Bitcoin is All So Cryptic

Are you confused by Bitcoin, you are not alone.  I sat down with Bitcoin expert  Jason Leibowitz, CEO and Co-Founder of LeboBTC Ledger Group (LLG), a cryptocurrency investment consultancy that helps high net worth individuals, family offices and institutions invest safely and securely in the cryptocurrency asset class.

 

What exactly is Bitcoin?

Bitcoin is the most popular and widely used digital, internet-based currency. Some refer to the advent of Bitcoin as the third stage in the evolution of the internet, after email and the web browser.

The first stage was email, the ability to communicate with anyone, anywhere in real-time. Think about how much email has changed the world.

The second stage was the web browser, today perhaps better known by the verb, “Google”. One can look up literally anything with a few keystrokes and get an immediate answer…not necessarily the “truth”, but an answer to any question.

And the third stage is digital money. With Bitcoin, one can effectively email money to anyone, anywhere, at an incidental cost, in real-time.

In short, Bitcoin is decentralized money that you can buy, sell and exchange directly with anyone, without an intermediary like a company or a bank.

Why should I invest in Bitcoin?

Bitcoin is more than just money; it has evolved into a digital store of value.

While the “store of value” title has long been held by gold, the advent of the internet has helped launch civilization into a technologically enabled, digital age. Children are growing up with iPads from the age of one, so the notion of analog stores of value (e.g., paper fiat currency, physical gold, etc.) is dissipating and being replaced by all things digital. Kids these days want Apple watches, not gold watches!

While our ancestors treated owning gold as a worst-case insurance policy should things get bad, in the age of the internet, Bitcoin is digital gold. And as soon as the Millennial generation grows into politics and the economy, antiquated forms of currency and value will likely decline in usage.

The pandemic made the age of the internet more ubiquitous by forcing everyone who could to work remotely…virtually…digitally.

The pandemic also acted as a catalyst for global Bitcoin adoption from a macroeconomic perspective. The reaction of major central banks of the world was to print and distribute unprecedented amounts of fiat currency to assist individuals and businesses who needed money to survive a complete economic shutdown.

But where did all the money that was printed come from? The consequences of adding trillions of dollars to the money supply in such a short period of time can be devastating to the value of sovereign, fiat currencies. One appeal of Bitcoin right now is as a hedge against inflation, similar to gold.

All this money printing begs the question: how does this debt all get repaid? Interest rates need to remain at zero because governments have printed more money than they can repay, and more debt than they can service the interest on, should interest rates be allowed to rise.

As such, the fixed income (bond) asset class is all but dead as interest rates should remain at zero (or negative in parts of the world) for many years to come. The traditional 60% / 40% (stocks / bonds) portfolio allocation is no more, with bonds now yielding zero.

So where is all the money that was invested in that 40% bond allocation going? The biggest beneficiaries of this global flight of capital out of fixed income have been: equities (at new all-time highs despite a global pandemic); safe-haven assets such as gold and silver; and cryptocurrencies.

For all of the above reasons, a handful of public companies have already allocated corporate treasury reserves into Bitcoin (e.g., Tesla, MassMutual, Square, MicroStrategy, etc.).

Tesla, for example, invested $1.5 Billion into Bitcoin. Will they be the first and last company in the S&P 500 to invest billions into Bitcoin? If others follow suit, expect billions more to flow into Bitcoin, further increasing its price and solidifying it as a new asset class.

How would I invest in Bitcoin?

Bitcoin is surprisingly not that difficult to buy. For those looking to invest retail-sized amounts into the asset (under $25,000 or so), there are many platforms to make such an investment, all of which can be done on a smartphone.

Coinbase went public in April and has an easy-to-use retail app where you connect your bank account to buy, sell and store various cryptocurrencies. Other companies with apps that have similar features are Square, PayPal, Venmo, and Robinhood.

For those looking to invest closer to $100k and up, there are more cost-efficient, lower-fee platforms to use. Feel free to contact LLG for more information.

What is a Blockchain? Please explain and make it simple so even I can understand it….

Think of blockchains like “Google Sheets”, the cloud-based, Excel-like spreadsheet. Because Google Sheets is cloud-based, multiple people can simultaneously add to, use, and inspect the spreadsheet. And because multiple people are watching and using the spreadsheet at the same time, mistakes can be identified and corrected quickly.

A blockchain has many similar characteristics. It is a free and public internet-based accounting ledger that records and broadcasts all digital currency transactions. Blockchains are decentralized, meaning no person, entity or government is in control or has any special rights. As such, blockchains are tamper-proof, meaning no one can “hack” the blockchain to manipulate the data recorded on it.

What is Bitcoin mining?

The term “mining”, as it relates to Bitcoin, was borrowed from gold and other precious metals. Mining for gold refers to essentially digging in the ground for a brand new supply of the metal. Mining Bitcoin is similar in concept in that one is searching for a brand new supply of Bitcoin. But of course, the process is very different.

When someone is mining Bitcoin, what they are really doing is running an automatic program on their computer(s) which verifies transactions in real-time, in exchange for a new supply of Bitcoin.

For example, if Bob wants to send Alice 1 Bitcoin, someone (a computer a.k.a. a miner) first has to make sure Bob is in possession of at least 1 Bitcoin. Miners do this by checking and tracing the history of the entire Blockchain, tracking the ownership of Bitcoins from peer to peer through the blockchain ledger.

Once it is verified that Bob is indeed in possession of at least 1 Bitcoin to send, in order to transfer it to Alice, miners broadcast the transaction over the internet to the entire global network of mining computers, all of whom are simultaneously verifying and adding approved transactions to Bitcoin’s blockchain ledger. 1 Bitcoin is then deducted from Bob’s account and added to Alice’s account, which is reflected on the blockchain.

But what incentivizes miners? In order for someone to decide to mine Bitcoin, they need several things, all of which cost money: one or more computers, a paid-for internet connection, electricity to power the computers, a physical location to store the computers, and finally, miners need cooling systems to ensure their computers don’t overheat and meltdown.

In return for investing in mining infrastructure and keeping computers running automatically, 24×7, mining Bitcoin transactions, they get compensated in newly mined Bitcoin. Based on the current market rate of Bitcoin, that reward is approximately $350,000, which gets paid every 10 minutes to the one quickest miner that accurately mines/verifies blocks of transactions. That equates to over $50 million in Bitcoin mining rewards paid out each day…$20 billion per year. Mining Bitcoin is a profitable business.

Are there competitors to Bitcoin?

In short, yes. There are 10,000 other cryptocurrencies. Most will prove to be worthless. Some are fascinating and valuable. None are potentially better stores of value than Bitcoin. Traditional financial institutions that decide to make investments in this space typically only invest in Bitcoin.

 

Many investors were sold on Bitcoin being “digital gold”, protection from hyperinflation that some feared may be the result of stimulus packages and wild federal spending. However, there is evidence that the dollar is actually strengthening. As the dollar’s value increases, will we see a dip in Bitcoin’s value as investors no longer search for a safe, short-term harbor for the money? Could we see an outright financial calamity given the past volatility of the crypto coin? Even so, would this do anything to dampen the long-term viability of a trillion-dollar coin?  

There are more than one hundred other fiat currencies in the world besides the US Dollar. It is possible that they are all losing value relative to the dollar. As those currencies inflate or lose value, citizens and companies in those countries may seek to diversify the currencies their assets are denominated in. One beneficiary of this flight of capital, besides the US Dollar, is Bitcoin.

Bitcoin’s $1 Trillion market cap is still relatively small compared to all other asset classes. It is just 10% of Gold’s, and fractions less compared to the stock market, the bond market, and real estate. Bitcoin is not big enough or widespread enough to create any sort of systemic financial calamity.

Is it too late? Can I still make money?

Believe it or not, it is early to invest in Bitcoin. Multiple credible economists and analysts project the price of Bitcoin to reach over $100k this year.

As stated earlier, do you think Tesla will be the first and last company in the S&P 500 to invest Billions in Bitcoin? Supply and demand economics predict that given Bitcoin’s scarce supply, as demand increases and more money flows into the asset, the price must go up.

What can I buy with Bitcoin?

PayPal allows all merchants on its network to accept Bitcoin for all goods and services each company sells. There are over 25 million merchants on PayPal’s global network of over 400 million.

And Venmo just launched a crypto transaction service on its app. Now anyone can buy anything on the PayPal and Venmo networks using Bitcoin.

What does Coinbase going public say to you?

Coinbase is the first cryptocurrency company to go public. I started using their services back in 2013. To see them go public 8 years later tells me that it is still early to invest in Bitcoin because it is only just beginning to go mainstream.

Answered by Jason Leibowitz, CEO, and Co-Founder of LeboBTC Ledger Group (LLG), a cryptocurrency investment consultancy that helps high net worth individuals, family offices and institutions invest safely and securely in the cryptocurrency asset class.

About Jason

Jason has unique and deep expertise in cryptocurrency. Having started his career on Wall Street in fixed income and global macro markets during the height of the financial crisis in 2009, he recognized the opportunity that digitally scarce assets such as Bitcoin represented during the unprecedented period of global monetary expansion known as Quantitative Easing.

An early investor in Bitcoin, Jason left his career in capital markets to help start one of the first digital currency hedge funds, Sator Square Partners, in 2014. The fund was created as a solution to a problem at the time that there were no institutional investment vehicles to gain exposure to and extract alpha from the volatility of cryptocurrency markets.

After Sator Square Partners, Jason was recruited by Credit Suisse’s Blockchain Technology team to build out their global blockchain implementation strategy. He oversaw and managed many applications of blockchain at the bank throughout his nearly four-year tenure. It was during this time he was also invited to be an advisor to three distinct financial market companies as a cryptocurrency and blockchain subject matter expert.

It is now, in the midst of a global pandemic that cryptocurrency is finding its place in the modern portfolio as an alternative asset class. LeboBTC Ledger Group was created to help clients add this crucial missing piece to round out their portfolios.

Jason Leibowitz

Co-Founder & CEO

LEBOBTC LEDGER GROUP (LLG)

(914) 924-0848

lebo@lebobtc.com

www.lebobtc.com

@LeboBTC

 

 

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