Crypto was born on the premise of Decentralisation - that is no more middlemen. Let pre-defined algorithms, powered by a diversified majority, rules it all…..companies, governments, media, eduction, systems, unions etc. While that would be an ideal climax, we are still far away from that. In fact, hybrid would be more ideal. In the end we might have, and probably for good, a hybrid system, a centralised society with some decentralised rules of governance.
But what is the end goal here? Or are we aimlessly driven to gambling our lives away in pursuit of hot quick money. At Algorithma, we are very clearly focussed on building an ecosystem of like minded founders who come together to deliver better systems to make the world a better place.
Risks to Investing in Bitcoin & Blockhain
We have been talking to several Family Offices here in Asia almost daily. There are a lot of questions we get, mostly Myths regarding Bitcoin & Blockchain. I thought we should clarify some. Most of these are simple clarifications that people seek. Some are genuine risks that come up regularly.
Top Risks in Bitcoin qualified below:
Governments won’t give away their powers easily to something they can’t control. Will they shut it down? Will they tax it to eternity?
Answer: Money & Powert rules it all. There was a much greater risk of this 2 years ago and while the risk is not entirely gone, it’s almost vanished as large banks, institutions and powerful people (aka smart money) enters this pace. We have seen plenty off that since 2020 especially from JP Morgan to GS to Fidelity, Blackrock, Endowements and Pension funds, Paypal Mafia, and new regulations in Wyoming etc - Its basically the new “Too Big to Fail”. Power always lies in the hand of few, not the top but the ones how control those strings. The influencers of power. Yet the risks remain, but then by that count, even Tesla is risky, so is Alibaba and Apple - Is that 100% safe? All boils down to risk / reward.
Can Bitcoin or Blocckhains be hacked? I heard Google and China are developing Quantumn computers. Just a matter of time then?
Answer: Anyone can get hacked. Most already have. I am talking non-crypto companies. If NASDAQ or JPM got hacked or goats got hacked ( and all of them have been hacked already in the past), would you put your faith in them again? If Binance or FTX or Coinbase was hacked, yes we would see a temporary dump in BTC, but it would rise again like it has done numerous times. Companies have become more sophisticated but then new DeFi products will also get hacked till they become sophisticated. Its Human Greed vs Human Excellence at play here. Always has been. Its actually less risky but never say never. Being alive its risky, isn’t it :)
Is the BTC. supply really capped? What about derivatives? What about forks?
Answer: Of course it could. Could Nokia be replaced by Apple? Could Apple be replaced by soothing shinier? Is Google the master of universe? No. Everyone us replaceable but the king (read as monopolies) are hard to break. In this case, the anonymity, and security by longevity (12 years and counting) are almost impossible to break. So many have tried - BCH, BTC Gold etc (no pun intended to ETC). Moreover, new forks are immune to more hacks as they dont carry those network effects and surviving 12 years takes time (literally 12 years). A risk it is, will always be but a very low one.
What about Bitcoin & Ethereum competitors?
Answer: This is valid and in fact we have been short term bullish of BSC, SOL, DOT etc but the key word here is “short term”. Not easy to replace the king easily. As stated above, credibility and timeless security are not easy to come. But there could easily be something more superior that hasnt been invented yet. Ask Jeeves before Google, or ask My Space before Facebook or ask Nokia before Apple or Blackberry before Samsung. History is your best guide. Evolution is given but its not easy and takes decades in formation, Reap the rewards till then.
What about the demand side? Wouldn’t dogecoin replace Bitcoin if Tesla accepts it officially or if US Govt were to endorse it?
Answer: Well, it’s still new asset but given how we are progressing with technology, my and your kids are more probable to use Crypto than Gold oil Fiat. Projecting demand is difficult, almost impossible. But with something as scarce, with 12 years on a roll, the network effects would continue to bring new people into it. We go one day at a time but if demand is not coming faster, then its not dying either with the true “maximalists” and “holders” who btw are around 200 million already.
Tether is a big risk, non-transparent and controls the entire crypto trade globally.
Answer: To be honest, Ive been worried as well last year as news of its dwindling reserves & Cayman links broke out. But if SEC & NYAG can give them a clean chit (or a slap on the wrist), then you are as good as Trump to be president of USA. Tether is here to stay & now Facebooks Diem could be a larger compeitor creating more value for the ecosystem.
What about miner risk? What if China banned internet or shut down miners? Who will produce blocks or verify transactions?
Answer: Well entire internet would have to go down for that. Can you imagine a world without internet or a day or even a second? Zombie Apocalypse? Everything is at risk then. Crypto is the last thing you should be worried about - your bank, property, stocks, digital certificates, hacks etc…Bitcoin miners are actually incentivised in this perfect way where they would be shooting themselves in the foot for not verifying. And China alone cannot ban them, more than 65% mining is outside China. In fact if someone stops mining, they are at the losing end today. That cannot change. Not a risk in our opinion.
How can it be a leading asset when it is so volatile.
Answer: Every new asset class has been volatile. Bitcoin has become more mature and its volatility has been reducing. We expect this to further decline with time as smart money, instruments and more players enter this market. Current volatility does not make it a competition to USD. But what about in 5 years time? 10 years time? Wouldn’t you want to take that 1% bet of your portfolio? With endless sprinting, world needs a new medium soon. That time is coming. But then traders love volatility and brings in more smart money into it.
What about money laundering and other illicit operations?
Answer: Which month in recent history since 2008, a bank or a financial institutions has not been fined by regulators for money laundering? Madoff, Archegos, 1MDB etc. Crypto is in its infancy. And so is money laundered by it. Not to say that it will not happen because human greed & jealously, over rules any emotion. But currently, its so tiny compared to banks and total illicit transaction, that it is not even valid. Moreover, most large crypto institutions and funds are going licensed and regulated which by definition is abiding by all KYC / money laundering norms.
As a Family Office, it’s very risky for us. Our goal is wealth preservation.
Answer: Indeed. And we are not advocating go all in Crypto. Diversification is always advised, But what about 1% of your portfolio in crypto? What about 5%?What if here was a 0.001% chance that Bitcoin could be teh global world reserve currency? What if 10 countries adopted it tomorrow? Are you prepared not to be a part of that? There are always risks, but risks are in all investments to varying degree.
We say this all the time. There is risk in Bitcoin. And there is risk in all other coins but as that risk diminishes, you will see Bitcoin network effects expand exponentially.
You can reach out to us on Twitter or LinkedIn anytime if you are thinking of investing or have any other second thoughts. Happy to have some more thoughtful discussions with potential aspirants :)