An entire generation is learning about finance, money, and the root of our problems as well as of value creation.
In short there’s cash, which is the only legal tender in as far as by the force of law it has to be accepted for the payment of debts. Cash almost plays no role in the financial system since digitization.
Then there’s digital central bank money. This is the “printing” of money by the central bank when it extends a loan to commercial banks. This money is then “burned” when the loan is paid back, but the interest paid on this loan becomes “real” money.
The only thing that keeps a lid here in a very limited way is gold. Central banks transact with each other only in gold through the Bank for International Settlement (BIS). Conceptually therefore fiat is worth based on how much gold reserves banks have, so that could keep a lid on money printing.
Commercial banks transact with each other only on central bank money. Central bank money thus here performs the same function as gold above. A commercial bank, like JP Morgan, has to ensure when they extend loans that they have enough central bank money to cover transactions with say Goldman Sachs when they settle accounts.
Commercial banks can then make however many loans they like within the above constrains with such loans being burned too once repaid. The interest paid on such loans, however, we think becomes central bank money, or real money as we might call it.
That’s the current monetary system in a nutshell as we understand it. What of stocks?
Stocks Are Crypto?
A stock as you might know is an investment in primarily a publicly traded company with there usually being very few of them in numbers within any one country.
The stated idea of a stock is that you have part ownership of a company, and thus you gain from their profits which are distributed through dividends.
As usual, however, reality and academic theory diverge for two main reasons. Dividends are pretty much insignificant in amounts, and because you don’t have many stock options.
The latter means that the stocks of any one company are usually quite detached from “real” value because there’s only so many stocks on offer.
The “real” value of a stock therefore comes from the general perception of any one investor regarding any specific stock. In particular, his or her view on whether demand for any particular stock will rise, with that view “glued” by whether sales are growing, user numbers and so on.
It’s same as the value of anything really. House prices, the value of any crypto, gold. They’re all based on the perception of whether demand will rise based on fundamental factors like user number growth.
Where Does Your Investment Money Go?
When you buy a house, your money directly goes to the owner of that specific house. Indirectly, your money goes to all house owners proportional to the share of property stock they have because the price of all houses presumably rises a bit by this specific house being taken out of the market.
Thus if you invest in housing, you are funding the aristocracy or the very rich who own most properties as they’re now able to demand more money from family/ordinary house buyers.
In the reverse, building more houses takes money off the landowners because all house prices should fall a bit. Which might well be why they don’t build enough housing.
Here however you don’t have much choice of who to fund. You need a house. Whether you’re renting or buying makes no difference.
For stocks, your money goes to the company itself. A stock is basically purely a number and nothing else. A company creates such number, say 100,000, and sells 1 to you for say $100. You get the 1, the company gets the $100.
By the force of law, there are very few companies that can do this. The Securities Act 1933 prohibits pretty much everyone, except the rich, from buying stocks unless the stock issuer (the company) goes through a very complex process and gets approval by the Securities and Exchanges Commission (SEC).
It takes millions to get to that stage, so effectively only global corporations can sell you this 1, which came from nothing, for $100 or whatever.
So taking Amazon, every one who buys AMZN is basically giving their money to Jeff Bezos, Amazon’s founder. The more people buy Amazon stocks, the richer Bezos gets.
And For Bitcoin?
Bitcoin and other cryptos in contrast are quite a bit different. Starting with the similarities, here too you get say 0.01 bitcoin for $100. Here too, let’s say this 1, is kind of from nothing.
Unlike the stock process for this “printing,” the process here is code based. There is therefore no SEC committee giving permission. There are the rules of the code automatically and instantly saying yay or nay.
The further similarity is that here too there is an issuer. The difference however is that while a stock has one company issuing all stocks, here there can be many companies and even kids in the basement “issuing” bitcoins without anyone’s permission except for those of the rules of the code.
So to “issue” bitcoins, you need miners and quite a lot of them now, but some might still remember a time when all you needed was to download the bitcoin node software and click create, then wait and boom, numbers would show on the screen.
That difference is crucial and forms the foundation of our thesis. Buying Amazon stocks gives your money to Bezos, the richest man alive who has publicly said he doesn’t even know what to do with all this money. Buying bitcoin, or any other “good” crypto, is buying an index.
The Bitcoin Index
Because there is no one individual or company that issues bitcoin, and because its issuance or minting does not need to comply with any laws rigged in favor of the rich, when you buy bitcoin your money goes to an entire index, an entire ecosystem.
From the students mining bitcoin in their dormitories in 2013, to the visionaries, the techies, and yes some criminals – it’s a permissionless open space – buying bitcoin is giving your money to the rabble, your sons and daughters, the plebs, us the people.
While buying stocks sends your money straight to the rich, buying bitcoin funds ordinary smart men and women who after the banking collapse found a potential solution to perhaps all of our problems with these peasants having the drive and ambition to create a fairer and better financial system in service of the entire globe.
From making computing power faster and more efficient, to driving advances in renewable energy, from creating crypto “stock” markets across the globe, to giving access to online commerce to pretty much anyone in the world, to say nothing of lower level advancements, a bitcoin purchase funds it all.
For the first time perhaps in history, the people can choose where their money goes to. The rabble, or the rich. Us commoners, or kings and queens.
Because you may well get 1 for your fiat money, but in that 1 is abstracted the entire universe behind it. Including these very pages.
Bitcoin, for the first time in history, is choice. You can choose whether to make the rich even more richer by buying their stocks, to make grandpa Warren Buffett even fatter than he stands, or to lift perhaps the creme of this generation and in the process lift yourself rather than keep sinking.
Our parent’s pensions keep being given to the likes of Gates, Bloomberg, Buffett, and Bezos’ wife, and we wander what is wrong.
The law, of course, that restricts your money investments and your pension investments to only these rich men. A law that a genius has checkmated.
All said, cryptos can be very risky. Stocks do have their uses and benefits. Primarily, Fed props them up so it’s a less risky “investment,” although that propping up does kind of flow into crypto.
No mother therefore should risk more than 10% of her savings in crypto. Self-interest does come first. Yet no mother should give any more money to Bezos either, he has enough already.
Money is power and money is a vote. It works the same everywhere, including in bitcoin which is far more distributed, and thus far more likely to be funding your sons and daughters while performing the same functions as stocks or the rest, but to the double or even triple benefit of yourself because you’d be funding your own.
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