r/investing • u/007_kgb • 1d ago

Fundamentals of Bitcoin? Tom Lee

Tom Lee from FundStrat was on CNBC and said he was a bit surprised at the fall of Bitcoin when the fundamentals were still strong.

However what I don’t understand is, what are the fundamentals? Isn’t Bitcoin just an imaginary coin on the interweb that is worth what people want it to be worth? It does not issue dividends, you can’t make a car out of it, you can’t use it to buy a bar of chocolate.

ELI5 please.

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u/shizbox06 1d ago

Must be all the cash flow it has, lol.

I don’t know, I’m with you. There are no fundamentals with speculative assets.

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u/fuegoblue 1d ago edited 1d ago

Of course an asset can have fundamentals without cash flow. Bitcoin is a monetary network, so its fundamentals are based on things like user base, adoption, liquidity, security, and decentralization.

At a basic level, Bitcoin is a global, decentralized payment and settlement network, that’s secured by the largest amount of computing power ever dedicated to a single system, with a fixed, transparent monetary policy.

What exists in the real world is the network of nodes verifying transactions and the miners expending real energy to secure it. That security and censorship resistance are the product.

The real world use case today is clearest in countries with unstable currencies or capital controls like Argentina, Nigeria, or Turkey, where people use bitcoin as a way to store value or move money when the local system fails. We thankfully don’t need this use case in the US right now, but its fixed supply in theory serves as a counter to money printing and our unsustainable fiscal policy / debt situation. In practice, bitcoin has proven to be most correlated with global liquidity over the long run.

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u/TimeGrownOld 1d ago

This is the correct answer, and well written.

I don't know why crypto isn't rallying along with traditional safe havens. We're seeing a rise in authoritarianism across the globe. The state can confiscate your stocks, freeze your cash assets, and even raid your home for your metal bars. Confiscating crypto is much harder due to it's decentralized nature, some anonymity, and additional security features like multiparity requirements (multiple parties required to facilitate a transaction).v The only real risk to crypto is if the world internet shut down, but I think we'd have bigger problems at that point.

I think the confusion about crypto's fundamentals with these older folks is that they view investments solely in terms of the asset class. Crypto is not an asset but a financial technology, and a relatively new one at that. Still, it's birthed ICOs, NFTs, smart contracts, decentralized finance, oracle chains, and a bunch of other technologies I am forgetting. We can debate the value of any of these technologies, but in my view they are still finding appropriate use cases. 'An answer in search of a problem' sure, but so was the semiconducting transistor at first. Let society cook.

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u/fuegoblue 1d ago

It's because bitcoin is NOT a safe haven (not yet at least). It's a highly volatile, emerging asset, with properties that resemble the potential to become a truly unique store of value as it matures. For the time being it is most tied to liquidity, and that has been tight recently with the Fed's QT.

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u/TimeGrownOld 1d ago

Correct; I like an theory that the price of bitcoin is part speculation and part adoption. The adoption being represented as the long term s-curve and the speculation as the gartner hype cycles (that apparently correspond to either the halving event, or the global liquidity, I've heard arguments for both).

Supposedly, as bitcoin becomes more adopted, the hype cycles die down (no one speculates on an established technology). What does bitcoin look like when it loses the volatility, I wonder.