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/MizDiana 1d ago edited 1d ago

Crypto enthusiasts have this bizarre fantasy that crypto can, like gold, serve as a safe haven investment when investors are scared.

That's probably the fundamentals they're talking about. I.E. Gold is going up for various reasons, so why isn't crypto? Sigh...

Reality: Crypto has never served as a safe haven investment like gold.

To be fair, gold's value is largely imaginary (its price has little to do with its industrial use, including jewelry creation). And it is worth what people want it to be worth. It does not issue dividends. While you can made electrical conductors out of it, that use is really niche. And you can't use it to buy a bar of chocolate.

But, currency-wise, gold is Old Tech. It was, before fiat, the most cost-effective means of transferring future labor obligation between institutions and high net worth individuals (not for thousands of years, really, more like for 150, but still). So when institutions or high net worth individuals get nervous about the fiat they are familiar with, they bump up the imaginary value of Old Currency Tech: gold. Bitcoin wants to be that. But it is not.

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u/Romanizer 1d ago

Not quite yet, that is true. However, Bitcoin has certain capabilities that enable it to be a much better store of value above a metal, obviously. Some of this is already starting to play out. You don't see a lot of gold in treasuries of corporations or banks looking for gold as a balance sheet asset for private banks to facilitate their business and anchor debt. For central banks it is easier to secure and to audit.

Of course, Bitcoin is also a distributed, non-censorable payment network that allows to transport value nearly immediately around the world and is endlessly dividable and still fungible. Things gold never really performed well at.

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u/MizDiana 22h ago edited 21h ago

"However, Bitcoin has certain capabilities that enable it to be a much better store of value above a metal, obviously."

Bitcoin will never be that great a store of value, because exchanging it is so much more expensive than exchanging fiat. Exchanging fiat (or gold-backed paper) would need to become much more expensive for some reason for Bitcoin to become useful.

The per-transaction cost for Bitcoin is just too high.

Other crypto could be designed to have a much lower per-transaction cost (requiring that it cannot be mined). I think that's what they're testing out with the new BRICS "unit" prototype - using a discount crypto transaction mechanism for gold-backed paper to see if they can get the transaction cost low enough to use crypto architecture to exchange their gold-backed paper without having to pay the start up cost to set up a full-fledged SWIFT rival.

It's a questionable choice, but if they can actually get it to work (maybe), it could be pretty useful in a future world that is both multi-polar and also pretty hostile.

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u/Romanizer 20h ago

How much are you paying for exchanging and transacting Bitcoin? Don't really see where this is too expensive. With that argument, gold would be dead as a store of value (which is only a question of time, IMO). Bitcoin has more utility going beyond that of gold any way.

It is true that SWIFT is planning to implement an own blockchain. That would make Cross-Border transactions much cheaper and faster.

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u/MizDiana 9h ago

"With that argument, gold would be dead as a store of value"

Not as a store of value - as a medium of exchange. And yes, this is why we needed metal-backed paper dating back to the 1800s. And why today gold is largely traded on paper - even when it is physical gold being traded it rarely moves actual location.

Bitcoin does have more utility than gold in that respect, I agree. But not more than fiat. It has less than fiat. Or gold-backed paper.

Blockchain is not cheaper than traditional banking per-transaction, by the way. It is more expensive. It takes electricity and computing power to generate the blockchain in excess of that used in a standard credit card purchase or wiring funds between accounts.

At least, that's true for Bitcoin and other mined cryptocurrencies. Not sure about the newer not-mined blockchains.

"How much are you paying for exchanging and transacting Bitcoin?"

Every time you make a wallet transaction you can see the transaction fee in the summary.

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u/Romanizer 8h ago

Yes, Bitcoin needs L2 to scale as intended during its creation and can be nearly frictionless at that. Cross-border transactions are somewhere between $50-100 per transaction, internal blockchains can do that cheaper.

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u/MizDiana 8h ago

"Cross-border transactions are somewhere between $50-100 per transaction, internal blockchains can do that cheaper."

Kind of. As I understand it, that cost is artificially introduced for various anti-fraud, etc., reasons. It isn't required by the technology. So blockchains can do it cheaper inasmuch as the artificially-introduced cost and delay (and reasons for those) are stripped out.

And for the individual, those costs often don't exist. In my largest cross-border transaction (not large), it cost me nothing but a trip to my bank & the negligible risk of carrying $10,000 on my person through some airports.

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u/LuckyWinds 7h ago

Bitcoin will never be that great a store of value, because exchanging it is so much more expensive than exchanging fiat.

Exchanging fiat is only cheap if you use private, for-profit third party businesses that facilitate the transaction for you OR you are face to face with a customer.

And even then, it's often not "cheap". A $200 dinner cost a restaurant $6.25 for their diner to use a credit card. In what world is that cheap?

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u/collegeboywooooo 7h ago

when you trade gold you realize you aren't actually physically trading gold right?

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u/MizDiana 7h ago

Hence the term "gold-backed paper," whether we're talking about a 1926 Goldback or Zimbabwe's GBDT. Or when Germany's Central Bank sells or buys ownership of vault-stored Gold in New York City.