The Great Reset and a Bitcoin Investing Thesis
The great reset is an effort led by global elites to bring back social orders and economic growth in the post Covid world. During the pandemic, the rich gets richer — the world’s billionaires have gotten almost 2 trillion dollar richer in 2020. While the poor and the shrinking middle class loses their jobs and struggles to make a living. The society becomes fragile and social unrest is at its peak level since the 1960s. And at the same time, the financial market demonstrates extreme level of volatility even Buffett has never seen.
These are the signs of a potential collapse of a complex system (both societal and economical) after a very long period of positive feedback (unsustained growth and financial stimulus). The system is becoming very unstable at the end of the cycle. The collapse may not led by a person or a certain class of people, but may arise from a natural evolution of the complex system itself.
Contrary to its original intention, what worries the elites may be a real “great reset” of wealth and social rank. As a speculative guess, Bill Gates’s recently buying farmland may be his response to hedge against such risk.
As ordinary investors, what options do we have? Before making my point, I’d like to first discuss about asset classifications. There are two important dimensions to classify different types of asset: whether it’s a capital asset and whether it’s a debt-based asset.
Capital assets can generate cash flow while holding the assets. Examples are stock, bond, your own business and land. Precious metals like gold and bitcoin are non-capital asset because they cannot be hold to collect cash.
Debt-based assets are assets which at the same time are liabilities on someone else’s balance sheet. Bank deposits are liabilities of the bank, and cash are liabilities of the Fed. The worth of the assets depend heavily or solely (at extreme situations) on the counter-party’s credibility. Stock itself are not liabilities to others, but it shares the same property that the value of it roots in the belief in the issuer of the stock. Gold, bitcoin and commodities are not liabilities for anyone.
There are key distinctions on the inherent functionalities across asset classes. Cash generating assets can grow wealth which are preferred in good times. At the same time, they carry risk from the business environment. For debt-based capital asset, they also carry the credit risk from the counter-party, which can be systematic in bad times. Non-debt non-capital asset are primarily used for value storage and exchange, which are much preferred in dark days.
Land and your own business are best assets in my opinion in terms of both growth and safety. However, business requires special expertise which may not be accessible to everyone and active management. Land can be considered as passive assets to some degree, but owning and managing a land also has high entrance barrier and is not something for the average Joe.
Debt-based asset such as stocks and bonds are very pricy at the moment thanks to the flood of liquidities. I consider them risky, because we know such growth is not sustainable and the bubble will eventually burst.
The only options left for ordinary investors are Bitcoins and commodities. I would argue owning them (10% of total asset allocation) would be wise for ordinary investors. The black swans may come sooner than you think, and they may offer good hedging against such risks.
Hope the last section has convinced you non-debt non-capital assets are good to own in the case the real “great reset” happens. This section focuses on Bitcoin.
There are three additional reasons for a Bitcoin bull case.
First, Bitcoin supply is limited. This makes it a good property to store value — at least in comparison with the dollar where the Fed can expand its balance sheet indefinitely.
Second, technically Bitcoin momentum is good at the moment — 2x the value over the past a couple of months. Sideway moves after a very strong run likely indicates a bull market in months to come, according to the wave principle. The market is consolidating itself, and a good buying opportunity will be when the price break out the resistance.
Third, institutional investors are finally starting to buy Bitcoins. Wall street veterans such as Ray Dalio and Howard Marks are reconsidering their stance on Bitcoin. This will hopefully makes the Bitcoin price less volatile.
However, holding Bitcoin also carries significant risk. Careful analysis and cautions are required if planning to hold it with significant positions in the long term. One biggest risk in my opinion is the adverse intervention from sovereign states. After all, hoarding gold was illegal until less than 50 years ago in this country.