Bitcoin: Religious Zealots Make For Easy Trades

Bitcoin is a different form of money. Instead of being controlled by the government, it is controlled by a combination of the internet, networks and math. Normally the government can print as much money as they please, and they have historically abused this privilege. Bitcoin is decentralized, so it’s not controlled by any authority. All transactions are recorded by a network of computers on a digital ledger. The supply of Bitcoin is predetermined, so Bitcoin can be considered a potential hedge asset long term (i.e. similar to Gold). If you need an overview on the technical end, I recommend THIS video.

Why Bitcoin?

The clearest base case for Bitcoin is to be digital gold. As the chart below shows, Bitcoin has many of the same strengths as gold and also a number of other advantages as well. If we were just going off this chart, investing in Bitcoin would be an absolute no brainer, but this chart tip toes around one of the major stumbling points investors have around Bitcoin.


Where does the value come from for Bitcoin? For gold, it comes from a rich history and some amount of intrinsical value. Bitcoin doesn’t have that intrinsical value, it has no physical form. For fiat, the value comes from being issued by the government. Once again, Bitcoin doesn’t have this. So where does the value come from?

Bitcoin is the currency of trust. Without any intrinsical value or a central force backing it, many investors don’t understand how Bitcoin has any value. What these investors are missing is that you don’t need to have a central force if you have a fervent and growing following who believes Bitcoin has value.

Religious Zealots:

Stanley Druckenmiller eloquently explained the simplest Bitcoin bull case (from 2020): “Do you know that when Bitcoin went from $17,000 to $3000 that 86% of the people that owned it at $17,000, never sold it?” Druckenmiller replied: Well, this was huge in my mind. So here’s something w/ a finite supply & 86% of the owners are religious zealots.”

How long wallets are holding their Bitcoin is publicly available information, but not something that is talked about enough. Due to the public blockchain, you can tell how long wallets are holding Bitcoin (given everything is recorded on a publicly available ledger). HODL waves are a form of chart that show how long wallets have been holding their Bitcoin. While the numbers have varied quite a bit from what Druckenmiller referenced, you can still see a significant holding pattern (despite significant downward pressure on price).


It’s important to remember when looking at Bitcoin price charts that the crypto industry has an extreme amount of leverage. When you see extreme run ups and draw downs in Bitcoin, often times it is due to the extreme amount of leverage.

Wrap It Up:

What happens to the price of an asset that has a strong and growing base of investors who aren’t willing to sell through 90% dips? Every day new Bitcoin believers enter join the cult. When you have this kind of long term asymmetry (with publicly available data to support the thesis), you don’t need to overthink it. Bitcoin is my favorite asymmetrical trade. Beyond the cult, Bitcoin has a ton going for it that I wasn’t able to talk about here (lightning network, growing corporate support, etc…).

I believe the mental framework around trust is the key to making sense of a crazy crypto market. It’s a little over simplistic, but directionally accurate. When in doubt, keep it simple!

Bitcoin is hard to value, but if we use gold as the base case, Bitcoin has 30x potential to its base case. Crypto is a crazy, risk filled asset class, but I do believe we are still early in the story of Bitcoin. To support this write up, I’ve linked my recent additional purchase of Bitcoin and proof of my skin in the game (via common stock profile)!

Author: fatbabyfunds