I reference my thesis on the intrinsic value of bitcoin in this piece[1], originally published in Bitcoin Magazine in April 2021. It represents my view on the value of BTC as the anti fiat, fiat is the Ponzi, and how everyone needs insurance against the Ponzi collapsing. As Voltaire famously said[2], “Paper money eventually returns to its intrinsic value — zero.”
As Charlie Munger famously said[3], bitcoin “is rat poison squared.” Well, Charlie, have your pill, because fiat is the rat.
The basis of my paper is that BTC is insurance on the decaying credit quality of fiat-issuing sovereign nations. As such, it is credit protection on a basket of fiats. When you own insurance, you own volatility. Similarly, when you are long credit, you are short volatility. Most assets/investment mandates are short volatility. Accordingly, the investing world is short volatility, and it desperately needs to offset that risk with insurance (or being long volatility).
In my paper, I calculated the intrinsic value of BTC at the then current credit default swap (CDS) rates and total liabilities of the G-20 nations. This dynamic calculation will increase in value as the price of the insurance increases. An increase in the price of insurance is reflected in a widening of CDS spreads. Well, spreads have widened for a number of reasons. For example, China CDS has widened due to the contagion from the Evergrande fallout. Canada CDS has widened because we have irresponsible politicians who have just been re-elected, yet they “don’t care about monetary policy[4].” And U.S. CDS has widened because, well… there are four or five reasons, but the most concerning is that the political elite are playing word games with the potential
