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The entirety of humanity’s history has been spent in a quest to improve lives and livelihoods through hard work and technological advancement. The vast majority of people over the millennia worked for years on end to provide for themselves and to build a better foundation for their children and subsequent descendants. Generation after generation built upon those foundations, and particularly resourceful individuals discovered new technologies and methodologies for completing their daily work. This continuous improvement, century after century, has brought us to the present day, in which hundreds of millions of people around the globe have obtained living conditions that our ancient ancestors could only dream about.
For the bulk of the last several thousand years, humanity was able to store excess productivity of prior work and prior generations using types of money that retained their value over long periods of time (aka, “hard” money), such as gold and silver. Since the supply of those preferred types of money tended to increase at a slower pace than almost all goods and services, the purchasing power of one’s money tended to increase when valued against those same goods and services. In other words, saving in and of itself was quite often sufficient to not only maintain wealth from year to year, but also build it outright.
In an unfortunate turn of events for humanity at large, money that excelled at storing value was replaced almost entirely by fiat currencies that are created and altered at will according to the desires of the political leaders of the day. Not one fiat currency in history has successfully maintained a lower inflation rate than store of value monies like gold over extended periods of time; in fact, the vast majority of fiat currencies throughout history have already failed as a result of their inflationary march towards worthlessness.
While the supply of goods and services tended to outpace the supply of hard money, the same cannot be said about fiat currencies, as their supply has significantly outpaced the growth in goods and services. For example, in the past twenty years, the gross domestic product (i.e., the total value of goods and services produced annually) of the U.S. has doubled while the supply of U.S. dollars has more than quadrupled:
The net result of monetary inflation exceeding the supply inflation of goods and services is that it’s no longer possible for the vast majority of people to simply save their way to greater wealth. In reality, keeping your money under a mattress or holding it in a low-yield savings account is a surefire way to lose your wealth.
This reality has forced society to move further out on the risk curve in order to generate returns that exceed monetary inflation. Rather than simply holding onto money until future consumption arrives, people speculate on stocks, commodities, altcoins, and more in the hopes of retaining their wealth over time.
That ends now.
Bitcoin: A Return to Hard Money
The supply of fiat currencies inflates when governments print more money, digitally or on actual paper. The supply of stocks and altcoins inflates when corporations and developers decide to issue additional shares or tokens to fund growth or cover losses. And the supply of commodities, including even gold and silver to some degree, inflates whenever producers are incentivized to produce more.
The supply of Bitcoin doesn’t inflate. Bitcoin has a hard cap of 21 million, and no amount of posturing by politicians or manipulation attempted by centralized attackers can change that. For the first time in history, humanity has money for which total supply will never increase. Saving one’s way to generational wealth is back on the table, and is even supercharged. After all, the supply of any good or service worth producing will always increase in relation to Bitcoin’s unchanging supply cap.
Given Bitcoin’s strength as a savings medium, it is very common to hear proponents recommend keeping one’s Bitcoin for significant amounts of time. Based on what we’ve discussed here, the logic certainly seems sound: why “cash out” your Bitcoin, which is guaranteed to increase in value compared to things you want to buy (all else equal), to fiat currencies, which have a track record of losing value that goes back centuries?
“HODL” Your Way to Victory
The will of true Bitcoiners to hold onto their Bitcoin is strong. In fact, it’s so strong that the community has developed a mantra to embody it: “HODL”.
While many with good intentions will tell you that HODL stands for “Hold On for Dear Life”, the term actually has its origin in a misspelling of the word “hold” on the Bitcointalk forum:
True HODLers are driven to keep their Bitcoin no matter how the price moves and no matter what bad news hits the press. While the term “HODL” itself has achieved meme status, the idea that it propagates is hard to dispute. Bitcoin’s price chart reveals that no person who bought Bitcoin and successfully HODLed it for over three years has ever lost money (in fiat terms). How does one deny such a monumental performance?
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This is not financial advice. This newsletter and related content are for informational purposes only. Cryptocurrencies, stocks, and similar assets can be risky. Always do your own research before making any sort of investment.