tldr: Imagine you could have invested in a âfixed supply tokenâ of the Internet Protocol vs an Ecommerce/Infrastructure/Search Company - this would be more successful than any investment in Amazon, Google, or Visa. So why invest in a Bitcoin/Lightning company, when you can just buy and hodl Bitcoin?
If we look at two of the most widely adopted technologies outside of the PC, we have the internet as the most successful protocol and Linux as the most successful open source project. And if we look at this history for each, there were great investment opportunities:
Internet
- Ecommerce - Amazon (+121,000% return since IPO)
- Infrastructure - AWS, MSFT
- Search - Google (+3,900%)
- Money - Visa (+1,137%)
- Entertainment - Netflix (+14,749%)
Linux
- IBM Redhat ($34 Billion acquisition from IBM)
- Infrastructure Management - AWS runs
- Others Iâm missing?
These are some of the best historical returns ever seen.
But imagine if there were an option to own a piece of the protocol insteadâŚ
What if you could own some piece of TCP/IP or Linux itself and the supply was capped?
- Today we have 22 Billion internet connected devices, 3.5 billion people using the internet, and every usage stat is up and to the right.
- 85% of mobile devices run linux and 3 Billion+ people use linux
Itâs not quite apples to apples, but owning a hypothetical fraction of the internet would be an even better investment than Amazon. The efforts of every company, every failed and successful business model, every personâs usage all would accrue directly to the âtoken holderâ of the internet.
Of course this doesnât exist, but with Bitcoin it does in a sense. If we reach hyperbitcoinization or some form of circular economy, Bitcoin could take over pricing of every asset and see some rise to $10M USD+ price point, implying a compound return from current prices of 1,000% annually assuming a 50 year time horizon.
How can any return on a portfolio company beat this return rate?
Where is the Money to Be Made in a Bitcoin/Lightning Company Investment?
I bring this up mainly out of curiosity as to where âthe moneyâ is to be made other than hodling?
Especially as seen these last couple weeks, the idea of yield doesnât seem to work too well. The traditional Banking model of fractionalizing deposits and lending doesnât work with Bitcoin - there is no government backstop or money printing.
And if Bitcoin âtakes overâ I suppose it eventually grows in value in lockstep with GDP growth?
So no one is going to âlendâ Bitcoin without a return of at least GDP growth plus some sort of risk premium?
Maybe technology-led deflation comes into play somewhere here?
In some ways it seems like there is a race to the bottom - with no lending yield, how will wallet providers or new âBitcoin Banksâ make profit as hosting and operational costs cannot be as easily financed with lending?
Exchanges and the fee rate of converting all fiat to Bitcoin eventually trends towards zero?
Running a Lightning Node already has fee rates and yield approaching zero (or a small 1-3%)?
Ancillary software platforms and tools (ie Infrastructure management, tax and reporting, analytics, etc) all end up with some sort of SaaS-like business and similar investment opportunities and multiples as non bitcoin companies?
Exchanges and the fee rate of converting all fiat to Bitcoin eventually trends towards zero?
Running a Lightning Node already has fee rates and yield approaching zero (or a small 1-3%)?
Ancillary software platforms and tools (ie Infrastructure management, tax and reporting, analytics, etc) all end up with some sort of SaaS-like business and similar investment opportunities and multiples as non bitcoin companies?
But when looking to invest in any of these areas, there is risk just like any other startup. And when compared to the risk of Bitcoin, it doesnât seem to be worth it? If Bitcoin never materializes, it is unlikely that any Bitcoin/Lightning company will have a significant investment return. And if Bitcoin goes big, then the most upside seems to be all in hodling?
I donât mean to be negative in any of this, and much of this is all a United States centric approach here. I love everything Bitcoin offers and I truly believe in âfix the money, fix the worldâ and all of the problems Bitcoin solves from that of the fiat system (especially as we approach the singularity - but Iâll save that for another day).
And I know there are a lot of things in life (and Bitcoin) beyond money. Working to build out a better civilization for everyone may be one of the greatest professional privileges out there. And for Bitcoin to be worth anything, all of this technology, from the source code to every business in the ecosystem helps drive everything forward.
I'm curious how everyone looks at ROI on everything (monetarily or otherwise) in this space?
And Happy 4th of July weekend to anyone in the US reading this!