Bitcoin Asset Allocation – the World’s Hardest Money

At The Phoenician League, we advocate the principle of asset allocation. This is about spreading your money – your capital – across several different asset classes according to a personalized model. The purpose here is true asset diversification.

A robust asset portfolio will consist of some combination of the following:

We dedicate a separate page to provide a high-level overview of each of these asset classes. In this entry we’ll cover Bitcoin asset allocation.

Bitcoin Asset Allocation – the Hardest Money the World’s Ever Seen

I like to describe Bitcoin as both a payment network and a currency wrapped into one. Bitcoin (with a capital B) is the network, and bitcoin (with a lowercase b) is the currency.

Perhaps this doesn’t sound too important on the surface… but it’s truly revolutionary.

To my knowledge there has never in history been a payment network that also supplied its own independent currency. Instead, we’ve always needed a separate payment system through which to transact using currency. And that means we’ve always had to trust a third-party intermediary with our monetary transactions.

Bitcoin eliminates the intermediary and enables direct payments from one person to another. To me, that means it enables perfect monetary freedom. This is where much of Bitcoin’s value comes from.

What we’re talking about here is a phenomenon called the network effect...

It's a fundamental principle of technology that functional networks grow in both utility and value as more people use them. This is especially true of Bitcoin.

We can think of it this way – if only 100 people used Bitcoin, the network wouldn’t be worth much. Thus, there would be little incentive for people to adopt the technology and use the network... which means the value of each bitcoin would be low.

But millions of people use Bitcoin today. We typically see $20-30 billion worth of transactions flow through Bitcoin’s network each day. And now an immense amount of infrastructure has been built around the technology – improving both its utility and its security.

That’s why Bitcoin is now a $1.5 trillion asset. And each bitcoin is worth roughly $85,000 as I pen this entry.

In the early days, we saw Bitcoin as a legitimate competitor to the fiat monetary system. We envisioned a world in which everything ran on bitcoins – eliminating central banks and unbacked paper money entirely.

We saw that as the ideal because the Bitcoin network is not owned or controlled by any corporation, government, individual, or group of individuals. Instead, it’s governed entirely by open-source computer code. And we know exactly what the code says. That’s the beauty of this.

Thus, we know exactly how many bitcoins are in circulation at any given time. Right now that number is just under 20 million bitcoins.

This level of transparency puts everybody on an even playing field. There are no insiders in the world of Bitcoin as a currency.

We also know that there will only be 21 million bitcoins ever created. And we know that the very last bitcoin will be mined in the year 2140.

That makes Bitcoin an incredibly scarce asset. It's similar to gold in this regard... except far more scarce. Bitcoin is the hardest money the world has ever seen, to use lingo from Austrian economic circles.

Think about this – there are roughly 346 million people living in the United States today. If every one of those people decided that they wanted to pursue Bitcoin asset allocation, there would be enough bitcoins in circulation for each person to own about .057 bitcoins. That's it.

But Bitcoin is a global asset and there are roughly 8.1 billion people in the world. If everybody alive wanted to pursue Bitcoin asset allocation, there are enough bitcoins in circulation for everyone to own .0024 bitcoins.

This dynamic guarantees that Bitcoin’s price will go up as more people become interested in it. That’s just basic supply/demand economics.

Now consider this – the legacy financial system is moving fast to incorporate Bitcoin as a global reserve asset as we speak.

As such, we are going to see central banks, financial institutions, insurance companies, and pension funds engage in Bitcoin asset allocation very soon. And these institutions are going to buy billions of dollars’ worth of bitcoins – removing a substantial amount of the liquid supply from daily trading.

This isn’t what we envisioned for Bitcoin in the early days. We didn’t expect it to become institutionalized—that’s not what we signed up for initially.

But Bitcoin’s institutionalization doesn’t change the fact that it still provides us with perfect monetary freedom as individuals. As long as we hold our bitcoins in self-custody, we can always send any amount of money to anyone, anywhere in the world, at any time, for any reason.

And the fact is that Bitcoin’s price is going to go to unbelievable levels as the legacy system adopts it as a reserve and pursues Bitcoin asset allocation. I expect its market capitalization (market cap) to at least rival gold’s... and likely surpass it.

If that were to happen, Bitcoin's market cap would have to increase such that each bitcoin would have a dollar value of $1,058,468. As crazy as that may sound – Bitcoin to $1 million could be where we are headed in the next few years.

Of course, there’s no guarantee that will happen. Nobody can predict the future.

But I’m confident in Bitcoin’s ability to protect and likely grow purchasing power over time. That’s why I think it’s wise to buy Bitcoin on a set schedule regardless of the price. That’s the key to Bitcoin asset allocation.