🟠 How do you justify investing in any Bitcoin/Lightning Companies instead of just bitcoin itself? \ stacker news ~bitcoin

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🟠 How do you justify investing in any Bitcoin/Lightning Companies instead of just bitcoin itself?

367 sats \ 20 comments \ @andyleroy 1 Jul 2022 bitcoin

tldr: Imagine you could have invested in a ‘fixed supply token’ 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 I’m 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 instead…

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

It’s 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 person’s usage all would accrue directly to the ‘token holder’ of the internet.

Of course this doesn’t 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 ‘the money’ is to be made other than hodling?

Especially as seen these last couple weeks, the idea of yield doesn’t seem to work too well. The traditional Banking model of fractionalizing deposits and lending doesn’t work with Bitcoin - there is no government backstop or money printing.

And if Bitcoin ‘takes over’ I suppose it eventually grows in value in lockstep with GDP growth? So no one is going to ‘lend’ 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 ‘Bitcoin Banks’ 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?

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 doesn’t 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 don’t 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 ‘fix the money, fix the world’ and all of the problems Bitcoin solves from that of the fiat system (especially as we approach the singularity - but I’ll 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!

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112 sats \ 3 replies \ @AncapHodl 1 Jul 2022

In 2012 this would be a very strong argument. However, I see it as a mildly strong argument now. Bitcoin is practically guaranteed to keep going up, but you're not likely to see crazy growth in the order of 100s in the next decade or so. This is very much a possibility when investing in a company. The way I see it, investing in a company is higher risk and higher reward than simply buying and hodling Bitcoin.

Furthermore, I won't elaborate too much on this point since other replies already have, but it can't be understated how important it is for these Bitcoin companies to start up and continue to exist. There's a solid argument to allocating some of your investment portfolio to them while continuing to allocate another portion of your portfolio to Bitcoin.

Bitcoin is my safe investment in my future, but I have space to invest in other things too.

0 sats \ 2 replies \ @andyleroy OP 1 Jul 2022

This makes a lot of sense, thanks for your insight. I think it's that risk/reward ratio I'm still trying to internalize, especially when Bitcoin the asset gets all of the benefits of every company driving forward adoption and innovation in the space, with much less (if any) risk of a single company's failure.

The stock market is a bad example this year with nearly every asset down, but the idea of investing into a traditional cash flow positive 'value' asset and converting any dividends/gains into bitcoin the asset (I guess something like MSTR does) is very interesting. I don't have any model for this stuff, but the correlation among businesses in the bitcoin space vs the asset, vs traditional investments is all very interesting.

And I agree about your point of all these companies driving forward the value and the importance - it just seems to be some unique incentives/game theory at play of who continues to step up for the greater good of everyone hodling and where the value accrues. (and then of course the societal good that comes from bitcoin adoption, etc)

0 sats \ 1 reply \ @andyleroy OP 1 Jul 2022

All in all, I'd be curious if you have some model or even 'back of the napkin' type calculation you use when determining portfolio allocation into traditional assets vs bitcoin companies, vs saving in bitcoin?

10 sats \ 0 replies \ @AncapHodl 1 Jul 2022

I have a strong mathematical background but I don't really use any calculations. I'm not a trader or anything of the sort, I simply don't have that mentality. I invest in projects I like the sound of because I want to see them do well. I must be clear that I don't invest any significant proportion of my portfolio in things like this, I've only started doing it recently and I haven't seen any meaningful gains from anything like that yet. I'm not confident it'll do better than a simply buy and hodl Bitcoin strategy, but I want to do it anyway.

173 sats \ 2 replies \ @tenderscore 2 Jul 2022

It isn't just bitcoin companies, but should become all companies of value over time, and eventually I'd like to strip cheap equity off erstwhile hegemons with bitcoin's moon. Meaning:

If the money is BTC, and Ford is paying its dividend in BTC, and earning profits in BTC, I want Ford in my portfolio too in order to make + BTC. If Riot Blockchain pays BTC dividends, it's an early example of that, and the same goes for some of these BTC/LN companies like BLOCK et al. The wealth transfer is BTC becoming the money people spend, save in, and what everything is settled in; with the twist of being a deflationary system that "recycles money, energy, and prosperity" as this somewhat underrated post taught me:

https://www.reddit.com/r/MadMaxi/comments/vivv4w/industrial_money_my_final_post/?utm_source=share&utm_medium=web2x&context=3

But yeah, that's my reply to your question, I could be wrong, just where my logic has lead me. 🤷‍♂️

20 sats \ 0 replies \ @andyleroy OP 2 Jul 2022

Thanks for all your insight here, and the post you linked was a fantastic - really good read and ideas on energy/bitcoin correlation and true decentralization. Thanks for linking that.

Everything you mention makes sense to me - whether Ford, Block, etc - I want a cashflowing business with strong fundamentals in my portfolio, and as the money system moves to bitcoin denomination, I will be able to increase my Bitcoin holdings.

That wealth transfer you mention is where I'm still hung up...

If it's a "slow" transition (ie longer than my remaining lifetime), then I want to invest in any company that produces the best risk adjusted returns. If Bitcon adoption is very slow, this favors more of a traditional company (let's just call in $MSFT, $AMZN, $F).

I guess it's this "medium term transfer" where we get some steady transfer of wealth to Bitcoin - which offers some sort of favorable "blue ocean" to Bitcoin/Lightning companies in a new market. So maybe this is where the best risk adjusted return is for investing in Bitcoin/Lightning co's (good business fundamentals, a new market, and steady adoption rates)?

But in a "fast" transfer of wealth scenario - if hyperbitcoinization occurs anytime in the next 20 years let's say - then it seems the value increase of my Bitcoin savings far outweighs the return on any Bitcoin/Lightning company - especially given the risk correlation?

I don't claim to have some formula or answer, just thinking out loud here...I guess a lot of the analysis depends on the timeline of the overall adoption/wealth transfer and how that models into the portfolio co's fundamentals?

10 sats \ 0 replies \ @zuspotirko 2 Jul 2022

This.

161 sats \ 3 replies \ @tomlaies 1 Jul 2022

There is no such thing as investing in Bitcoin.

Bitcoin is for saving. And Bitcoin is always 1 in 21 million. https://bitcoinexactforecast.com/

If you haven't understood that Bitcoin is not an investment, and still care about it being ""more"" (=investing) that means you haven't understood Bitcoin.

141 sats \ 2 replies \ @andyleroy OP 1 Jul 2022

I'm not sure I follow how Bitcoin is not an investment?

We all have limited time and resources, and people will always look to put their resources in something that can further create productive resources for them.

Whether the return on productive resources is denominated in cashflow, more widgets, or bitcoin, it is natural we would want to put our leftover earnings (savings) into the most productive asset...

161 sats \ 1 reply \ @tomlaies 1 Jul 2022

Saving = Preserving purchasing power and keeping it

Investing = Trying to increase purchasing power at a risk

You either don't use these words by this distinction or are still in a fiat mindset.

31 sats \ 0 replies \ @andyleroy OP 1 Jul 2022

That's fair. But I'm still curious as to the 'invest in a Bitcoin/Lightning company' vs save in Bitcoin directly?

If I have $1 million USD to do anything with, what is my rationale for investing in a Bitcoin/Lightning company (or any company for that matter) when I can instead save it directly in Bitcoin?

20 sats \ 0 replies \ @moon 6 Jul 2022

In my case, I don't have all my savings in BTC. How do I justify investing in other things, like stocks? Diversification is one thing. Nobody knows right... maybe bitcoin will not take over... I think it will, but who knows, I have been wrong many times.

Just to mention one case of bitcoin companies, you have exchanges, for example, that are able to profit both in bull and bear markets. I think if the adoption curve is slow but steady, some bitcoin companies might grow faster than BTC price itself. Bitcoin already went from 0 to 1 trillion. Many bitcoin startup companies might be the next 0 to 1 billion. There's a lot of money to be made.

10 sats \ 1 reply \ @m3anm4chine 1 Jul 2022

without investing in bitcoin and lightning ecosystem there is no growth and adoption, so with investing in companies in the space you're also driving up the demand for bitcoin and bringing it to the masses

0 sats \ 0 replies \ @andyleroy OP 1 Jul 2022

I completely agree - I don't doubt that investments in companies and work in this space drive forward adoption. This is all very necessary.

But I'm wondering how an investor justifies this investment in a portfolio company vs owning the actual asset itself?

(outside of a Microstrategy or large fund with thousands of Bitcoin where the investment can be seen as a safety hedge)

10 sats \ 1 reply \ @2bithits 1 Jul 2022

It most likely wouldn't be a better investment, but it does help in building the circular economy.

Still companies that do their thing & just accept bitcoin as payment might be just enough

0 sats \ 0 replies \ @andyleroy OP 1 Jul 2022

I agree, IMO it will continue to make sense for more and more companies to onboard to the bitcoin system. Just like every company evolved/is evolving through a 'digital transformation'.

But I wonder about the incentives for helping push this circular economy? If you're a Microstrategy or large fund with thousands of Bitcoin, it makes sense to invest in and drive all of the platforms and products around bitcoin to ensure the investment is worth it and create the circular economy.

But what about everyone else? Is owning a large enough allocation of bitcoin the only pure 'monetary' incentive and prerequisite for investing further in bitcoin/lightning companies?

0 sats \ 0 replies \ @andyleroy OP 5 Jul 2022

Pretty good and interesting article I've found on this topic as well: https://bitcoinmagazine.com/business/investing-in-bitcoin-infrastructure

0 sats \ 2 replies \ @Modus 1 Jul 2022

To make the world a better place. #40490

9 sats \ 1 reply \ @andyleroy OP 1 Jul 2022

Thanks, I'll take a look at this video. So you see an investment in a bitcoin/lightning company as altruistic vs financial? I don't disagree with anything about Bitcoin making the world a better place - I'm 100% there. But I do wonder about the financial model? In your view, what will continue attracting capital to drive adoption (other than long time hodlers, those with a large bitcoin position, or those with the "society/interest/humanitarian" perspective)?

10 sats \ 0 replies \ @Modus 1 Jul 2022

So you see an investment in a bitcoin/lightning company as altruistic vs financial?

Personally I do. I would usually not expect any business to outperform bitcoin in terms of growing my buying power, but if someone knows of business that will do that without being a scam, that would be very interesting.

I think bitcoiner developers and entrepreneurs use limited resources wisely, unlike typical VCs and the founders they fund, who burn boatloads of fiat money on things that are unlikely to pan out. Bitcoin's makes the tradeoffs very wisely, and those who agree with me on that will usually also be smart about tradeoffs they need to make.

In your view, what will continue attracting capital to drive adoption

I think from now on bitcoin adoption will be driven by the world's wealthiest entities who are thwarted at every turn when they try to preserve their wealth. The amount of wealth that is stored in bonds is staggering, and that system of wealth storage is imploding as we speak.

Adoption will also be driven by people in countries whose economies are collapsing, and/or the leadership is blocking them from owning dollars or gold or things like that. The last people to adopt bitcoin will be average Americans, because dollars have served them well and could still do so for awhile longer.