silly concept, as if criminals don't use bitcoin.
But one thing is for sure... If you burn your bitcoin keys, nobody will ever use that bitcoin for anything – good or bad – ever again. Saylor is advocating a selfless act that doesn't benefit you or your heirs in any way, unlike philanthropy, which folks do for tax benefits and ego gratification as much as anything else. The only value in burning your bitcoin keys is purely in however much the price of bitcoin benefits by reducing the supply.
This is exactly the sort of wacky cult-like stuff you expect to hear just as a speculation-addled market is about to go to hell in a handbasket. Saylor is essentially asking folks to light money on fire for some nebulous greater good.
If the combination of Strategy's highly leveraged bitcoin buying and its co-founder's plea for cosmic philanthropy by lighting cryptocurrency on fire doesn't smell bad, go see your otolaryngologist and get your sniffer checked out.
This whole thing feels like Saylor is trying to engineer a permanent corner on the market for bitcoin – which would benefit Strategy shareholders greatly if it makes bitcoin go up in price.
But market corners nearly always turn out badly. Take the Hunt brothers... they famously failed to corner the silver market when they bought more than 100 million ounces of silver – roughly a third of all the silver not owned by governments – by early 1980. This pushed the silver price up from $6 an ounce at the start of 1979 to as high as $50 an ounce by January 1980.
But on March 27, 1980, the Commodity Futures Trading Commission made new rules governing the individual ownership of futures contracts. Silver was already trading 68% below its January high by then and the market sold off further on the news. The Hunt brothers quickly got a $100 million margin call they couldn't meet.
The short squeezes that created the meme-stock frenzy in 2021 were essentially brief market-cornering maneuvers. They all collapsed immediately. The only successful market corner I know of was in Aristotle's story of the philosopher Thales of Miletus, who successfully cornered the market for olive presses in Miletus and Chios in ancient Greece. Aristotle concludes the tale by saying:
Thus he showed the world that philosophers can easily be rich if they like, but that their ambition is of another sort. He is supposed to have given a striking proof of his wisdom, but, as I was saying, his device for getting wealth is of universal application, and is nothing but the creation of a monopoly. It is an art often practiced by cities when they are want of money; they make a monopoly of provisions.
Most market-corner tales wind up as lessons of the dangers of concentrated, highly leveraged bets on a commodity, like what Strategy is doing.
And the stock has fallen by as much as 49.5% from its November 2024 peak (more than double bitcoin's peak to trough decline during the same period). It's still trading more than 30% below that high. Strategy is headed for a massive margin call. It's a matter of when, not if.
GameStop (GME) has joined the party...
On Tuesday, the video-game retailer announced that its board had "unanimously approved an update to its investment policy to add Bitcoin as a treasury reserve asset." Investors must have liked the idea, because the stock closed up nearly 12% on Wednesday.
But the stock plummeted 22% on Thursday after GameStop said it's raising $1.3 billion to buy bitcoin by selling convertible notes.
Could GameStop's poor performance yesterday mean the market has had enough leveraged crypto-buying schemes for now? Meanwhile, the bitcoin price hasn't done much since the GME announcement. It's as if the bitcoin market doesn't care.
This isn't a critique of bitcoin...
I think bitcoin is a great idea. When Saylor says it strikes a blow for "sovereignty, sound money, freedom, and property rights," I agree wholeheartedly.
But the only way I would cheer for Strategy's leveraged scheme is if someone could guarantee me bitcoin's price would never fall again, or at least not enough to scuttle Strategy.
Nobody can make that promise, and bitcoin will very likely become more volatile if folks start burning their keys. And now, GameStop, a meme-stock company, is pursuing a strategy that could easily cause more soar-and-crash dynamics to its stock.
In short, we're in weird territory here. And it's impossible to say how it'll turn out. But in the end, none of this activity creates real wealth. It's pure speculation. There's something wrong with a world that diverts so much talent into playing games with money.
The great author and journalist P.J. O'Rourke said, 'You can't get rid of poverty by giving people money.'
And you can't create real wealth by shuffling money around and borrowing to finance speculation. I understand that a lot of real wealth began as speculation. But it was a speculation on the success of an endeavor.
It wasn't some clever way to buy Treasurys with borrowed money (like the famous Long-Term Capital Management hedge fund that blew up in 1998) or a leveraged scheme to buy other money (which is what folks say bitcoin really is, even though it doesn't act like real money yet).
I hope I'll see the day when folks no longer brag about buying shares of leveraged bitcoin exchange-traded funds ("ETFs"), GameStop, or Strategy. Instead, I hope to hear them brag about the bridge, factory, data center, mine, robot manufacturer, farm, or pipeline they built or invested in. Anything that's real. The world has had enough silly money games. They've done little but help divide us into haves and have-nots.
I'm reminded of a quote from Joseph Campbell's 1949 book, The Hero With A Thousand Faces:
For it is by means of our own victories, if we are not regenerated, that the work of Nemesis is wrought: doom breaks from the shell of our very virtue.
Whenever anything good happens in finance, you can always count on some self-promoting guru to turn it into a pure speculation by using leverage. It happens every time.
Innovation is great. But borrowing money to buy things isn't innovation. It's gambling. If somebody you know mortgaged his house to buy bitcoin, you wouldn't think he was smart. You'd think he was crazy. Strategy and GameStop are doing the exact same thing, but with other peoples' money.
I hope bitcoin is the revolution that many believe it to be.
I hope it becomes a real store of value that governments can't control and whose value doesn't soar and plummet like a meme stock.
But so far, bitcoin futures, leveraged ETFs, and regulated public companies like Strategy and GameStop have put at least a part of bitcoin's fate into government regulators' hands. And these various schemes will likely make it even more volatile. It wouldn't be the first time the regulatory tail wagged the market dog. We'll see how it all works out over the long term.
In the meantime, I urge you to avoid Strategy, GameStop, and any other purely speculative financial schemes, whether it's bitcoin-focused or not. If you've gambled and won, congrats. Now take your winnings and vow never to do it again. If you've gambled and lost, take the hit and move on.
Just remember... It's virtually impossible to be both a good speculator and a good long-term, bottom-up, value-aware investor. And by far, the riskier occupation is speculating, not investing.
New 52-week highs (as of 3/27/25): Agnico Eagle Mines (AEM), Alamos Gold (AGI), AutoZone (AZO), Alpha Architect 1-3 Month Box Fund (BOXX), Berkshire Hathaway (BRK-B), Brown & Brown (BRO), CBOE Global Markets (CBOE), Cencora (COR), Franco-Nevada (FNV), VanEck Gold Miners Fund (GDX), SPDR Gold Shares (GLD), Intercontinental Exchange (ICE), Kinross Gold (KGC), Sprott Physical Gold Trust (PHYS), Royal Gold (RGLD), Republic Services (RSG), Sandstorm Gold (SAND), Tradeweb Markets (TW), ProShares Ultra Gold (UGL), VeriSign (VRSN), Vanguard Short-Term Inflation-Protected Securities (VTIP), Wheaton Precious Metals (WPM), and W.R. Berkley (WRB).
In today's mailbag, we received a few notes from folks who weren't able to watch Marc Chaikin's new presentation last night. If you are among them, good news: You can watch a complete, unedited replay of the event right here.
Marc, the founder of our corporate affiliate Chaikin Analytics, gave a critical update on his recent crash prediction and what he calls an "aging bull market"... And he detailed the investment strategy he recommends to navigate it, one that could have made you 30%-plus while the S&P 500 fell during the bear market in 2022. Plus, if you watch now, you can also still get the names and tickers of the two free recommendations Marc shared live last night.
Good investing,
Dan Ferris
Medford, Oregon
March 28, 2025