Chapter Four
Why Bitcoin?

TO ME, BITCOIN REPRESENTS what happens when you combine the transformative power of the Internet and mash it together with the immutable power of value in all forms. This is the Internet of money. This is a traffic system that moves at the speed of light and processes transactions in a completely unhackable way. It's decentralized, where trust and verification are a shared responsibility. Bitcoin and blockchain could do for money what the telegraph did for information. When the telegraph was invented, it radically changed how information was transferred and gave rise to whole new industries. But you couldn't move money with a telegraph. Money was still physically transported.

Now, you might be thinking, "Mooch, take it easy. We've had digital money for years. Western Union has been around since the 1800s. I can Venmo my friends digital cash on my phone!"

That's all true, but those are point-to-point closed networks that exist inside the financial edifice. They are completely regulated and controlled by governing bodies all over the world. Bitcoin is decentralized. It exists outside that construct using a program that is so simple and so brilliant (more on that later) that it will forever change the financial world. Bitcoin is not controlled by any government entity. It does not require a bank to transact. It has become increasingly part of the financial system but still remains wholly independent. You can take your Bitcoin off the grid and complete everyday transactions.

It is the first global currency not issued by a central bank or government authority and controlled entirely by the people. This is a quantum leap in the history of money. In some ways, it fulfills the original promise of currency of being able to transact and store value. This is an important point. Every currency around the world is issued by a country's central bank and is backed by the full faith and credit of that government. If you go to Europe, you have to take your dollars, which are issued by the Federal Reserve, and exchange them for euros, which are issued by the European Central Bank. To regulate their respective economies, those central banks will control the amount of money in circulation. Since the Great Financial Crisis of 2008 central banks around the world have been in overdrive to print as much money as they can to literally try to print their economies back to life.

This has acted as a silent tax on citizens. As more money goes into circulation, that currency becomes less valuable. It's simple supply and demand. The more there is of one particular object, the less valuable that object becomes. As a result, central bank money printing, once a relatively obscure topic debated among academics and economists, has now gone mainstream. People who would otherwise never care about the Fed policy started protesting. Remember the Tea Party? It was all a rejection of what some considered to be a moral hazard enabling a rigged system, with the average mom and pop picking up the tab in the form of higher inflation.

The roots can be traced to the enormous bailout packages the government gave to the big banks after they all but collapsed during the mortgage crisis in 2008. Advancements in financial engineering allowed more Americans to access mortgages. Generally speaking, this is a good thing, as home ownership is the path to the American Dream. Everyone was making money in housing. Homeowners were getting rich. Banks were making money. And the government had created a whole new market for mortgage debt. But Wall Street being Wall Street, many banks decided to extend riskier mortgages to people who really couldn't afford them. Everything was fine until one day those same people couldn't make their payments and the whole system collapsed. Faced with a once-in-a-generation crisis, policymakers had two choices: let the banks fail and allow the US economy to descend into a second Great Depression or embark on the greatest experiment on fiscal policy central banks have ever tried. We chose the latter and embarked on an unprecedented effort to stimulate the financial system by extending the Fed's balance sheet and printing trillions of dollars.

It preserved the financial system, but at the cost of tacitly endorsing reckless behavior. As many in the public saw it, banks could take outsized financial risks, to the benefit of people who ran them, and the United States would be there to clean up the mess if everything exploded. No one who ran a major financial institution involved in the mortgage crisis ever was charged with a crime.

Suddenly, there was a populist movement against Wall Street. People who had never protested before were taking to the streets in the "Occupy Wall Street" movement, in an effort to "stop the fat cats." People worried the Fed's actions would save the super-rich and stick everyone else with the tab. They became the villain. In 2001, public trust in Alan Greenspan's Fed stood at 74%. By 2012, it had declined to 39%.

Out of that distrust and anger was borne an acceptance of an alternative. No one was even thinking about Bitcoin in the charged days of 2008-2010, but some disaffected factions were ready for something else, something outside the system, something that was truly theirs that could not be touched or diluted, or, in effect, taken from them to cover up the financial misdeeds of a select and powerful few, or so the thinking went.

To be fair, I was not in touch with this sentiment. I was more myopically focused on the health of my customers and the integrity of the financial system. I was aware of the anger in America and the resentment toward Wall Street. I understood that frustration, but candidly speaking, in the dark days of 2008 and 2009, I was more concerned about making payroll. Still, for the very first time, "regular" people grew disillusioned with the financial system they knew. They were open to an alternative that could operate within the existing system but also be distinctly outside of it.

When COVID shut down the world and central banks resorted to the same playbook they did in 2008, it was clear to me that more and more investors would seek out an alternative to fiat dollars. It made sense. It wasn't about a disagreement on monetary policy, or distance for fiscal largesse. After the fiscal and monetary response to the Great Financial Crisis and now COVID, seeking a hedge against debasement was fiduciary responsibility.

While logic and reason were behind me, shifting from a traditional asset manager to a Bitcoin fund was a major business and life decision. If this failed and Bitcoin flamed out, I'm not sure I would ever professionally recover. I would be the Wall Street guy who bought at the high, only to flame out.

But in thinking about the pivot, I recalled a conversation I had with Michael Saylor. He and I were going back and forth about Bitcoin. Saylor is a Bitcoin maximalist. In his mind, there is no better investment in the world.

Saylor is one of the great geniuses of our time. An MIT grad, he founded the software company MicroStrategy in the early 1990s, just before the Internet boom. His company was a dotcom darling, and he saw firsthand how quickly a boom can turn into a bust. His gray hair and short beard belied his youthful soul. In truth, Saylor is more than an entrepreneur; he's a futurist, and he knew how to profit from trends others could not see.

But unlike many Bitcoin enthusiasts, Saylor didn't start out as a bull. In fact, he was anything but, and in December 2013 he took to Twitter and torched the space:

#Bitcoin's days are numbered. It seems like a matter of time before it suffers the same fate as online gambling.

In fairness to Saylor, the early days of Bitcoin were uncertain and scary. Exchanges were often hacked; the regulatory framework was a disaster. It was an emerging phenomenon in cyberspace, but it was unclear whether it was a security or commodity. How would governments and regulators respond to Bitcoin's rise? No one knew.

But as time passed and Bitcoin only became more prominent and more valuable, Saylor realized that Bitcoin's resilience spoke to its enduring value. So did the fact that so many imitators had come along in the form of competing coins and had done little to dent Bitcoin's supremacy.

When we made our initial investment, I called Saylor.

"What is the one thing that makes Bitcoin go higher?" I asked him.

"Let me throw the question back at you," Saylor replied. "What is the one thing they can't make more of?"

The "they" he was referring to wasn't just one entity. It was everything: governments, corporations, citizens. Anything that could ruin value.

"Money?" He continued. "Governments print money all the time? Bonds? Never printed more."

Real estate?

To Saylor, there was nothing scarce about real estate. And he would often point out in subsequent speeches that coastlines, the most prized pieces of real estate due to their scarcity, always seem to get bigger.

"They're building all the time. Beachfront property? They just build more. Look at Dubai! A lot of man-made waterfront property. Look at Miami," Saylor would later say. "When they run out of room, they just build more. Ever fly over the middle of the country? There's nothing but land."

Neighborhoods can go bad....