TO: Prospective and Active Bitcoiners

SUBJECT: Bitcoin (“BTC”) Investment Thesis

Bitcoin | Addressable Market | Macroeconomic Conditions | Adoption | Catalysts | Risks | Misunderstandings

Return Profile | Investment Vehicles | Appendix

Executive Summary
• Bitcoin is built on free, open-source software, promoting an ethos of self-sovereignty and permissionless accessibility.
• Bitcoin is an aspirational store of value in that it has the properties of one but has yet to be widely accepted as such. Many of its
store of value properties are stronger than those of gold – unlike gold, its scarcity and issuance is provable, and its digital nativity
allows for seamless transfers and transportation. Its scarcity was coded into the protocol at creation, allowing it to become the
only large, traded asset in the world that has a known fixed supply, protecting against long-term depreciation of real value.
• Scarcity, summarized: if every millionaire bought an equal amount, each would get 0.35 bitcoin. And none would be left.
• The unknown consequences of record low interest rates, unprecedented levels of global monetary and fiscal stimulus, and
political instability are all adding fuel to the fire of awareness and adoption. Additionally, the USD’s long-term prospects of
retaining its current position as the global reserve currency are being increasingly questioned.
• Long-term catalysts include central banks pushing to steadily drive fiat inflation upward, the great wealth transfer to a millennial
demographic that favors digital assets, and a growing lack of trust in the existing financial system. Bitcoin also benefits from
the overarching trend of analog-to-digital; it is reasonable to expect the store of value market to shift from offline to online.
• Government, corporate, and investment leaders increasingly view Bitcoin as a legitimate investment and store of value asset.
• Bitcoin has a powerful, global brand that benefits from extreme network effects, and is supported by dedicated, long-term-
focused contributors. Bitcoin’s volatility acts as a self-serving catalyst, helping attract attention, development, and innovation.
• Bitcoin’s price carries immense upside potential, even if it doesn’t surpass gold: growth to a $2 trillion market cap (~20%
of gold’s market cap) would result in a price of ~$100,000 per bitcoin. “Gold parity” brings a price of ~$500,000 per bitcoin.

Bitcoin
Bitcoin is a consensus network that enables a new payment and store of value system through
the decentralized creation of digital money. It is the first decentralized peer-to-peer payment
network powered by its users with no central authority or middlemen. It is fundamentally
secured by an “accounting” system that provides absolute assurance over its data ledger,
such that Bitcoin requires zero trust from its users as verification (e.g. proof that one person
sent some amount of bitcoin to another person) is completed in real-time by a network of
validators (those running a Bitcoin node). From a user perspective, Bitcoin is a digitally
native cash or gold instrument. The following principles are core to Bitcoin’s differentiation
as an open source protocol, superior store of value, and potential as a medium of exchange:

• Built and based off free and open-source software, allowing anyone to access the
entire source code at any time and providing full verifiability of all historical validated transactions. This also allows all
payments made through the network to be completed without reliance on a third party. The network has been functional for
>99.98% of its existence, with the most recent downtime event coming in 2013.
• Fixed finite supply, with provable scarcity and predictable issuance schedule, assuring users that the value of their bitcoin cannot
be diluted by increased issuance by a centralized entity.
• Universal fungibility and portability, highlighting its potential as a borderless asset. Allows for cheap money transfers to
anybody in the world and removes the need for region-by-region currency exchange.

Bitcoin employs a proof of work consensus mechanism; an algorithm used to confirm transactions and produce new blocks to the chain.
Miners compete to solve the algorithm, thereby completing and validating transactions, receiving a share of the block reward (currently
6.25 bitcoin per block) for committing their computational resources to the network. This creative incentive structure deters denial of
service attacks and other service abuses (e.g. spam) by requiring the validator (miner) to commit a provable amount of resource (compute
power). Providing this “proof of work” is difficult (costly, time-consuming given the random, low-probability nature of the algorithm)
to produce but easy for others to verify. Algorithm difficulty is adjusted every two weeks based on the computational power committed
to the network by all miners in the previous two-week period, adjusting to maintain a consistent cadence of new block generation every
ten minutes. To be accepted as valid, a new block must prove that it contains the hash of the preceding block, a provable chain of blocks
that trace back to the network’s genesis block, created on January 3, 2009. Changing a previously validated block requires regenerating
all previous blocks and redoing the work they contain; the potential for tampering is nearly non-existent and becomes more difficult with
every block added.
Addressable Market
At the highest level, Bitcoin benefits from a single long-term, secular shift: the offline-to-online. There is no major industry that has
transitioned from the analog world to the digital world and not seen the digital iteration overtake its analog predecessor. Similar to
bookstores (Amazon) and movies (Netflix) – and a trend increasingly seen across restaurants (cloud kitchens), education (online courses),
and art (fractional ownership and digital native art) – store of value assets are moving from the analog to the digital, and Bitcoin is the
first-mover. Gold has historically served as a trusted store of value for thousands of years. Longevity is a moat – until it isn’t. Gold is
also heavy to move, not particularly divisible, difficult to spend or transfer, and requires significant physical security if you any material
amount. As highlighted in the Appendix, Bitcoin solves these problems.

Bitcoin’s market opportunity is not only massive, it is massively market expansionary – in the same way, but on a much larger scale,
that Uber’s addressable market was much larger than the pre-Uber taxi market. The expansionary nature of the opportunity is driven
both by the network effects inherent to its network and the untapped markets Bitcoin can reach given its trustless and permissionless
nature. Though it may eventually become the standard as a medium of exchange, Bitcoin is already showing product-market fit as a
global, digitally native store of value. At its core, the blockchain and cryptocurrency revolution that Bitcoin has spawned is one based
on accessibility, transparency, and the power of network effects. Bitcoin brings those characteristics in the form of money, the least
accessible, most opaque realm of society today.

The value of the total gold market in the world is roughly $10 trillion. The industrial value for gold does not support this valuation;
rather, it is supported by the market because it is considered a hedge against fiat inflation, having shown a long-standing ability to hold
its value over time relative to its fiat currency counterparts. Gold is recognized as a global store of value and hedge against inflation
because of its ‘sound money’ characteristics: it is durable, fungible, verifiable, relatively scarce, and has an established history
showcasing these characteristics. However, when strictly reviewing the characteristics that define a store of value, gold is almost entirely
inferior to Bitcoin, excepting its edge in longevity. Gold and Bitcoin both appear as attractive investment opportunities in the current
macroeconomic environment, though Bitcoin clearly holds the longest runway and highest upside from current prices.

The addressable market for Bitcoin as digital gold is much larger than $10 trillion, and its market expansionary characteristics are driven
by several key factors:

• Most of the world’s population lives in regions at risk of local currency inflation and government corruption, and few of these
regions have regulated access to securitized gold. Considering the world’s five most stable and sought-after currencies (USD,
EUR, CHF, GBP, JPY) represent only 1 billion of the almost 8 billion people in the world, today’s gold market is likely
accessible to no more than 20-25% of the world’s population. If we assume that the market capitalization of gold represents the
entirety of the store of value market, this points to an estimated addressable market of $40 trillion.
• Even larger than today’s gold market is that of fiat currency. The total value of the world’s easily accessible money – coins,
banknotes, checking deposits – is nearly $40 trillion. There is another $50 trillion-plus of additional value held in money market
accounts and saving and time deposits. Given the decreasing trust in governments worldwide, it is not impossible to see a societal
shift in which trusted money is that that requires no trust from its users yet provides verifiable transparency, unprecedented
security, and borderless application.
• Lastly, it has been reported that over $30 trillion of wealth is stored in offshore bank accounts of the world’s elite with the
explicit intention of hiding assets from governments. Since Bitcoin cannot be seized by governments, this is another market
segment ripe for disruption. However, given the nascence of the industry, the movement of assets from offshore bank accounts
into crypto will happen over a sustained period, if significantly at all.

As difficult as it is to comprehend how there exists an opportunity this large that is still this nascent, it is equally difficult to overstate
the size of the opportunity. Almost $100 trillion of value is stored in fiat today, with another $30 trillion-plus housed in offshore bank
accounts, on top of the potential for a $40 trillion-plus gold/digital gold market. For the first time in modern human history, people
will have the choice of storing their wealth in state-free,
seizure-resistant money as opposed to their local fiat
currency. The global digital gold (store of value) market has the
potential to be tens of trillions in size, as early as the next decade.
Bitcoin will not be the only winner, but over an intermediate time
frame (5-20 years), it is reasonable to expect a power-law
probability distribution, with Bitcoin the unquestioned favorite
to capture most of this market. okay. To simplify the
opportunity: Bitcoin's current market cap is ~$200 billion; a
market cap of ~$10 trillion, in line with where gold is today,
would result in a price per one bitcoin of $500,000.
Macroeconomic Conditions
Bitcoin was conceived and launched during 2008/2009, at the heart of the global financial crisis. Seemingly “unprecedented” measures
were taken to stimulate a recovery, that which seemed unlikely in the depths of widespread bank failure and government bailouts.

The introduction and subsequent rapid circulation of the COVID-19 virus has resulted in a global pandemic and required newly
unprecedented policy responses from governments around the world. (Notice the oxymoronic frequency with which the word
“unprecedented” is used to describe central bank policy.) The depth and magnitude of the economic drop-off took modern monetary
theory – the direct monetization of massive fiscal spending – from the theoretical to practice with little debate. Since February, a global
total of more than $4 trillion (~7% of global GDP) has been magically created through quantitative easing. Given the elevated debt levels
globally prior to the pandemic, this monetary expansion is effectively funding additional debt creation. This initial result will be asset
price reflation, while a large demand shortfall (less people spending on goods/services as they have been laid off and are required to
shelter-in-place) will prevent goods and services inflation from rising in the short term. Inflation is not here…yet.

However, a bet on inflation growth reaching dangerous levels in the intermediate term is a worthwhile one. The god-mode-like ability
to print money without recourse is going to be a hard habit to kick. Pandora’s Box is open. The Fed’s balance sheet expanded from
nearly $1 trillion to $4.5 trillion between 2007 and 2015 before leveling off to $4 trillion in recent years. In 2020, the Fed’s balance sheet
has grown by another ~$3 trillion, nearly doubling and recording as large an absolute increase in eight months as previously seen in the
eight years coming out of a what was the largest global recession since the 1920s. The Fed is now voicing a policy roadmap that will
lead to steadily increasing inflation. They will likely overshoot their target of 2-2.5% annual inflation, and possibly by a lot.

Politically, it is difficult to see how any government responds to future economic hardships without using the one-stop solution of (almost
literally) throwing money at the problem: central banks have few levers left to pull (interest rates are already zero or negative, making
continued money printing and/or programmatic universal basic income the remaining options) and now that universal basic income has
been utilized in practice, good luck telling millions of citizens that that option is off the table; whoever runs that campaign would be
lucky to get a tour of the White House, let alone occupy it. People are already beginning to wonder why they pay taxes to an entity that
magically created a year’s worth of IRS revenue ($3.5 trillion) in less than six months. It doesn’t help matters when the president of the
Federal Reserve Bank of Minneapolis goes on national television saying, “There is an infinite amount of cash at the Federal Reserve”
and the Chairman of the Federal Reserve follows that up by stating that the Fed “print[s] money digitally,” in a process that I imagine
involves a man or woman pressing the ‘edit balance’ button and adding a couple zeroes to the account.

For what it’s worth, the day I was convinced beyond any reasonable doubt that owning bitcoin was not only a smart investment idea but
also an antidote for a financial system saturated with systemic risk was the day I read this: Bitcoin for safety. The takeaway – that
unprecedented money printing following the global financial crisis had created a financial system wrought with cataclysmic systemic
risk – had a profound effect on me. This paragraph…

“The setup in front of us is not for a garden variety recession. It’s for potential cataclysm:
a drawdown that will hit normal investors hard, but retirees and pensions especially so,
threatening the premise of our financial system. This crash, or even just the threat of it,
will lead our governments to take extraordinary action in an attempt to avert a long
depression. That action will cause an incredible level of inflation.”

…was written months before the initial COVID-19 outbreak. The scariest part: the
government response has followed the playbook outlined above to such precision that the
result seems like a foregone conclusion. (It’s not…maybe.) As the author points out, Bitcoin
represents the potential to be one of the very few tools available to “safeguard people in
normal income brackets…against [that] kind of trouble.” Below is the growth of money
supply in the US since 2000 (left) and the growth of the Fed’s balance sheet in the last year
(right). If you want to be shocked, look directly to the right to see how far the Dow Jones
has come over the last fifty years when priced in terms of a store of value asset (gold) rather than fiat currency.
Adoption
Amid the macroeconomic conditions that perfectly highlight Bitcoin’s value proposition, we have seen signs of tangible adoption by a
broad swath of market participants: consumers and individual investors, institutional investors, corporations, and citizens living in
regions with hyperinflationary local currencies. Even in the most generous scenario, however, it is unlikely that more than 1% of the
world’s population (75-80 million people) currently own bitcoin. We are still very early, but “product-market fit” is developing.

Consumers and Individual Investors

There are two primary sources of retail investment that are publicly tracked: Grayscale Bitcoin Trust and Square’s Cash App.

• Grayscale Bitcoin Trust (GBTC). Grayscale is a digital asset investment firm. In their Q2 2020 report, Grayscale shared that
they recorded their largest quarterly inflows to date ($906 million, $751 million into GBTC), nearly double the previous
quarterly high set in Q1 2020 ($504 million, $389 million). Inflows into Grayscale products over H1 2020 demonstrate
significant and sustained demand for digital assets despite a backdrop characterized by economic uncertainty. GBTC alone saw
inflows in Q2 2020 that exceeded the total amount of newly minted Bitcoin during the period.
• Square’s Cash App. Square’s Cash App launched bitcoin trading in early 2018; since then, that business has shown staggering
growth, building from scratch a product that just generated $875 million in gross revenue (total value of all bitcoin traded) and
$17 million in gross profits in Q2 2020. The gross revenue figure represents ~3x quarterly growth and ~7x annual growth.

Square’s success with Cash App undoubtedly drove PayPal’s decision to roll out direct crypto trading to its 325 million users.

Institutional Investors and Corporations

The global capital markets are dominated by institutional players – as a proxy, institutions own roughly 80% of equity market cap in
large-cap, publicly-traded U.S. companies. The entire institutional investor landscape accounts for $60 trillion in managed assets. Though
these groups have largely ignored Bitcoin to date (regulatory uncertainty, broad risk-aversion), that is changing, and most of the largest
endowments (e.g. Harvard, Yale, Stanford) are direct investors in one or several crypto-focused venture capital funds.

One of the most notable developments for Bitcoin in the institutional landscape in recent months was the Bitcoin investment thesis laid
out by Paul Tudor Jones, a hedge fund investor who likened Bitcoin to gold in the 1970s: “The best profit-maximizing strategy is to own
the fastest horse. If I am forced to forecast, my bet is it will be Bitcoin." Given his platform (founder of a $9 billion hedge fund) this
could lead to interest from other hedge funds ($3 trillion in total assets). Last quarter alone, several hedge funds and mutual funds (with
AUMs ranging from $250 million to $6 billion) reported bitcoin holdings equal to ~1% of their total AUM.

Like the growing acceptance seen in consumer and investor circles, we may be entering a brave new world in which corporations see a
role for Bitcoin as a store of value for their cash holdings, helping protect their cash reserves from expected inflation.

• MicroStrategy (MSTR). A $1.2 billion business analytics company, MicroStrategy became the first (known) publicly traded
entity to buy bitcoin using their cash holdings. The recent ~$450 million in bitcoin purchases highlighted the company’s new
capital allocation strategy: “We find the global acceptance, brand recognition, ecosystem vitality, network dominance,
architectural resilience, technical utility, and community ethos of Bitcoin to be persuasive evidence of its superiority…for those
seeking a long-term store of value. Bitcoin is digital gold – harder, stronger, faster, and smarter than any money that has preceded
it. We expect its value to accrete…[like] so many category killers in the modern era.” Michael Saylor, the CEO of MicroStrategy,
was previously dismissive of Bitcoin. Today, he is simply looking out for shareholder value in unprecedented times. And he is
choosing Bitcoin to help him do that.

At-Risk Populations

User adoption is still developing. However, Bitcoin has emerged as a tangible store of value for those living under oppressive regimes
or broken central banking systems. This can be seen in Latin America and eastern Europe, regions that carry histories of poor economy
policy and fears of political turmoil, and as such are now seeing those issues exacerbated by the economic fallout from COVID-19.

• Argentina/Venezuela. Two countries familiar with hyperinflation, national currency devaluations, and political instability, both
have seen significant local bitcoin volume growth and premiums attached to bitcoin purchases.
• Lebanon/Turkey. Both countries are facing economic crises in which existing issues (political turmoil, poor economic policy)
have been exacerbated by the COVID-19 global pandemic, leading to fears of government defaults, massive inflation, and
currency devaluation. Bitcoin now trades at premiums in both countries, and recently made new all-time highs in Turkey.

Two worthwhile pieces: the first of Bitcoin saving a Venezuelan family; the second of Bitcoin changing the life of a Syrian refugee.
Catalysts
• Digitization of money. The COVID-19 pandemic has accelerated the adoption of technology by companies and consumers. As
individuals are unable to access physical banks or purchase items from stores in-person, they have had to quickly adopt online-
first habits to receiving, sending, and spending money. Similarly, retail stores reliant on in-person shopping have had to abandon
offline structures and adopt online payment options. As consumers become increasingly comfortable in an economy driven by
digital transactions, the idea of a digital-based currency becomes far less esoteric.
• Secular growth tailwinds. Even before the COVID-19 pandemic, younger generations (Millennials, Gen-Z) were showing a
pronounced preference for digital goods and, given their upbringing in a world with the Internet, already have digital-first habits,
from shopping to gaming to sending money between friends. Digital assets are the rule; cash is the exception. As these
generations age and gain wealth, they will likely allocate a portion of their investment portfolio into digital assets, of which
Bitcoin is the unquestioned leader. They already view digital assets as “normal,” an underrated but vital acknowledgement.
• “Money printer go brrr”…and growing mistrust in the current financial system. We are living in the age of the central bank.
Led by the Federal Reserve, central banks globally have printed over $4 trillion in 2020 alone, growing the world’s monetary
supply by nearly 30% in less than six months. With no end in sight, this rapid, significant monetary expansion will drive the
continued devaluation of fiat currencies. Though done to mitigate the immediate effect of the COVID-19 pandemic and related
shutdown measures, this money printing exercise has cast a light on the shortcomings of the current financial system, particularly
in the US. These questions piggy-back on the growing mistrust that many have of the government and current financial system,
as large corporate bailouts are prioritized, and the wealth inequality gap widens in real-time. Bitcoin was designed to be an
alternative system of money to that which is governed by central banks.
• Lack of yield opportunities in traditional financial markets. In a world with zero and negative interest rates and public stocks
trading at all-time highs and priced for perfection, the long-term expected rate of return for traditional investment assets appears
challenged. Bitcoin’s status as an uncorrelated, performing asset could allow it a role in investor portfolios. A fun fact: even as
it yields 0%, Bitcoin provides a higher yield than government bonds in at least 18 countries. But people say Bitcoin is the scam.
• Institutional and corporate interest. Institutional investors (e.g. hedge funds, pensions, endowments, family offices) and
corporations will increasingly allocate investment dollars (to generate returns) and/or cash holdings (to protect against inflation)
in the coming years. Institutions face the challenge of low long-term expected returns, and both institutional investors and
corporations could find the need to protect their dollar-denominated assets from extended inflation. Private sector interest will
emerge (see: MicroStrategy), acting as a precursor to that from small nation-states as Bitcoin’s liquidity grows.
• Global reserve currency cyclicality. The USD continues to hold its position
as the global reserve currency, though there is evidence to suggest it is slowly
ceding ground to the next generation. At a high level, global reserve currency
positions typically hold reign for ~100 years, dating back to the mid-1400s.
The USD has enjoyed this position since ~1920. This itself is not cause for
concern, but it does point to how difficult it is for a single, government-backed
currency to maintain its global position indefinitely. Per Ray Dalio, history
has shown a pattern for countries that have lost their reserve currency
position, and it sounds eerily similar to the present day: (1) there is an already
established loss of economic and political primacy to a rising rival that creates
a vulnerability [US to China] and (2) there are large and growing debts that
are monetized by the central bank printing money and buying government debt [“money printer go brrr”], leading to (3) a
weakening of the currency that is nearly impossible to stop because the country’s deficits become irreversible [this comes next].
Beyond that framework, geopolitical powers are becoming increasingly vocal of their fatigue with “dollar dominance” and many
see promise in digital-first solutions (though they still gravitate to centralized models). There is also the question of government
default in the US. Per Hirschmann Capital (a group that makes clear they are not believers in Bitcoin), 51 of 52 countries with
gross government debt greater than 130% have defaulted since 1800. Current-day Japan is the lone holdout, and Hirschmann
believes default there is inevitable. The IMF expects US government debt-to-GDP to reach a record 141% by year-end 2020.
• Opportunity for US-based energy producers. [Assist from Conner Brown, author of this research] The US has a massive energy
waste problem: two-thirds of all US energy “consumption” in 2017 was rejected energy – energy produced but ultimately
wasted. Most rejected energy comes directly from production itself. Though wasted energy from core operations is unavoidable,
Bitcoin offers energy producers the opportunity to convert wasted energy into bitcoin (transitioning unused energy to power
Bitcoin mining operations), allowing them to fluctuate behind-the-meter demand and mine bitcoin with excess reserves, creating
better cost and energy efficiencies without increasing emissions. (The US should lead this effort with grant programs and tax
incentives.) Increasing efficiency of energy companies then drives the costs of energy down, creating staggering secondary
benefits. This is not a fantasy: Greenidge Generation, a power plant in New York, is using its facilities to mine bitcoin, selling
30% of its computing power to institutional buyers, and generating additional revenue at minimal cost to the plant.
Risks
• Concerted effort by all major governments to ban Bitcoin. If every major government decided to band together and ban Bitcoin
and Bitcoin-related services, that would likely be a crushing blow to Bitcoin, for no other reason than it would make it difficult
for average users to interact with the network. However, it is highly improbable that every major geopolitical power will agree
on a decision that carries significant game theory properties – if one or two countries were to remove themselves from such an
agreement, they would instantly position themselves as a haven for Bitcoin- and crypto-related innovators, and immediately
become significant participants in the Bitcoin network, dominating mining power and outside investment.
• Lack of regulatory clarity. Until recently, governments have been slow to share clear guidance on how their citizens should
approach digital assets, causing hesitancy from institutions to participate in cryptocurrencies. However, the last year has seen
governments grow increasingly comfortable with the idea of digital-based currencies (via talks to “digitize” major currencies)
and the last few months have shown some government leaders taking this seriously. The first: US Congressman Patrick McHenry
told lawmakers directly that attempts to stop Bitcoin were futile because it is “an unstoppable force.” The second: the Office of
the Comptroller of the Currency (OCC), a branch of the Treasury that supervises national banks, published a letter clarifying
national banks’ and federal savings associations’ authority to provide cryptocurrency custody services.
• Security of funds and user experience of self-custody. One of Bitcoin’s strengths – delivering the separation of money from state
to the end user – is also one of its biggest hurdles, though one that should improve dramatically in the coming years. There are
primarily two ways to hold bitcoin: with the exchange on which you bought it (e.g. Coinbase, Gemini) or “on” a cold storage
wallet, such as those provided by Ledger, Trezor, Coldcard, Casa, and others. The risk of keeping your bitcoin on a centralized
exchange is that you are trusting that exchange not to lose your bitcoin. Exchanges like Coinbase and Gemini are highly
respected and take security incredibly seriously (Coinbase has over $7 billion of clients’ AUM) but still represent “honeypots”
for hackers. More to the point: if you believe in the ethos of Bitcoin, it doesn’t make a lot of sense to then go and trust the private
keys to your bitcoin with…a bank. The counterargument is this: self-custody can feel technically challenging and carries the
risk of you losing your private keys, rendering your bitcoin forever inaccessible. It is a question of when, not if, this specific
user experience concern is made seamless for the average individual; in the future, you will use a Bitcoin wallet like you do
your email, with no requirement to understand the mechanics of what is happening beneath the proverbial surface.
• Lack of a formal governance structure. Bitcoin has no formal governance structure for making decisions related to the
underlying protocol. While many see the near finality of its protocol as a feature rather than a bug, it can present a concern
should a protocol upgrade become contentious between miners, developers, and users. Because there is no decentralized
governance system, there is no way for all network participants to formally agree on how to progress the blockchain.
Additionally, there is no way for those holding bitcoin to have a representative say in the network’s decision-making process.
• Reversal of more than a decade of quantitative easing and forty years of decreasing interest rates. The argument here is: I guess
those two trends have to stop…eventually?

Misunderstandings
• Lack of “physical” presence. This is a user experience issue. While not a trivial one, think back to the last time you “touched”
the dollars you used to buy your Netflix subscription or those in your savings account. Bitcoin’s lack of physical presence is
arguably a feature – it cannot be stolen via physical force and does not transmit bacteria, germs, or viruses when used.
• Speculative behavior. Bitcoin has been subject to speculative behavior from retail investors, especially in recent years as it has
received more mainstream attention. Speculative behavior tends to follow assets that appreciate rapidly – Bitcoin’s last
speculative “bubble” in 2017 was the result of an ~8x price appreciation over a six-month period. Speculative behavior is an
important factor in decentralized networks, effectively bootstrapping interest, and the spread between hype and tangible
development and product-market fit has tightened significantly since 2017.
• Bad actors. Nascent, inefficient markets appeal to bad actors. These bad actors “attack” Bitcoin from primarily three vectors:
phishing, exit scams (i.e. taking your funds for some pre-defined purpose and reneging on your agreement), and hacking
centralized “honeypots” (e.g. centralized exchanges). While these bad actors receive significant attention from the media, the
scale of these attacks is: (1) miniscule relative to the corruption facilitated by fiat currencies and (2) avoidable if users take a
commonsense approach to security (e.g. remove bitcoin holdings from centralized exchanges and hold in an offline “wallet”).
• Privacy and anonymity. While Bitcoin is designed to allow its users to send and receive payments with an acceptable level of
privacy, Bitcoin is not anonymous and cannot offer the same level of privacy as cash. Because of the open source nature of its
network, the use of Bitcoin leaves extensive transaction records, available to all. There are developers and projects working to
bring greater privacy features to the Bitcoin network, but there is still significant work needed before these features can be used
correctly by most Bitcoin users. This makes Bitcoin a relatively poor asset for criminal use (i.e. buying illegal goods) and as
such, its use for criminal activity appears insignificant compared to the unknown illicit value facilitated by fiat currencies.
Return Profile
Putting aside one’s conviction in Bitcoin, it is becoming increasingly clear that it demands
an allocation in institutional and personal portfolios alike. As the best-performing asset of
the last decade, and as an asset that has historically shown returns uncorrelated with the
broader markets over long periods of time, it can play an important role in diversification.
Having zero exposure to Bitcoin is no longer a passive decision; by not owning it, you are
actively deciding to not invest and putting yourself at financial risk should the world’s
current global reserve currency suffer from extreme devaluation.

For those approaching portfolio allocation scientifically: a portfolio structured as 95%

S&P 500 and 5% Bitcoin has outperformed the S&P 500 for six years running, and for
every four-year investment period in Bitcoin’s lifetime (see right). Note that the maximum
annual loss (risk) for a portfolio that is 95% cash and 5% Bitcoin is -5%; the S&P 500 returned -6% in 2018 (and -38% in 2008!).

Given Bitcoin’s price appreciation potential, here is one risk-return framework to use, assuming a ~1 bitcoin investment (~$10,000):

• Low Case. Beyond loss-of-private keys risk, the potential loss is between $0 and $10,000. Ignoring the positive fundamentals
for Bitcoin, let us assume that Bitcoin struggles to generate any significant adoption from today, and in fact many of its current
investors lose interest causing the price to fall by 50% over the next five years. There is a significant opportunity cost ($10,000
invested that could have been invested elsewhere) and a tangible loss of value (your investment is now worth only $5,000).
• Base Case. The price of Bitcoin ~triples to $35,000 over the next five years, giving Bitcoin a market cap of ~$650 billion, or
~6% of gold’s current market cap. Your investment earns an annual return of 44%. Even if you held onto your investment for
an additional five years and the price didn’t change, you would earn an annual return of 13% for that ten-year period, well ahead
of the stock market’s average historical annual return of 10%.
• High Case. The price of Bitcoin grows to $100,000 over the next five years, giving Bitcoin a market cap of ~$2 trillion, or ~20%
of gold’s current market cap. Your investment earns an annual return of 58%.

Note that my personal base/high cases are much higher than this. The true upside is >100x if you believe central banks, sovereign
wealth funds, institutional investors, and corporations allocate meaningfully. But it’s important to understand how even heavily
discounted expectations can deliver outstanding investment returns. With that said, selling bitcoin sounds easier said than done.

Investment Vehicles (US-Focused)

• Buy bitcoin directly via Coinbase, Gemini, Paxful, or Kraken. All have the proper licenses in place to be used.
• Buy bitcoin directly via LocalBitcoins.com, Bisq, or Bitcoin ATMs. No KYC required but higher risk to personal safety and
much more deliberate “onboarding” process since all transactions for LocalBitcoins and Bitcoin ATMs are completed in-person;
most Bisq transactions involve sending cash via mail.
• Buy bitcoin exposure via Robinhood, Cash App, and Venmo (coming soon). Note that these platforms will not provide you with
bitcoin that you can move to your own bitcoin wallet, so your holdings will be subject to any risks associated with these products.
• Buy bitcoin exposure via Grayscale Bitcoin Trust (GBTC). This allows for individuals to buy exposure to bitcoin via brokerage
and IRA accounts. Note that the GBTC vehicle often trades at a premium relative to the value of the underlying bitcoin as public
market investors are willing to pay a premium to access Bitcoin in their brokerage and retirement accounts.
• Digital assets IRA account via Digital Asset Investment Management (DAiM). DAiM is one of the first digital assets-only
investment management groups to offer retirement accounts (e.g. Roth IRA, Traditional IRA, SEP) that can invest directly in
Bitcoin, Ethereum, and several other digital assets. Unlike Grayscale Bitcoin Trust, which can be purchased by retirement
accounts as well, there is no premium on the Bitcoin you are buying as the underlying asset is owned by private keys that you
control (Grayscale controls the private keys for the entirety of the GBTC vehicle). There was also a recent announcement from
Kingdom Trust, a provider of self-directed IRAs, which has begun offering the ability to trade cryptocurrencies within your
self-directed IRA via a new feature that will soon launch under its Choice platform.

Please remember that buying and owning Bitcoin is the opportunity to become your own bank – with that freedom comes personal
responsibility. Additionally, Bitcoin has historically been a volatile asset, which works to the negative (large intraday price changes and
periods of prolonged downturns) as well as the positive (explosive periods of price appreciation). This is not investment advice,
disclaimers, etc.
Appendix
Bitcoin’s Store of Value Characteristics

• Durable. As a digitally native asset, Bitcoin is highly resistant to physical degradation and seizure. Additionally, the Bitcoin
blockchain has proven itself secure since launching in 2009, and its proof of work consensus mechanism and scale (current
market capitalization, history of transactions) makes the prospects of a successful attack incredibly unlikely. This should further
strengthen over time and at greater scale, allowing it to grow to be a trusted, anti-fragile store of value asset.
• Portable. As a digital asset and one which can be stored on a smartphone (among other options), Bitcoin can be seamlessly
moved from one jurisdiction to another and sent between users at a low cost.
• Fungible. All bitcoins have the same value, regardless of who owns them or how they have been used historically.
• Verifiable. Transactions are verified by network nodes (computers) through cryptography and recorded on the blockchain’s
public distributed ledger. Every transaction can be verified by anyone accessing the network.
• Divisible. One bitcoin can be divided into eight decimal places; therefore, 0.00000001 bitcoin is the smallest amount that can
be handled in a transaction. It would require 1 bitcoin to cost $10 million in USD for 0.00000001 bitcoin to equal one cent.
• Scarcity. The Bitcoin protocol has been programmed to only ever produce 21,000,000 bitcoins, hard capping its total supply
and making it an asset that taps into the innate human desire to collect what is rare. This is the core characteristic that
distinguishes Bitcoin from fiat currency, whose issuance is controlled (and often expanded) by a small group of individuals.
• Censorship-resistance. If the private keys to a Bitcoin address remain secure (private), the user of those private keys retains
complete control of their bitcoin, regardless of measures imposed by governments (e.g. capital controls, asset seizures).
• Liquidity. Liquidity doesn’t matter until it does; both companies and individuals will place a much higher preference on assets
that provide liquidity during economic shocks. Bitcoin is the only store of value asset that trades 24/7.

Economics of Bitcoin Mining

• Revenue. Revenue from mining activities comes from two main sources: the block subsidy and transaction fees.
• Block Subsidy. Bitcoin miners receive a fixed allocation of bitcoins in each block that they successfully process and append to
the blockchain, representative of their proportionate amount of hash power they commit to the network relative to all others that
successfully processed that block. The block subsidy is cut in half roughly every four years (exactly every 2,016 blocks, each
of which is mined roughly every 10 minutes). There have been three halvings in Bitcoin’s history: 2012, 2016, and 2020.
• Transaction fees. The block subsidies are not the only compensation bitcoin miners receive. Each transaction included in a
block contains transaction fees, which the miners that successfully add the block to the blockchain to keep. Since the beginning
of 2019, transaction fees have averaged ~0.012% of the transaction size in USD.

At current prices and activity levels, transaction fees are not essential for network security; the bulk of miners’ compensation comes
from the block rewards. As the block reward decreases by 50% roughly every four years, transaction fees will grow in importance as
they become a greater percentage of miner revenues (and thus, network security). While transaction fees are set by the user, miners
choose which transactions they include in a block and may overlook transactions with zero or low fees. Users who need transactions
processed quickly will choose to pay higher transaction fees, while those with more patience can opt for lower fees.

• Mining equipment. Processing transaction blocks and receiving the miners’ reward is influenced by the power and efficiency
from the operators’ mining rigs. Faster computations make it more likely that the requisite random algorithm solution will be
found; the more efficient the machines, the lower the cost of production and the more profitable the operation. Ahead of the
recent halving event, many miners upgraded machines to maximize efficiency in preparation for the block subsidy reduction.
• Electricity costs. To operate a mining rig, a core variable cost is the rate price of electricity. This price is based on where the
mining operations are located – today, most are headquartered in China – and is impacted by the hash rate power and efficiency
of the machines being used. It is reasonable to expect bitcoin mining operations to chase regions with either cheap electricity
(e.g. China, Iran) or operations with access to surplus energy that is currently being lost (e.g. hydroelectricity producers, nuclear
power plants). To better understand how China has become the global leader for bitcoin mining, it is important to recognize the
relatively low electricity costs in China relative to the rest of the developed world (~50% cheaper than in the US), the impact
that China’s push into hydroelectricity has had (hydro is the second-largest power source in the country), and the benefits
provided by having the largest bitcoin mining equipment manufacturer headquartered there (providing local operations ease of
access to newer, more efficient machines).