October 22, 2024

Bitcoin is opportunity

Tim Draper on Bitcoin: Why This Investment Opportunity Is Too Good to Overlook.
It may challenge everything you thought you knew.
By JAYDEN LEVITT

Tim Draper said recently: "If I had to predict-Bitcoin will reach $250k by the end of this year."

He says it's because of the cascade effect that can happen. But before we dive into that, we have to put into context how good this man is as an investor-he's deployed early-stage investments that read like a hitlist of tech titans.

• Skype.
• Tesla.
• SpaceX.
• SolarCity.
• Ring.
• Twitter.
• Twitch.
• DocuSign.
• Coinbase.
• Robinhood.
• Hotmail.

Security would march you out of the casino if you had this many wins at the poker table-which probably suggests it's not luck. The lifelong venture capitalist, who has "seeing around corners" embedded in his DNA, first bought Bitcoin at $4. He says he lost the entire undisclosed amount of BTC through the Mt. Gox hack, in which the exchange's owners stole customer funds, ala Sam Bankman Fried.

Draper's second chance at a Bitcoin life was snagging 29,655 bitcoins for about $18 million in an online auction with over 40 bidders. The Bitcoin he purchased came from a stash of 144,000 BTC seized in a raid on Silk Road, the notorious online black market for drugs and trafficking. Folks in trad-fi thought he'd lost his marbles.

You may have heard of American citizen Ross Ulbricht, the Silk Road marketplace owner, now serving life imprisonment, hoping for a Trump pardon. Draper has explained that certain macroeconomic circumstances will soon make it too late to get into Bitcoin.

He said recently: "We're getting close. At least one and maybe both presidential candidates are looking to adopt Bitcoin and other cryptocurrencies to encourage innovation because they know it's happening. The real killer is that all this innovation is happening, and many Americans are coming up with these innovative things, and then they geofence the US, in effect, not allowing anybody in the US to try their product."

Tim Draper says all this remarkable innovation is happening outside the US, and it's down to the big dark cloud that the SEC has created.

It's a sentiment I agree with. Once the greatest nation on earth and a leader in tech innovation, the US are now losing this digital land grab due to some BS party politics, treating it like a political hockey puck. Draper believes now is the best time to get into Bitcoin and not to leave it any longer than necessary-purely due to the Fed stimulus and the recent Bitcoin halving.

Tim Draper: "They say -If you're an investor in the stock market, don't bet against the Fed. Yeah, well-If you're a Bitcoin buyer, don't bet against the halving. That thing changes everything. The supply shrinks. The demand increases. The price goes up. That's natural economic supply and demand."

Everyone is missing this one crucial factor that generates Bitcoin demand. 101 of understanding Bitcoin is that its supply is capped. Logically, I think to myself, "Are we becoming more digitalised or less?" My answer is more, which means we'll value these digital assets more and more. There's no way we put this genie back in the bottle. It's too late.

Draper says: "It's becoming clear to both people and retailers that they should accept Bitcoin, with the possibility of eventually only accepting it. While it's uncertain when this shift will occur-be it in a day, a month, or even a decade-it's likely to happen quickly. With the rapid spread of information through social media, if the dollar's value diminishes, people will rush to their banks to convert their money into Bitcoin."

Draper states that women control 85% of current retail, but only one in six women has a Bitcoin wallet. He believes that once retailers start transacting in Bitcoin and wallet integration becomes more seamless, we'll see this retail dominance extend into the Bitcoin space. So, 50% of the entire retail market that could be purchasing Bitcoin is not at the front door yet.

Capital One - did a research study that supports what Draper is saying and was quoted as saying: "Global consumer spending is evenly distributed among the sexes-in the United States, however, women are directly or indirectly responsible for up to $14.0 trillion or 80% of consumer spending."

Male vs. Female Spending Statistics
• On any given day, 39.4% of American women and 33.7% of men shop.
• In one month, the average single American male consumer spends $3,608 or 98.6% of his income after taxes.
• The average single female spends $3,515 in one month, or 114.7% of her income after taxes.
• Moms do 80% of grocery shopping in households with a spouse or partner.
• Worldwide, women spend almost $35 trillion on consumer goods, the equivalent of 50% of global consumer spending.

Opportunity often comes to the second mover.

Draper's central tenet for investing is: "The earlier you get in, the more uncertainty there is, but the higher your upside."

Getting in early doesn't mean you need to be first. Diving into new tech can often feel like a false start - everyone sees its enormous potential, but making it user-friendly takes extra elbow grease. He says that's where you shine as an investor.

The sweet spot for investing? Right after the stumble, when the idea's solid but hasn't blown up yet. That's your queue to jump in with your finger hovering over the buy button. Draper says mainstream media inevitably pigeonholes new technologies like Bitcoin as a "trend for kids or scammers" or, as they called the Internet in 2000, "just a passing fad."

"Almost every technology goes through the I-S curve, every industry comes up, gets hyped to the max, and that's the dot on the "i", so think of a cursive i. And then it drops, and people complain about why it's not good, like the Internet in its early inception. So, for years, it sits there languishing. While that's happening, all these great engineers are working hard and coming up with great ways for us to experience this internet thing. It slowly creeps up like an S, then explodes for years."

Not everyone sees it quite the same.

Michael Saylor, the quirky businessman who bleeds Bitcoin, has outperformed the entire market using clever leverage arbitrage. I laughed when one person online said: "He's figured out the Bitcoin money glitch".

Saylor's stock MicroStrategy currently holds 252,220 bitcoins, averaging $39k USD each, totalling $9.91 billion. Their holdings are worth around $15.5 billion, which would give them over $5.6 billion in profit if they sold today. MS is up 825% this year, beating every stock in the S&P500. It's because he borrows money against his company's stock at almost zero per cent interest over a 5-to 7-year period when the stock increases. He then uses the funds raised to buy more Bitcoin, so the stock price optically keeps inflating as more Bitcoin is added to his balance sheet.

Saylor appears unconcerned about his cost basis or Draper's notion that "it'll be too late". He uses the clever analogy of buying New York property 200 years too late-and that you'd still have made a profit. "Investing in Bitcoin is like buying into New York City 250 years ago - sure, you're late, but someone was there 14 years before you. I once tweeted that Bitcoin would go the way of online gambling when it was just $100. I was wrong-I ended up buying it at $9,500 to $10,000 instead. People will buy it at $100,000, a million, or even 10 million. Just look at Manhattan - people pay $10 million for 4,000 square feet. All of Manhattan was once bought for around $29 in beads. Don't focus on the unit price-ask yourself: What is the dominant network in cyberspace? Bitcoin is that network."

$500 Billion just got added to the Fed balance sheet. The tide might be shifting. While both Saylor and Draper are in it for the long haul, we see early signs that financial conditions are improving. Bitcoin is extremely sensitive to global liquidity. When rates drop, people ditch bonds and dive into riskier assets. So, we often see an immediate spike in Bitcoin's price when the money printer goes Brrr.

In the last three weeks, the Federal Reserve has pumped over $500 billion onto its balance sheet, clearly trying to front-run the uncertainty around the election. The US national debt is now $35.75 trillion, and it's unlikely that they will refinance that over 5 years at the current 5%, so we'll most likely see rates come down to below 2%. It has to happen.

Then there's the next Fed meeting on November 7th, just two days after the election, where interest rate traders are betting on an 89% chance that rates will drop another 25 basis points. So, all signals show we're very close to the "banana zone".

Final thoughts
What stands out to me is Tim Draper's incredible ability to understand what people will do. Before they do it.

I thought Bitcoin was a scam at $330, and it took me 5 years to realize it wasn't. Draper waits for the dot on the "i" before watching how people engage with new technologies. Then he pounces on the opportunity-like dropping millions on stolen Bitcoin-when everyone in traditional finance thinks he's a few sandwiches short of a picnic. So he sees these opportunities incredibly early.

I agree with Saylor that investing in the dominant money network is never too late if you have a long-term time horizon. I'm not sure about Draper's thesis that there'll be a time when it's too late or even his retail thesis. Given that the price of Bitcoin keeps increasing, I don't see people using it as a utility to buy goods and services-but his views on increased female participation are spot on.

Either way, his message re-wired my thinking. If you're new to the space, Bitcoin is an investment opportunity far too good to overlook.
2024 Jayden Levitt