This article is a commentary from Blockchain Capital partner Spencer Bogart to the SEC (US Securities and Exchange Commission) in response to the SEC's questions and concerns about the value of Bitcoin. This article details the size of the value storage market, why Bitcoin is more suitable for value storage than Van Gogh's paintings and gold, and the logic is clear and well organized. The carbon chain value is recommended to all Bitcoin investors and those who want but have not invested in Bitcoin.
The value of bitcoin
Bitcoin is often referred to as a digital currency. Some people may not agree that Bitcoin meets the currency standard, but the currency is only part of the property, so there is nothing wrong with classifying Bitcoin as property.
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Since the digital properties of Bitcoin do not generate cash flow, one might conclude that Bitcoin has no value. However, such a conclusion is obviously short-sighted. According to experience, millions of people from all over the world regard Bitcoin as an asset. The letter will examine the causes of this phenomenon by analyzing Bitcoin and other common stored-value assets with similar attributes.
Prior to this, quantifying the market for stored-value assets may help to better understand the scale of wealth seeking assets with similar attributes.
Quantitative stored value assets
Although “value storage” is a term that most people are not familiar with, this type of asset is ubiquitous in the global economy and is widely known except for its name.
There are several types of assets that are also used as value stores—that is, they are not for cash flow, but for long-term storage of wealth. For the sake of brevity, this assessment will focus on the three largest value storage markets:
Gold: The total value of existing gold is about $9 trillion. Conservative estimates, we can limit this quantification to the total amount of gold held by private investment and the official sector, which accounts for about 38% of existing gold or about $3.5 trillion at current market prices. (As of June 2019). Of course, this is just an overly conservative estimate because it does not include any gold used in jewelry worth more than $4 trillion, and some of it is undoubtedly used as a value store (and not just because it has Attractive appearance).
Artwork and Collectibles: According to Deloitte, only ultra-high-net-worth individuals have stored a total of $1.6 trillion in art and collectibles. Given that these people do not constitute the entire art and collectibles market, we can use $1.6 trillion as a low-end estimate of the value store for the entire art and collectibles. Baird Asset Management further supports this figure as a conservative estimate, estimating the total value of the collectibles market at $4.3 trillion. Behind this commentary, I will discuss how high-end collectibles and art are primarily used as stored value assets.
Real Estate: As of 2017, HSBC estimates that residential properties total approximately $168 trillion. And a large part of the residential real estate market can be attributed to uses that are not fully used to store value, such as the value of its consumption (such as people living at home) and the cash flow generated by leasing opportunities, but these purposes are stored with value as real estate. Utility is not mutually exclusive.
In the microstructural survey of the real estate market in many metropolitan areas, the utility of real estate as a means of value storage is particularly evident. A large part of these markets are driven by overseas buyers who do not live in the homes they buy and do not charge rental income. Such purchases are strictly attributed to the utility of real estate as a value store. Therefore, even a very conservative market view, the utility of real estate as a value storage tool is 5%, or $9 trillion.
Overall, this very conservative total value asset is estimated to exceed $14 trillion. Regardless of whether the total market size is $14 trillion or well above $100 trillion, it is clear that a large amount of wealth in the world exists in assets with stored value attributes. As can be seen from the history of gold and other assets (such as other precious metals, real estate), it has been this for hundreds of years, and I have no reason to believe that it will stop.
Volatility and storage of value assets
Before discussing the value attributes of Bitcoin and comparing them with other stored value assets, it is first necessary to address the common misunderstanding that “value storage” means that the value of such assets is permanently stable. Because of the other value asset storage listed above, this is obviously not the case.
For example, from 2011 to 2015, gold losses exceeded 50% of its value; from 2006 to 2009, San Francisco real estate prices fell by more than 50% (according to the S&P/Case-Schiller price index); The collectible market is harder to measure and index, but even the most favorable index highlights significant volatility.
In fact, short-term fluctuations appear to be a sign of stored-value assets, not black marks for those assets. This is largely due to the properties they mentioned above. For very scarce items, fluctuations in demand relative to static supply may cause large price fluctuations. In the pain of the 2008 financial crisis, the sharp appreciation of gold is a good example of the inelastic supply effect.
This effect is uniquely amplified in Bitcoin due to the unprecedented scarcity of Bitcoin. As mentioned above, other assets are scarce, but even the most scarce assets, such as gold, are still increasing in annual supply, especially when prices rise, and previously unprofitable gold is also profitable. . In contrast, Bitcoin shows absolute scarcity: the supply is really limited, and the mathematical limit is that it can only create 21 million bitcoins. Due to the lack of flexibility in supply, the price of Bitcoin will naturally fluctuate more.
Finally, market growth is expected to fluctuate. Liquidity has increased as more and more investors have begun to engage with this type of new asset and more capital is needed to drive the market. In the early stages, smaller investments can cause large price fluctuations. However, as the market matures over the past decade, volatility has gradually declined as the market deepens. Today, the Bitcoin market has been able to absorb a large number of sell orders, but the price will not appear very crazy decline.
This is very important, otherwise we may prematurely treat Bitcoin as a speculative asset rather than a stored value asset. Because as the mining rate increases, the volatility of Bitcoin will increase intermittently.
Discussion on Bitcoin Value Attributes
In order to better understand the value of Bitcoin as a tool for storing wealth, we can examine some of its valuable attributes separately, including its scarcity, separability, portability, substitutability, liquidity, programmability, Easy to authenticate and a powerful guarantee for users.
A more in-depth look at these value attributes, as well as the relevance of Bitcoin to other stored-value assets, will help us understand why tens of millions of people choose to hold Bitcoin.
As mentioned above, the total supply of Bitcoin is strictly limited to 21 million, and its distribution method is predictable and transparent. From this point of view, the value of Bitcoin is the same as that of gold and high-end collections (such as Picasso paintings and antique cars) because their absolute scarcity provides a useful channel for capital protection. Because of the scarcity of items, the holders of these items can be assured that the new supply will not dilute the wealth they have accumulated. This property provides real practicality for hundreds of millions of people.
Similarly, despite the small extent, a significant portion of the value of real estate comes from scarcity and supply constraints. In fact, by studying the microstructure of many metropolitan real estate markets, the value of real estate as a by-product of scarcity (rather than consumer value) is evident.
For example, in the past decade, the Vancouver residential real estate market has been largely driven by overseas buyers who do not live in purchased homes and do not charge rental income. Obviously, the purpose of these purchases is not to consume or cash flow value, but to store value in a supply of limited assets. As this effect became so serious, Vancouver implemented a “vacancy” tax to prevent some people from using local real estate as a stored value for foreign capital. In any case, the demand for these scarce assets is obvious.
Similarly, if we study the market for gold and high-end collections (such as Picasso paintings and antique cars), it is clear that the vast majority, if not all, of the value comes from scarcity.
The value of gold in this area is intuitive and well understood, so I will focus on the high-end collections market that we are not familiar with. The paintings of Picasso and Van Gogh are undoubtedly superb and beautiful, but buyers will not buy these assets to hang them on the wall. In fact, the vast majority of these assets are stored in vaults or museums. Of course, the purchasers of these assets are not buying these assets because of their inherent beauty – they have limited spending power – on the contrary, the acquisition of these assets is mainly because there will be no new Picasso paintings or Ferrari in 1963. GTO. Simply put, they are scarce and widely recognized assets.
The value of Bitcoin is also based on the same reason; however, unlike gold or real estate, there is a risk of increased supply of gold and real estate (ie finding new gold supplies, or suddenly developing new real estate), but the supply of bitcoin is Enforced by algorithms and hard coded into the network, this makes it more scarce than previous stored-value assets.
Some people are concerned that other blockchain-based digital assets will dilute the total supply of bitcoin. However, these concerns have been misled: these blockchain-based digital assets are not verified or identified by the Bitcoin network. In this sense, the idea that other blockchain-based digital assets will dilute bitcoin supply is like saying that the newly minted Thai baht would dilute the dollar supply, which is simply wrong.
Although these assets are scarce, with the average price of each Picasso painting or retro Ferrari (in tens of millions of dollars), and the average house price in Vancouver (more than $1 million), these assets are for most people. Basically it is not available. This leads to Bitcoin having another valuable attribute: severability.
While the capital required to obtain scarce assets (such as metropolitan real estate or high-end collectibles) exceeds $1 million, the fact that Bitcoin can be split into eight decimal places reduces entry barriers below $1. To a certain extent, this helps explain why Bitcoin has become a democratized "bottom-up" asset, while the smaller end of the market drives most of the volume so far. Other assets are mainly limited to high net worth individuals. In this sense, Bitcoin is everyone's Picasso.
In addition, while most buyers use these assets as a value store, it is challenging and cumbersome to sell Picasso paintings, the 1963 Ferrari GTO, or a small portion of Vancouver homes. In contrast, Bitcoin, as a way of storing value, allows users to easily liquidate any part they hold. This is a utility that many users really value.
As a native asset of the global network, Bitcoin can be quickly and easily moved anywhere in the world. In contrast, the transfer of most other value-for-money storage assets is basically impossible or extremely cumbersome: for example, real estate is inherently immovable, antique vehicles are challenging and mobile costs are high, due to the fragility of classic oil paintings. Therefore, its transportation is equally challenging.
Gold is probably the most portable compared to most other stored-value assets, but even gold is severely limited by its physical properties. For example, in 2013, the Bundesbank announced its decision to recover 20% of the country's total gold stocks from foreign treasury in Paris and New York. However, even a small amount of German total inventory recycling takes about five years to complete and costs more than $9 million. In contrast, bitcoin of the same value can be transferred in less than a millionth of the cost in just a few hours.
The portability of Bitcoin is clearly a valuable and unprecedented attribute.
4. Variability and homogeneity
Of the traditional stored value assets, only gold is replaceable, or homogeneous: that is, one ounce of gold is as valuable as any other gold. In contrast, each Picasso painting has a different price; the value of each retro Ferrari varies according to its status quo; the value of each real estate depends on various factors (location, size, condition, etc.).
In this sense, bitcoin is similar to gold coins: each bitcoin or part of it has the same value as other units of the same size. This is very important because it reduces the indirect costs of assessing the various qualities of each asset to obtain a reasonable price.
As a by-product of severability, interchangeability and portability, Bitcoin has a highly liquid secondary market that facilitates effective market and price discovery. Although classic paintings and antique cars are rarely traded in the secondary market, prices are not well found, but Bitcoin's spot market trading volume often exceeds $250 million, and there are often more than $1 billion in daily trading volume. The liquidity of Bitcoin is valuable to users because they can quickly acquire and dispose of stored-value assets at the lowest transaction cost. Empirically, we know that liquidity is valuable because liquid assets can often be sold at a premium relative to illiquid assets.
In addition, although real estate transactions take months to complete, and the cost usually accounts for 8-20% of the real estate transactions. In contrast, Bitcoin units can complete transactions in seconds, and transaction costs are less than 1%. Bitcoin reduces transaction costs and speeds up transaction time, which is a boon for users of stored-value assets and can bring additional liquidity to the market by lowering entry barriers.
Among other stored value assets, Bitcoin's programmability is particularly unique. As a native digital asset, Bitcoin can be programmed to achieve its specific goals and enhance security.
For example, Bitcoin can be sent to a "multiple signature" address, which effectively stipulates that Bitcoin cannot be transferred under any circumstances unless there are 4/3 or 5 parties agreeing to the transaction. This effectively reduces the functionality of the vault to a few lines of code. Similarly, Bitcoin can also be sent to a "time-locked" address that specifies that bitcoin cannot be moved before a predetermined point in any case.
In this way, Bitcoin itself replicates multiple functions, such as trusts or contracts, as a legal tool. However, despite the high cost of establishing a trust or drafting a contract (in terms of nominal cost and time), the Bitcoin network can perform these functions for democratized access with minimal time and at the lowest cost.
Currently, more than 18% of Bitcoin (as of June 22, 2009, worth more than $34 billion) is stored in multi-signature addresses. In this sense, the programmability of Bitcoin provides its users with real usability, and programmability is another unprecedented and valuable property.
7, easy to authenticate
The authenticity of most traditional stored value assets is difficult to be certified. Even gold, one of the easiest assets to be certified, requires the use of hazardous nitric acid or expensive specialized equipment for certification.
In addition, one of the most difficult areas is the high-end collection market. For example, in the rare art market, counterfeits are notorious and ubiquitous, but high-quality fraud is difficult to distinguish from the real thing, even those who are qualified often disagree on the real issue. . Antique cars also have similar (but less) challenges. Similarly, real estate also requires expensive and detailed inspections in all aspects.
In contrast, Bitcoin can be more easily authenticated on a standard computer by using free and widely available software, making Bitcoin more accessible and valuable to most people.
8, a strong guarantee
Earlier, we discussed the impact of buyers of foreign stored value assets on the Vancouver real estate market, but this is not unique to Vancouver. In fact, this situation also occurs in many cities such as Canada, the United States, and the United Kingdom.
What these cities have in common is that they all live in jurisdictions with relatively strong property rights. Given the natural desire to protect property, wealth tends to be in these jurisdictions (especially from countries with weak property rights, unclear definitions, poor enforcement, and inequality), in part to mitigate the risk of wealth plunder.
Bitcoin is very useful in this regard because its underlying network is a rule-based, self-arbitrating court where valid transactions are clearly defined, objectively verifiable, and executed by the software of each network participant without errors. As a result, Bitcoin provides its users with a strong geopolitical neutrality of objective property rights, rules and consistent execution guarantees.
The strong guarantee of Bitcoin is very useful for most people, because some kind and honest people want to protect their own property in a non-violent way.
There is no denying that digital assets and digital scarcity are relatively new to everyone, but Bitcoin has a history of more than 10 years of continuous operations, and the market's demand for assets with bitcoin attributes is clear, and many of them. It is unprecedented.
It is estimated that the value-added assets are about $14 trillion, and the size of the market reflects the innate desire to retain a portion of the wealth through scarce and recognized assets.
Finally, given that demand for stored value assets has been going on for thousands of years, Bitcoin, as a stored value currency in the digital age, has unique and superior attributes in many respects. Therefore, it seems reasonable to allow US public investment. Easily, securely and supervised access to financial products through existing, trusted channels and consultants to provide price risk exposure to the asset.
Thanks to Conner Brown, Ben Davenport, Alex Larsen, Hasselblad, H. Joshua Rivera, Bart Stephens, and Eslin Cronin for editing, revision, and Suggest.
 IRS Announcement 2014-21, Section 4 https://www.irs.gov/pub/irs-drop/n-14-21.pdf
 World Gold Council, as of 2017. Https://www.gold.org/about-gold/gold-supply/gold-mining/how-much-gold
 Deloitte and Art Strategy, Art and Finance Report 2017 Z https://www2.deloitte.com/lu/en/pages/art-finance/articles/art-finance-report.html
 Baird Asset Management, “Picasso, St. Gaudens or Lafite: Does enthusiasm have a place in wealth management? ”, 2009, https://content.rwbaird.com/rwb/content/pdf/insights/ Whitepapers/do-simpion-have-a-place-in-wealth-management.pdf
 HSBC, Global Real Estate: Trends in the World's Largest Asset Class, 2017 https://internationalservices.hsbc.com/content/dam/hsbcis/pdf/hsbc_global_real_estate_report_july2017.pdf
 See Artnet's price index. Website: https://www.artnet.com/price-database/
 “The Role of Foreign Capital in the Vancouver Real Estate Market,” Anjum Mutakabbir, School of Public Policy, Simon Fraser University, 2014.
 Vancouver, Article 11674, https://couver.ca/your-government/vacycle-tax-rules.aspx
 The Financial Times, Claire Jones, “How Germany Regains Gold”, November 2017
Author: Spencer Bogart
Translator: Zhang Anni
Source: Carbon chain value