The act of trading means that both sides give up one good for something they value more. When I go to the supermarket, I’m giving the supermarket dollars (or euros, or shekels) in exchange for food. I value the food more than the money. The supermarket values the money more than the food. Everyone walks away happy with a successful trade.

But we don’t normally talk about going to the supermarket and trading for food. We generally say we’re buying food. Buying is simply a trade where you give money. Similarly, the supermarket is selling food, where selling is a trade where you receive money.

Now let’s say I’m going on a trip to Europe and need some cash. I have US dollars, and I need Euros. Both of those are money. So am I buying Euros, or am I selling dollars? We generally use the term exchange in that case.

You may notice, all of these acts are really identical to trading, it’s just a matter of nomenclature. The terms we use represent how we view the assets at play.

Which brings me to the point of this post: buying Bitcoin.

Buying Bitcoin

I come from a fairly traditional, if very conservative, financial background. I was raised in a house that believes putting money in the stock market is essentially reckless gambling, and then my university education included a lot of economics and finance courses, which gave me a broader view. I’m still fairly conservative in my investments, and was very crypto-wary for a while. I care more about long-term security, not short term gains. Investing in Bitcoin seemed foolish.

At some point in the past 5 years, I changed my opinion on this slightly. I began to see Bitcoin as a prudent hedge against risks in other asset classes. From that world view, I began to buy Bitcoin. Dollars are the real money, and Bitcoin is the risk asset that I’m speculatively investing in and hoping for a return. Meaning: I ultimately intend to sell that Bitcoin for more dollars than I spent to get it. Much like I would treat stock.

As those 5 years have trudged along, I’ve become more confident in Bitcoin, and simultaneously less confident in fiat currency. Like many others, the rampant money printing and high levels of inflation have me worried about staking my future on fiat currencies. Investing in stocks would be the traditional inflation protection hedge, but I’m coming around more to a Bitcoin maxi-style belief that fixed total supply is the most important feature of anything we use for long term storage.

All of this led to the question that kicked off this blog post:

Am I buying Bitcoin, or selling dollars?

Remember that buying and selling are both the same thing as trading. There’s no difference between the act of buying Bitcoin with dollars, or selling dollars for Bitcoin. It’s just a difference in what you view as the real money. Most people in the world would consider the dollar to be the real money in the equation.

I have some background in Talmudic study, and one of the common phrases we use in studying Talmud is מאי נפקא מינה, pronounced “my nafka meena,” or “what is the practical difference between these two?” There’s no point having a pure debate about terminology. Is there any practical difference in how I relate to the world whether I’m buying Bitcoin or selling dollars? And after some thinking, I realized what it is.

Entering a trade

Forget Bitcoin entirely. I wake up one morning, and go to my brokerage account. I’ve got $50,000 in cash sitting there, waiting to be invested. Let’s say that represents half of my net worth. I start looking at the charts, doing some research, and I strongly believe that a company’s stock is undervalued and is about to go up significantly. What do I do?

Well, most likely I’m going to buy some of that stock. Am I going to put in the entire $50k? Probably not, I’m very risk averse, and I like to hedge my risks. Investing half my net worth in one stock, based on the price on one day, is too dangerous for my taste. (Others invest differently, and there’s certainly value in being more aggressive, just sharing my own views.) Buying the stock is called entering a trade.

Similarly, if two weeks later, that stock has gone up 20%, I’m sitting on a bunch of profits, and I hear some news that may negatively impact that stock, I may decide to sell the stock or exit the trade.

But let’s change things a bit. Let’s say I’m not that confident the stock will go up at the beginning of this story. Am I going to buy in? Probably not. For those familiar, this may sound like status-quo bias: the bias to stick to whatever we’re currently doing barring additional information. But I think there’s something more subtle going on here as well.

Let’s say I did buy the stock, it did go up 20%, and now I’m nervous it’s about to tank. I’m not confident at all, just a hunch. Depending on the strength of that hunch, I’m going to sell. My overall confidence threshold for buying in is much higher than selling out. And the reason for this is simple: risk. Overall, I view the dollar as the stable asset, and the stock as the risk asset.

By selling early, I risk losing out on further potential gains. Economically, that’s equivalent to losing money when you view things as opportunity costs. But the risks of losing value, to someone fiscally conservative and risk averse like me, outweigh the potential gains.

The price of Bitcoin, the price of the dollar

Alright, back to Bitcoin. My practical difference absolutely applies here. Let’s say (for simplicity of numbers) that the current price of Bitcoin is $50,000. I’m sitting on 1 BTC and $50,000 cash. I have three options:

1. Trade my dollars to get more Bitcoin
2. Do nothing
3. Trade my Bitcoin to get more dollars

But there’s a problem with this framing. By quoting the price of Bitcoin in dollars, I’ve already injected a bias into the analysis. I’m implicitly viewing dollars as money, and Bitcoin as the risk asset. We can equivalently view the current price as 0.00002 BTC per dollar. And, since playing with numbers like that is painful, we can talk about uBTC (micro-BTC, or a millionth of a Bitcoin) instead, and say the current price of a dollar is 20 uBTC.

(Side note: personally, I think the unit ksat, or thousand satoshis, or a one-hundred-thousandth of a Bitcoin, is a good unit for discussing prices, but I’ve never seen anyone else use it, so I’ll stick to uBTC.)

Anyway, let’s come back to the case in point. We have two different world views, and three different cases for each world view:

1. Bitcoin is priced at $50,000
   1. I think the price will go up, so I should buy Bitcoin
   2. I think the price will go down, so I should sell Bitcoin
   3. I don’t know the direction the price will take
2. The dollar is priced at 20 uBTC
   1. I think the price will go up, so I should buy dollars
   2. I think the price will go down, so I should sell dollars
   3. I don’t know the direction the price will take

You may notice that cases 1a and 2b are equivalent: the price of Bitcoin going up is the same as the price of the dollar going down. The same with cases 1b and 2a. And more obviously, cases 1c and 2c are the same: in both cases, I don’t know where I think the prices will go.

Risk-averse defaults

This is where risk aversion should come into play. Put simply: what is the least risky asset to hold? In our stock case, it was clearly the dollar. And if you asked me 5 years ago, I absolutely would have said holding onto dollars is far less risky than holding onto Bitcoin.

And this is where I think I begin down the path of the Bitcoin Maxi. I started seriously considering Bitcoin as an investment due to rampant money printing and inflation. It started as a simple hedge, throwing in yet another risky asset with others. But I’ve realized my viewpoint on the matter is changing over time. As many others have put it before me, fiat currency goes to 0 over time as more printing occurs. It’s not a question of “will the dollar lose value,” there’s a guarantee that the dollar will lose value over time, unless monetary policy is significantly altered. And there’s no reason to believe it will be.

I understand and completely respect the viewpoint that Bitcoin is imaginary internet money with no inherent value. I personally disagree, at least today, though it was my dominant view 5 years ago. Assuming sufficient people continue to believe Bitcoin is more than a ponzi scheme and is instead a scarce asset providing a true store of value with no long-term devaluation through money printing, Bitcoin will continue to go up, not down, over time.

In other words, as I stared at this argument, I came to a clear conclusion: my worldview is that the risk-averse asset to hold these days is Bitcoin, not dollars. But this bothered me even more.

Tzvei dinim

OK, I’m a full-on Bitcoin Maxi. I should liquidate all my existing investments and convert them to Bitcoin. Every time I get a paycheck, I should convert the full value into Bitcoin. I’ll never touch a dollar again. Right?

Well, no. Using my framework above, there’s no reason to avoid investing in stocks, fiat, metals, or anything else that you believe will go up in value. It’s a question of the safe default. But even so, I haven’t gone ahead with taking every dollar I have and buying up Bitcoin with it. I still leave my paycheck in dollars and only buy up some Bitcoin when I have a sufficient balance. This felt like cognitive dissonance to me, and I needed to figure out why I was behaving inconsistently!

And fortunately another Talmudic study philosophy came into play. Tzvei dinim is a Yiddish phrase that means “two laws,” and it indicates that two cases have different outcomes because the situations are different. And for me, the answer is that money (and investments in general) have two radically different purposes:

1. Short-term usage for living. This includes paying rent, buying groceries, and a rainy day fund. Depending on how risk-averse you are, that rainy day fund could be to cover 1 month of expenses while you look for another job, or years of savings in case your entire industry is destroyed by AI.
2. Long-term store of value.

What’s great about this breakdown is that I’ve lived my entire adult life knowing it, and I bet many of you have too! We’ve all heard phrases around the stock market like “don’t invest more than you can afford to lose.” The point of this is that the price of stocks can fluctuate significantly, and you don’t want to be forced to sell at a low point to cover grocery bills. Keep enough funds for short-term usage, and only invest what you have for long-term store of value.

This significantly assuaged my feelings of cognitive dissonance. And it allows me to answer my question above pretty well about whether I’d buy/sell Bitcoin or dollars:

• Keep enough money in dollars to cover expected expenses in the near term
• Invest money speculatively based on strong beliefs about where asset prices are heading
• And beyond that, keep the rest of the money in Bitcoin, not dollars. Over time, the dollar will decrease in value, and Bitcoin will increase in value. I’d rather have my default exposure be to the asset that’s going up, not down.

Conclusion

Thanks for going on this journey with me. The point here isn’t to evangelize anything in particular. As I said, I understand and respect the hesitancy to buy into a new asset class. I’ve been working in the blockchain field for close to a decade now, and I've only recently come around to this way of thinking. And it’s entirely possible that I’m completely wrong, Bitcoin will turn out to be a complete scam asset and go to 0, and I’ll bemoan my stupid view of the world I’m sharing in this post. If so, please don’t point and laugh when you see me.

My point in this post is primarily to solidify my own viewpoint for myself. And since I do that best by writing up a blog post as a form of rubber ducking, I decided to do so. As I’m writing this, I still don’t know if I’ll even publish it!

And if I did end up publishing this and you’re reading it now, here’s my secondary point: helping others gain a new perspective. I think it’s always valuable to challenge your assumptions. If you’ve been looking at “cryptobros” as crazy investors hoping to make 10,000% returns on a GIF, I’m hoping this post gives you a different perspective of viewing Bitcoin as a better store of value than traditional assets. Feel free to disagree with me! But I hope you at least give the ideas some time to percolate.

Appendix 1: risk aversion

I’m sure plenty of people will read this and think I’m lying to myself. I claim to be risk averse, but I’m gambling on a new and relatively untested asset class. Putting money into the stock market is a far more well-established mechanism for providing inflation protection, and investing in indices like the S&P 500 provides good hedging of risks. So why would I buy into Bitcoin instead?

This is another contradiction that can be resolved by the tzvei dinim approach. You can evaluate risk either based on empirical data (meaning past performance), or by looking at fundamental principles and mechanisms. The stock market is demonstrably a good performer by empirical standards, delivering reliable returns.

Some people might try to claim that Bitcoin has the same track record: it’s gone up in value stupendously during its existence. I don’t actually believe that at all. Yes, Bitcoin has appreciated a lot, but the short time frame means I don’t really care about its track record, definitely not as much as I do the stock market’s.

Instead, when I look at Bitcoin, I’m more persuaded by the mechanism, which simply put is fixed supply. There will never be more than 21,000,000 BTC. If there was a hard fork of the network that started increasing that supply, I’d lose faith in Bitcoin completely and likely sell out of it. I’m a believer in the mechanism of a deflationary currency. And there is no better asset I can think of for fixed supply than Bitcoin. (Though gold comes very close… if people are interested, I may follow up later with a Bitcoin vs gold blog post.)

By contrast, the underlying mechanism for the stock market going up over time is less clear. Some of that is inherent by dint of money printing: more money being printed will flow into stocks, because that’s where people park their newly printed money. My main concern with the stock market is that most people aren’t following any fundamental valuation technique, and are instead treating it as a Ponzi scheme. Said differently, I want to analyze the value of a stock based on my expected future revenues from dividends (or some equivalent objective measure). Instead, stocks are mostly traded based on how much you think someone else will value it in the future.

My views on the stock market are somewhat extreme and colored by the extremely risk-averse viewpoint I received growing up. Others will likely disagree completely that the stock market is pure speculation. And they’d also probably laugh at the idea that Bitcoin has more inherent value than the way stocks are traded. It’s still my stance.

Appendix 2: cryptobros

I mentioned cryptobros above, and made a reference to NFTs. Before getting deeper into the space, I had–like many others–believed “Bitcoin” and “crypto” were more or less synonymous. True believers in Bitcoin, and I’m slowly coming to admit that I’m one of them, disagree completely. Bitcoin is a new monetary system based on fixed supply, no centralized control, censorship resistance, and pseudo-anonymity. Crypto in many of its forms is little more than get-rich-quick schemes.

I don’t believe that’s true across the board for all crypto assets. I do believe that was true for much of the NFT hype and for meme coins. Ethereum to me has intrinsic value, because the ability to have your financial transaction logged on the most secure blockchain in the world is valuable in its own right.

So just keep in mind, crypto does not necessarily mean the same thing as Bitcoin.

Appendix 3: drei dinim

I mentioned “tzvei dinim” above, meaning “two laws.” I want to introduce a drei dinim, meaning three laws. (And if I mistransliterated Yiddish, my apologies, I don’t actually speak the language at all.) I described short-term vs long-term above. In reality, I think there are really three different ideas at play:

1. Short-term money holding for expenses
2. Long-term store of value
3. Speculative investments because you think an asset will outperform the safe asset

My view is that, due to the inflationary nature of fiat currency, groups (2) and (3) have been unfairly lumped together for most people. Want to store value for the next 30 years? Don’t keep it in dollars, you better buy stocks! I don’t like that view of the world. The skill of choosing what to invest in is not universal, it requires work, and many people lose their shirts trying to buy into the right stock. (Side note, that’s why many people recommended investing in indices, specifically to avoid those kinds of concerns.)

I want a world where there’s an asset that retains its value over time, regardless of inflation and money printing. Bitcoin is designed to do just that. But if you really think a stock is going to go up 75% in a week, category (3) still gives plenty of room to do speculative investment, without violating the rest of the cognitive framework I’ve described.

Appendix 4: why specifically Bitcoin?

The arguments I’ve given above just argue for a currency that has a fixed maximum supply. You could argue decentralization is a necessary feature too, since it’s what guarantees the supply won’t be changed. So why is Bitcoin in particular the thing we go with? To go to the absurd, why doesn’t each person on the planet make their own coin (e.g. my Snoycoin) and use that as currency?

This isn’t just a theoretical idea. One of the strongest (IMO) arguments against Bitcoin is exactly this: anyone can create a new one, so the fixed supply is really just a lie. There’s an infinite supply of made-up internet money, even if each individual token may have a fixed supply.

To me, this comes down to the question of competition, as does virtually everything else in economics. Bitcoin is a direct competitor to the dollar. The dollar has strengths over Bitcoin: institutional support, clear regulatory framework, requirement for US citizens to pay taxes with dollars, requirement of US business to accept dollars for payment. Bitcoin is competing with the strengths I’ve described above.

I believe that, ultimately, the advantages of Bitcoin will continue to erode the strength of the dollar. That’s why I’m buying into it, literally and figuratively.

However, new coins don’t have the same competitive power. If I make Snoycoin, it’s worse in every way imaginable to Bitcoin. It simply won’t take off. And it shouldn’t, despite all the money I’d make from it.

There is an argument to be made that Ethereum is a better currency than Bitcoin, since it allows for execution of more complex smart contracts. I personally don’t see Ethereum (or other digital assets) dethroning Bitcoin as king of the hill any time soon.