I’ve been getting some FOMO and mixed thoughts on BTC. This is just a quick rundown to help me think through whether I should invest.

The weakening fiat

The argument I see the most often for crypto is that it’s a hedge (reserve asset) against a diluted fiat currency.

The US is using an increasing proportion of capital to service debt year over year. We are not in a recession yet (debt:gdp – note 2008 and 2020), which means that the US could potentially increase the money supply even more. In the short term, increasing money supply increases liquidity and assets increase. However, in the longer horizon, historically, when inflation is high, people like to buy supply-limited value stores like precious metals or real estate.

Money will flow from the stock market and into these government securities to serve the increasing debt; for example, t-bills and interest rate regulation. As the US spends more and more money in foreign affairs and military to preserve its status as a leading superpower (e.g. billions of dollar for Ukraine.), it could be reminiscent of a downfall similar to that of the Dutch in the 1720s or the UK in the 20th century. (1)

Is crypto a reserve asset? I don’t think so yet. Within a few years, there will be overall inflation and circumstantial defaults/liquidity risks. I think it unlikely that crypto will be a hedge against inflation (like gold) in the current cycle, as people will sell crypto in times of less liquidity. Crypto peaked at Dec 2007 (great recession), dropping around from 20k to 3k. I think we are in a similar point in the cycle.

Instability and exodus

The global narrative of crypto is strengthened by globalization and pessimism. The wealthy will seek less tax and safety, while the less affluent seek freedom and reduced income inequality. In recent history, crypto has been on the forefront of many monetary exoduses due to national pressures. For reasons mentioned above (more investment into T-bills and less into the stock market, higher taxes, etc.), companies may also want to move outside of the US to seek more benefits.

Will there be a lot of struggles with the nation-state in the future? Maybe (1) (2). Maybe not. Hopefully it won’t be violent, as there is a general surplus. Moreover, great social inequality already exists in the modern era without violent revolutions.

What about nations? Historically speaking, changes in the global order results in war; if this is no exception, what would happen to the value of crypto in the wake of fallen nations?

A risky investment

I see a lot of staunch advocates on Twitter and Reddit saying that it’s risky to not hold crypto, that fiat money will be worthless in the future. After reading many articles and news on crypto, buying some on an exchange, and looking into some crypto projects, I still think that it’s a risky investment.

On the consumer level, it’s risky because your access to it involves you remembering a secret recovery. Most entities like BlackRock and Fidelity just offer it through an ETF, which I think is a substandard way of owning the asset. Not only is there a 1.5% fee, it’s not FDIC insured and you don’t get rights to the underlying asset.

It’s also risky because of the prevalence of “dumb money”. The FTX exchange defaulted as a result of holding illiquid (like Silicon Valley bank) and fraud and volatile assets. Also, the Luna Terra fraud incident. Right now, the price of Solana is really high as a result of rug-pull NFT schemes. I was unaware of the extent of scams related to crypto until I conducted my research.

It’s risky for the nation-state as well. There is so much regulation on crypto, with countries like China, Bangladesh, Qatar, Morocco, etc. banning crypto. Even many countries that have not banned crypto hold oppressive laws, maybe under, I think, the guise of preventing money laundering.

The adoption of crypto

I think many countries hold public and private positions on crypto. For example, the government of Bhutan has been secretly mining BTC; if a small country like Bhutan has been mining BTC privately, and if you look at the current very high hash-rate and NVIDIA stock prices, you can only imagine the amount of mining done by larger countries.

In September 2023, 29% of all people in India had crypto, 18% of HK, and 13% of Americans, growing at around 34% year over year. The number of active / new addresses are increasing as well. I think this gives teeth to the idea that shutting it down in a country does not kill the narrative.

Tiny data exploration

I downloaded the entire blockchain of an altcoin and did some pool mining.

I also did some really rough multiple linear regression just to get a general idea on what determines or is well-correlated with BTC price. I created a tiny dataset consisting of a bunch of factors in the first half of 2022. I had some prices of securities, some momentum indicators, FRED economic data that includes GDP, liquidity, some free sentiment data, google trends data, general blockchain data like hash-rates, etc. In my data, I found that Coinbase stock price and google trends for the phrase ‘crypto’ are the best features to determine (or are strongly correlated by) BTC price.

I’ll look at some other things in the future to get my feet wetter.

I also moved a small amount of BTC to a cold storage, more so just going through the motions to see what’s it like.


Even though I don’t think BTC is the reserve asset people hype it up to be, I am bullish on the idea. The price will fluctuate as people sell and buy in different market conditions. Crypto sentiment and macroeconomic conditions will likely be the most significant factors influencing price. And staying informed is prudent.