What should you do with your money to save it for the future?
In the previous article, we agreed that if you have some extra money, there are four things you want for it:
Four Criteria for A Savings/Investment Vehicle
- You want as little risk as possible to your principle. You don’t want your $200 to become $150, for example.
- You want your $200 to keep its purchasing power. Meaning, if $200 can buy dinner for two and theater tickets today, you want it to be able to buy the same in a year.
- Ideally, you want your $200 to grow its purchasing power – so that at the end of the year it’s purchasing power has increased. And now you can buy dinner for three and theater tickets.
- And ideally, you want to grow your principle, such that your $200 becomes $250, for example.
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Let’s explore how Bitcoin and Dollars match up if you were to keep them both in your mattress. Later we’ll look at how Bitcoin matches up with stocks, real estate and other ways to preserve or grow your capital.
| Bitcoin | Dollars, (or any fiat) in your mattress | |
| 1. No risk to your principle | ✔ | ✔ |
| 2. Holds purchasing power | ✔ | ✘ |
| 3. Grows purchasing power | ✔ | ✘ |
| 4. Grows your principle | ✘ (Not so important bec it grows in purchasing power.) | ✘ |
As you see, both Bitcoin and dollars will preserve your principle (#1). Your $200 will not become $199. And neither will you lose your Bitcoin.
Also, neither Bitcoin nor dollars will increase in number while squirreled away in your mattress (#4).
But where Bitcoin really shines is with #2 and # 3.
The supply of dollars is intentionally inflated, causing an erosion in your purchasing power year after year.
However, because there will never, ever be more than 21,000,000 Bitcoin, your purchasing power will never go down.
CRITICAL NOTE: In the short-term, the price of a bitcoin can fluctuate wildly. Right now, we are not talking about this volatility. We are instead saying this: Because there will never be more than 21,000,000 Bitcoin and because over time, demand for Bitcoin continues to rise, the purchasing power of is fundamentally deflationary, meaning, supply can never be increased beyond 21,000,000
As the purchasing power of the dollar decreases due to inflation, not only does the purchasing power of Bitcoin remain stable (#2), but it increases (#3).
This chart, from Satoshi Capital Advisors shows how from February 2012 to August 2020, the purchasing power of the US dollar dropped by 13%.
Meaning that in 2020 you needed $1 to buy what would only have cost you $0.87 in 2012. And this was before the extreme inflation of 2020 – 2023.
On the other hand, in 2012, one Bitcoin could buy you about $0.83, by 2020, one bitcoin could buy you $10,000.
And as of this writing in November 2023, one Bitcoin buys you about $34,000.
To buy a house selling for $100,000 in 2012 you would have needed more than 100,000 bitcoin.
But to buy a house selling for $100,000 in 2023, you need only THREE bitcoin.
Even if the $100,000 house now sells for $200,000 (very likely!) you still only need six bitcoin.
WHY does the purchasing power of Bitcoin rise over time? And why can we be sure it will continue to rise over time?
Because over time more and more people are coming to understand that for the first time in history, they can save their financial energy in a money that can not be devalued by anyone else.
And as we said in our first article – no one would choose a money that someone else can devalue if they have a choice of a money that no one else can devalue.
As more and more people come to understand this, the demand for bitcoin rises.
Yes, there is volatility in the short term. However, Bitcoin is something you buy for the long-term; for five years and beyond.
But it gets better, because as more and more people learn about Bitcoin, and how it is the only true scarcity in the world, more and more people will exchange their dollars, pounds, euros and yen for it. As they do, the price per Bitcoin will rise.
So not only does the purchasing power of Bitcoin remain steady, assuming the price of BTC stays the same, but as the price of BTC rises, it’s purchasing power goes up as well.
As for #4, both Bitcoin and dollars can be invested to create a return that gives you more Bitcoin or more dollars.
With dollars and all fiat currency, you must invest to create more dollars because the purchasing power of what you have is always eroding.
But with Bitcoin, you may not need to take on the risk or the headache of investing because as we pointed out, the purchasing power of Bitcoin goes up over time.
Currently, you can retire at 70 with money saved up. But you still need to be some kind of investment genius to ensure that your assets outpace inflation.
But if you save up enough Bitcoin, you should see your purchasing power go up year after year. So you have no pressure to become an investment expert in your old age.
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By now you have a sense of why it is so important that there will never be more than 21,000,000 Bitcoin.
That limitation is a key reason for why Bitcon’s purchasing power goes up over time rather than down like every fiat currency.
But you might be wondering: How can I be so sure that there won’t ever be more than 21,000,000?
Why can’t someone or some group decided to change some code and increase the Bitcoin limit to 41,000,000. Or some other number?
That’s a great question. And in the next article, we’ll answer it.
In this next article, you will start to understand how Bitcoin is built; its structure. And why there will never be more than 21,000,000 Bitcoin.
And when you’re ready to buy your first $100 of Bitcoin, or $1,000 – or more, I recommend you buy from the people at Swan who will treat you as well as they’ve treated me.
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Remember: nothing on this site is investment advice. While it is my personal opinion that everyone should own at least some Bitcoin, that is only my personal opinion.
You, of course, need to do your own research and consult with your own advisors until you make the right decision for you.