Founder of Stone Ridge: Who said it’s too late to buy Bitcoin?


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People are always accustomed to underestimating the power of modern technology’s network effects. Amazon does it, and Bitcoin does it.

Written by: Ross L. Stevens, founder and CEO of Stone Ridge Asset Management LLC.
Compiler: Perry Wang

Stone Ridge is an asset management company with a market value of 15 billion US dollars . In a recent letter to shareholders, Stone Ridge , its founder, Ross L. Stevens , talked freely about the four epiphanies of his understanding of Bitcoin and “Why too many people Failed to become a millionaire by buying Amazon stock”, “Is it too late to buy Bitcoin now” and other issues.

The following is part of the letter to shareholders:

Is it too late to buy bitcoin now?

Bitcoin has entered its twelfth year, especially the return rate of investing in Bitcoin in 2020 will exceed 200%, but for most people, the idea of ​​investing in Bitcoin still makes them extremely uncomfortable, just like Amazon . After 12 years of listing, most people still dare not invest in its stock (AMZN) in exactly the same situation.

Even for those investors who see the long-term potential of Bitcoin’s currency properties, they may wonder if it is too late to invest. Did they miss the opportunity to get in the car? Has all the future value of Bitcoin included in the current price?

I believe that the theory of evolution always makes us resolutely underestimate the power of modern technological network effects , because there is no similar precedent in our history. For most of human history, we have lived in small tribes that have absolutely no connection with other humans around the world. Combining this observation, as well as the prospect theory and regret aversion theory, we can solve the mystery of why too many people have failed to become millionaires by investing in Amazon stocks.

In the early days of Amazon’s development, most investors were hesitant to buy Amazon stocks. Even though they liked Amazon’s e-commerce services very much, they felt that they “missed the opportunity to buy Amazon stocks again.” Amazon’s valuation soared. These investors are beyond the reach.

Why is this happening? Because in the first 12 years of Amazon’s stock, the average price at the end of each year was 175% higher than the price at the beginning of the year. Wow! This kind of price trend year after year, so it is understandable why investors think that they “missed the opportunity to buy Amazon stock again.”

Although understandable, investors make big mistakes year after year, and the consequences are very serious: In the next 12 years (the 13th to 24th years of Amazon’s listing), Amazon’s valuation increased 62 times.

Bitcoin has entered its 12th year. How much will Bitcoin be worth in 12 years? 100,000? 500000? 1000000? Or just $100? I don’t know the future price of Bitcoin at all. But I firmly believe that people who believe in centralization will still seriously underestimate Bitcoin, and therefore underestimate the value and influence of the rapid rise of decentralized currency networks and even decentralized people (our Bitcoin family), just like they have been serious every year for decades The stock prices of Google, Facebook, Netflix and Amazon are underestimated. Even though they love the services of these companies so much and use their services every day, they still underestimate their stock prices.

From the perspective of the valuation framework , I believe that Bitcoin should be regarded as equivalent to the aforementioned network business model (the increase in network value brought about by the increase in the number of users).

Bitcoin will not be confiscated globally. Yes, individual countries may try to confiscate Bitcoin, and over time, some countries will try, just as the US government in January 1934 in accordance with the “Golden Reserve Act” did not pay like gold, 9 months ago In April 1933, an executive order signed by President Franklin D. Roosevelt criminalized the possession of gold by American citizens.

However, just as in certain countries/regions that the Internet can be censored but cannot be shut down, it is possible to (try to) confiscate Bitcoin in a country/region but not shut it down. Just as for the same reason and other reasons, there is no global “close button” on the Internet, there is no such switch in Bitcoin.

Regarding confiscation, let’s not talk about the issue of property rights. Bitcoin is actually nothing more than the password of the private key. It can be easily stored in anyone’s memory through simple phrase memory. For me, there are multiple reasons for it. It has better cross-space saleability than gold and legal currency. In my opinion, if there are any circumstances, we are more likely to see a certain country pegging its currency to the Bitcoin exchange rate. Perhaps a certain developing country will use this method to avoid it in the next ten years. Hyperinflation, and then it is possible to see a country trying to confiscate Bitcoin (but unsuccessfully).

Remember, unlike gold, Bitcoin does not have a vault. Want to confiscate my memory? Oh, good luck to you.

Some concluding thoughts on Bitcoin

Trillions of dollars driven by the central bank’s extremely low and even negative interest rate financial instruments have shattered the dreams of savers and retirees, making it impossible for a large and growing population to meet their pension expectations and, sadly, even stifling their retirement. Demand. Free money is hot because it is not free. No matter how well-intentioned its starting point, the out-of-control global currency over-issuance and the subsequent financial repression are the biggest global challenges facing society.

Regardless of whether the future price of Bitcoin rises or falls, the long-term monetary liabilities of American individuals are still denominated in US dollars. Faced with the legal currency-based retirement challenges that we collectively face, we have to think about an interesting and important question: “What do you have to believe is correct for using Bitcoin as the main personal savings tool ?”

Answer: Peer-to-peer—that is, from today until you start spending your long-term liabilities (such as retirement expenses)—regardless of the volatility of the US government fiat currency—you only need to believe one thing; the US government fiat currency is relative during this time period Since Bitcoin will depreciate, it has depreciated about 80% in the past two years alone.

Remember, the most important transaction is the transaction with our own future. We are constantly looking for stronger currencies, which are optimized by individuals based on intuition, and we instinctively know that our survival depends on the permanent storage of life force. In this case, the millennial generation (note: refers to the generation who were underage in the 20th century and reached the adult age after entering the 21st century) have voted in US dollars, and their distrust of traditional institutions exceeds that of their predecessors Would you be surprised to see that this situation has made Bitcoin a “saving account for millennials”?

In this situation, two of the best and far-sighted investment institutions I know of are life and annuity insurance companies that are highly acclaimed for their business, and two property and accident insurance companies that include long-term debt denominated in US dollars ( Re) Insurance companies, which have directly or indirectly held more than US$350 million in Bitcoin assets so far, are all bought and held through our Bitcoin investment branch. Is it not surprising to hear these news? One thing I know for sure: They, and the insurance industry as a whole, are just getting started in investing in Bitcoin.

What really affects us is the point-to-point depreciation of the US government’s legal currency, not the volatility of the legal currency. I believe that this deep understanding will bring about the explosive growth of financial innovation driven by Bitcoin, including offerings to people aged 30 to 50 Bitcoin-denominated life insurance services, as well as Bitcoin-denominated annuity services for people aged 50-70. The zero breakthrough in life insurance and annuity allocation denominated in bitcoin may become our most effective defense measure to deal with the malicious consequences of the central bank’s past, current and future activities. Given that these products may have a revolutionary impact on the retirement crisis in the United States, I will work tirelessly on these products. stay tuned.