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Mike Cautillo

Bitcoin’s Emerging Moat

By | In my opinion | No Comments

Good Day,

The classic definition of emergent, as coined by philosopher G. H. Lewes in 1875,

is something which emerges from the interaction of simpler components, but these phenomena cannot be fully understood just by analyzing the components themselves.

Instead, the whole system exhibits properties and behaviors that are novel and unpredictable based on its individual parts.

This definition emphasizes several key aspects of emergence:

1. New properties: Emergent properties are novel and not present in the individual components.

2- Interaction: They arise from the interaction of unlike components within a system.

3- Irreducibility: The emergent property cannot be reduced to or fully explained by its constituent components.

4- Unpredictability: The emergent property is not easily predictable from knowledge of the individual components alone.

A moat in the context of Bitcoin is a deep & unique advantage that has arisen through its unique properties & the assurances it provides. These fundamentals create user demand, provoking self-strengthening feedback loops.

Both Bitcoin & its users are independent systems in their own right yet converge to produce what I’d describe as emergence.

As Bitcoin’s userbase scales in time, so too does trust in its technical operation.

That’s because the more transactions it processes, verifies, & confirms, the deeper embedded its ledger becomes within the Bitcoin system, thereby making it much more difficult to change or contest.

In doing so, it further reinforces its censorship resistance, which in turn reinforces its immutability & scarcity.

The more dependable this loop becomes, the more utility for Bitcoin is built out, naturally. Momentum in adoption ensues; demand increases globally, effectively completing yet another turn of this expanding circle.

Now also consider that Bitcoin is a peer-to-peer digital monetary network with a purpose to solve many of today’s unfavorable fiat monetary conditions; thereby, as the value of each bitcoin increases, it seemingly justifies it as a solution to prospective interests & users alike, adding another powerful feedback loop.

Through a combination of factors like network effects, data accumulation, inimitable properties, & user loyalty, Bitcoin is poised to exponentially grow even stronger, in my opinion.

It would be remiss of me to omit the power of cumulative advantage that Bitcoin has established for itself also. More on that in the below X link:

https://x.com/MikeCautillo/status/1326467376771182592

The cumulative advantage phenomenon is especially important as it relates to the distinction between Bitcoin & what is marketed as other “crypto”.

More on that here:  https://www.linkedin.com/pulse/beyond-pale-mike-cautillo-q1trc/?trackingId=jhGtye%2FuT9mrlaLuq%2F7FhQ%3D%3D

Buffet has often spoken about moats in the business sense. Identifying lasting moats in the companies he invests in has been the cornerstone of his unparalleled financial success.

Although unlike traditional moats that a business builds through control or deliberate pricing/positioning of its products or services, an emergent moat as per Bitcoin forms spontaneously, grassroots even, as its network becomes increasingly effective.

Here are some of Bitcoin’s distinct properties that fundamentally contribute to its emergence:

Immutability: Bitcoin’s blockchain is a decentralized & publicly verifiable distributed record, making it censorship resistant to tampering or revision. An increasingly probable assurance of permanence builds immense trust as it proves historical transactions in a transparent way.

Free & Open Source Software (FOSS): Bitcoin is software that is both free to use & whose source code is openly available for anyone to inspect, modify, and distribute. This model promotes collaboration & transparency.

Network Effects: The more people use & trust Bitcoin effectively, the stronger the network becomes, creating a positive feedback loop. New participants are attracted to its growing purchasing power, security, & adoption, reinforcing its value.

Decentralization as Security: Unlike traditional financial systems controlled by a central authority, Bitcoin’s peer-to-peer nature spreads its security across a vast network of nodes & proof-of-work mining operations. This decentralization coupled with its ASICs enhances its moat, as there is no single point of failure.

Scarcity and Value Proposition: Bitcoin is designed with a fixed supply cap of 21 million coins, making it inherently scarce & more resistant to inflation than traditional currencies. This scarcity, combined with its growing user base, boosts its long-term value. Albeit Bitcoin has a finite supply, it’s highly divisible enough to distribute across billions of user’s demands.

Digital Gold: Bitcoin is increasingly seen as a store of value similar to gold, with additional advantages like ease of transfer, divisibility, & a secure, digital ledger. This positioning solidifies its status as a “moat” by distinguishing it from other assets.

Trust and Transparency: The public, verifiable ledger allows anyone to audit the transactions & verify the history of Bitcoin, fostering trust in a system free from the manipulation or obfuscation that can occur in centralized systems.

Economic Resilience: Bitcoin’s decentralized structure makes it resistant to censorship & less vulnerable to geopolitical risks, further enhancing its utility as a global financial asset & bearer instrument.

Path Dependence: The development of Bitcoin’s code, network, & ecosystem over the years creates a form of “path dependence,” where its early adoption & ongoing technological improvements contribute to its competitive edge- furthering its advantage.

User Growth and Utility: With its ledger history & verifiable transactions, Bitcoin has steadily attracted a diverse user base, from retail investors to large institutions, strengthening its position as an essential financial asset.

Deflationary Mechanism: Bitcoin’s declining block reward schedule creates a supply shock over time, incentivizing holders & long-term investment, which adds to its moat by increasing scarcity & user loyalty.

Scaling: The development of Layer 2 solutions & complementary technologies (e.g., the Lightning Network) boosts Bitcoin’s utility for microtransactions & everyday use, supporting a broader user base and enhancing its moat.

Emergent moats can be quite powerful. In part because they become less breakable & more resilient as they increase in size. They’re often fundamental innovations that take on a life of their own—a life humanity cannot see themselves doing without.

They’re also innovations that can efficiently distribute resources at scale, insofar as the smaller local system is also the architecture for the larger global system—fractal-like.

Think of electricity, information theory, the internet protocol, etc.

All these revolutionary discoveries are now ubiquitous & near impossible to abrupt on a global scale.

Even if one were to imagine the very unlikely scenario of an EMT-like strike severely disrupting communications, there exists immense incentive to “reboot” prior states asap, as mass suffering ensuing would be a near certainty & coordination near impossible, thereby presenting very dangerous environment for both infrastructure & its users.

Throughout his storied career, the ever-brilliant systems thinking pioneer, Dr. Russell Ackoff, believed that creativity was an emergent property of complex systems—meaning it arised naturally from the interactions within the system rather than being imposed from above.

He argued that organizations & technologies should be designed to allow such emergent creativity to flourish.

The absence of gatekeepers in Bitcoin’s ecosystem has indeed allowed such creativity to emerge. By removing intermediaries, Bitcoin & its users are thus far flourishing like a forest would, on fertile ground, seeding insatiable curiosity & innovation—growing fresh trees of prosperity for what are hopefully many future generations to come.

I’m grateful for you taking the time to read my notion today & throughout 2024. Merry Christmas & all the best to you & your loved ones.

Until 2025,

Mike Cautillo

The Internet’s Monetary Sovereign Is Here

By | In my opinion | No Comments

Good day, friends.

You can’t single out its location on a map, yet this is what makes the internet inherently resilient—that it can exist virtually everywhere. So long as there’s a society of free minds willing to exchange digital information peer-to-peer, the internet is unstoppable. This is perhaps why it’s one of the most liberating technologies ever created.

Ultimately, the internet consists of a global system of billions of distributed users. But if we’re to preserve this decentralized & borderless marketplace into the future, I reckon it requires its own monetary sovereign, Bitcoin.

The internet facilitates trillions of dollars of capital flows per year, its economy is a phenomenon in its own right. Yet these capital flows are largely facilitated by intermediaries & institutions such as credit cards, PayPal like FinTechs, & legacy banks, all of which use fiat currency.

Some data is below for you to envision the magnitude of the scale of internet activity.

The issue with fiat currency being the primary method of financial transactions for the majority of internet users is that it is controlled by separate & closed networks such as Swift, ACH, SEPA & the like. Each being required to function based on the rules & interests of their respective sovereigns. And perhaps the most egregious part of this system is that it, by default, has unbanked millions of Americans alone, deeming them not creditworthy, thereby inflicting immense friction on their ability to participate in the opportunities the internet can provide. 

This is in direct contrast with how the global internet marketplace was meant to exist & operate—frictionless, neutral, open, & permissionless, 24/7/52.

Furthermore, these dollars cannot exist within the realm of the internet unless they’ve a permissioned custodian of some sort. And history is replete with acts of censorship over citizens freedom to transact by various restricted gateways for a multitude of unjustifiable reasons. Imagine some day that nation states do introduce a CBDC & that is all that your homeland permits you to use for commerce on the internet?

Until Bitcoin was introduced in 2009, there had never been an available sovereign digital currency system that was open to anyone, existed as a bearer asset, exclusively built for the internet, without the need for intermediaries. (https://bitcoin.org/en/faq#general)

I engaged ChatGPT to describe sovereignty, & it did in various contexts, but for Bitcoin, as it systemically exists & pertains to the internet’s economy, I believe a blend of 1 & 3 is fitting.

Bitcoin is a logical evolutionary step if we’re to efficiently scale economic prosperity, as has been the pattern over thousands of years of financial history.

When tribes discovered waterways brought them to much needed resources beyond their local village, they soon realized that this required a new currency beyond what was already being used in barter—a currency that would facilitate this newfound expansion of trade yet address the coincidence of wants problem.

It was eventually gold that emerged because of its inherent properties, which allowed it to suffice to best meet the respective continental economies’ needs at scale for that period.

And when the size of trade expanded to such an extent globally, the portability of gold became cumbersome & untimely. So, centralized entities started to hold physical gold on deposit while maintaining a ledger of receipts that few would agree & trade on-again because this new scale required additional efficiencies.

Consequently, as gold became increasingly rigid to settle between its various largest holders’ receipts, currency pegs, & own political desires, the most dominant military power at that time, the USA & allies proposed a new global standard that would usher in USD as the global reserve currency, which would go on to facilitate a modern day industrial revolution—again to scale global commerce most efficiently.

Here’s how Sandra Kollen Ghizoni of the Federal Reserve Bank of Atlanta described the reason for the Bretton Woods Agreement to emerge:

Wences Casares said this about Bitcoin in 2017,  “Sovereigns used to be kings & queens, now they’re mostly nation states, and now you have a little, very humble computer system that is sovereign, that only obeys its own rules.”

An old adage once aptly stated that, “the map is not the territory”, but amidst a transcedent information age that is rapidly transforming atoms into bits, perhaps a fitting adage for the internet’s ubiquity would be, “the territory is the map.”

I’m grateful for you taking the time to read my note today.

Image sources: https://www.federalreservehistory.org/essays/bretton-woods-createdhttps://www.weforum.org/agenda/2021/11/amazon-youtube-zoom-internet-minute-2021/

Reimagining How To Measure One’s Wealth

By | In my opinion | 2 Comments

Good day,

The stock market is filled with individuals that know the price of everything but the value of nothing.” -Philip Fisher

When I think of how most people currently measure their financial wealth, I can’t help but think of how prescient this quote truly is.

Fisher’s insight is the impetus for a mirage that is more vivid now than ever. This mirage is increasingly presenting itself as many remain accustomed to measuring their net worth in nominal terms only & not in real value.

First, the respective distinction, as per Wikipedia,

“In economics, nominal value refers to value measured in terms of absolute money amounts, whereas real value is considered and measured against the actual goods or services for which it can be exchanged at a given time. Real value considers inflation and the value of an asset in relation to its purchasing power.”

I posit that in a world where central banks & government deficits have run the gamut on currency issuance, we must reimagine alternative measures of how to gauge the real value of one’s holdings. The art of this exercise, if you will, is to index a new numeraire, by acquiring something that is provably & functionally rarer & economically scarcer, such as Bitcoin &/or gold. Without actively recalibrating purchasing power in relative terms, you run the risk of conflating the mirage noted above with reality.  

Here’s a visual on the price history for gold, silver, and Bitcoin, with the horizontal axis now representing the purchasing power of fiat going back 150 years. (wherein 1874 = $1)

H/T-https://twitter.com/TimmerFidelity/status/1760677789865512980

By commencing to accumulate exposure to these *monies* (I consider Bitcoin & gold to be global base money as per- https://twitter.com/1basemoney/status/1759580900684079343), one can build a lever of sorts. As the weight of devaluating currency inevitably continues to intensify by proxy of the economy’s demand & its respective debt load, perhaps counteracting this force via adopting a different UoA as a form of savings is an idea worthy of strong consideration.

Out of curiosity, I prompted ChatGPT by asking, “Why would Bitcoin make for a suitable numeraire?” I must admit that the response was noteworthy.

As ChatGPT noted, there are those who will argue that Bitcoin is too volatile to effectively perform the numeraire function. I disagree, & for the context of this argument, let’s assume one maintains the correct position sizes in various periods as Bitcoin is emergent. I would argue that it’s more appropriate to claim that bitcoin’s price is in the interim sensitive to things such as central bank uncertainty & sovereign debt burdens & not in any way due to a lack of its own stability. Bitcoin’s issuance & supply are the most stable of any commodity produced in the world, in fact devoid of any volatility, as it has been fixed in code & supported by network consensus since its genesis.

Albeit I’ve presented a perspective in which I believe it has become imperative to measure & track the real value of one’s financial wealth via another numeraire such as Bitcoin, I reckon the USD will continue to be the fiat currency of choice for the global economy & world trade for the foreseeable future.

H/Thttps://www.visualcapitalist.com/visualizing-currencies-decline-against-the-u-s-dollar/

Lastly, I’d like to leave you with a two quotes, which are often a source of contemplation for me when thinking about the current state of US hegemony……

“A fundamental reform of the international monetary system has long been overdue. Its necessity and urgency are further highlighted today by the imminent threat to the once mighty U.S. dollar.” –Robert Triffin (1960)

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”-Winston Churchill (1942)

Until next time, be well & thanks for being here……

P.S. Please have a look around our new site.

Why a Bitcoin Investment Fund Was Born

By | Opportunity | No Comments

Hello friends,

It’s been some time so allow me to first wish you all a Happy New Year, may the forces of prosperity & health be with you & your loved ones!

It was a prosperous & healthy 2023 for Bitcoin. Its price was up ~155% for the year, 250% plus from its yearly lows, the network continued to process millions of unabated transactions, & more dollars were invested into BTC scaling & infrastructure initiatives than any period prior.

It was a year in which the much-anticipated institutional adoption via spot BTC ETFS was the prime focus for many, which finally came to fruition via approval just last week.

It’s fair to say that the market & price has thus far been generally quite excited for this new ETF product, as it exposes Bitcoin to a readily accessible pool of potentially large demand.

And while I can appreciate the magnitude of what Blackrock can mean for Bitcoin adoption, it’s not without some systemic risk in my opinion-insofar as big corporations continue to grow enormous pools of capital resources, which by proxy give them influential power, while at the same time making them vulnerable to various forms of capture.

Why a Bitcoin investment fund was born.

Suffice it to say that Bitcoin has thus far been an effective means to distribute *control* via the ownership of a valuable resource on an open & public peer-to-peer system, which can empower any user with sovereignty, whether an individual or a nation-state.

In the same vein, albeit more centralized as per legal requirements, I believe it to be imperative that options such as smaller funds/structures emerge & exist, in which capital has available exits it can be distributed to aside from traditional Wall Street behemoths.

In my opinion, there are two primary advantages of this for the market at large. It helps build a network of much smaller pools of Bitcoin vulnerable to potential exploitation; distribution can mitigate larger systemic shocks & wider spread contagion.

Secondly, smaller funds will incentivize competition among the quality of stewardship; for what is manifesting to be one of the world’s most valuable capital resources, BTC. The sooner the markets understand that each of the 21M Bitcoin are essentially irreplaceable, the sooner each is treated with the vigilance they deserve.

The inspiration…..

Bitcoin is meaningful- This, in my opinion, is the most important reason. I’ve been a strong advocate of Bitcoin (since early 2015) & as a private investor managing proprietary capital since 2004, I’ve never come across this level of monetary innovation-its implications at scale are perhaps equivalent to what the internet has manifested to date, if not beyond. A truly revolutionary technology!

Gap in the market There exists no *active* Bitcoin fund that I’m aware of at least, which isn’t geographically constrained as per whom is allowed to invest, tax sheltered & that isn’t mandated to use a 3rd party custodian for the Bitcoin it holds-this allows us to offer zero fees on all Bitcoin allocated to its long-term reserves.

Unique strategy. There exists no Bitcoin fund which objective is to increase its BTC allocation to long term reserve while also increasing its USD cash position to *insure* the value of one’s original investment.

So, there you have it, eHodL 22 was born…..

Early days yet & much work to be done but if Bitcoin is going to be successful at scale, then I like our fund’s prospects!

Until the next time…..

Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.” -Margaret Mead

*Disclaimer: The eHodL 22 AIM (alternative investment fund) is available to “accredited investors” only. This post should not be construed as a solicitation for eHodL 22. This content (blog) is intended exclusively for information purposes & not to be considered as investment advice. *

A Point of Confluence

By | In my opinion | No Comments

Hey there, just a quick note.

Bitcoin has thus far come off its late 2022 bottom of ~$15.5k USD. At time of writing this, price is ~$30k USD. In what appears to be the inception of a new bull market, we’re also amidst a confluence of rather positive supply/demand fundamentals that have provoked our attention.

Bitcoin’s yearly issuance rate will be reduced by half in April 2024 via what is called the halving  (https://www.investopedia.com/bitcoin-halving-4843769). The amount of newly mined bitcoin will drop from current 6.25 every 10 min. to 3.125, from 328,500 to 164,250 annually, until 2028, when it’s scheduled to reduce by half again.

This, while the total circulating BTC supply at current prices suggests, as per the charts below, that not much of the supply is for sale.

Yet the scale of potential demand as per available dollar inflows has increased meaningfully. Interests across a wider spectrum of awareness & necessity are at levels Bitcoin hasn’t experienced to date. Here are just a few of the players with ~$27 trillion USD AUM that are actively working on garnering exposure to Bitcoin for clients.

Perhaps one of the most promising developments has been BTC’s growth in Africa.

https://yellowcard.io/blog/why-is-bitcoin-trading-growing-rapidly-in-africa/

Jack Dorsey, co-founder & former CEO of Twitter, co-founder of Block Inc., which focuses on helping various Bitcoin initiatives, has been diligently dedicated on expanding Bitcoin in Africa.

https://www.coindesk.com/markets/2021/02/12/jack-dorsey-jay-z-put-500-bitcoin-into-trust-supporting-africa-and-india/

But all of this wouldn’t be possible if it weren’t for Bitcoin’s 14+ years of reliable uptime operation, favorable macro conditions & political/global governance environments, which are increasingly proving the merits of Bitcoin’s architecture & efficacy.

Significant progress is also being made on Bitcoin’s UX side. Scaling transactional throughput globally with less friction for users as infrastructure connectivity options continue to proliferate, lends itself to adopting a new wave of users.

VC dollars invested in Bitcoin development have also been steadily increasing to support BTC infrastructure scaling & utility. Here is just one firm exclusively focused on that. https://ten31.vc/content/100mm

In conclusion, it is my view that we sit amidst a rather unique inflection point here. One in which indicates that the scale of demand is simultaneously seeking defense against precipitous dollar devaluation & necessitated by need to escape the perils of a concerning trend-over-reaching gatekeepers. This is occurring amidst a backdrop of participants that are seemingly compelled to hold their existing bitcoin well into future.

In 2009, Bitcoin’s pseudonymous creator, Satoshi Nakamoto  wrote, “It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self-fulfilling prophecy.”

Until next time, peace!

**Please note that albeit Bitcoin has a total fixed supply of 21M bitcoin, each bitcoin consists of a smaller denomination  called “satoshis” or “sats” for short (https://academy.bit2me.com/en/que-es-un-satoshi/). As prices increase, this is for transactional purposes. Therefore, you’re not obligated to spend/buy/hold 1 bitcoin, the system is designed to facilitate transactions of much less.**

Charts courtesy of- https://twitter.com/therationalroot?s=20

Image courtesy of- https://twitter.com/Melt_Dem/status/1673362112653975554?s=20 

Not Having a Bitcoin Allocation Strategy is Perhaps a Financial Blunder for the Ages

By | In my opinion | No Comments

Good Day,

One of the more interesting developments with Bitcoin adoption over the last few years has been institution’s, corporations’, & businesses’ increased appetite to hold some. While some have purchased the bitcoin to add to their treasury, others have participated via a fund as a proxy. Each with their own unique objective.

Here’s a website that is solely dedicated to tracking various entities’s bitcoin allocations as per public info. & disclosures. https://bitcointreasuries.net/

It’s mainly an interesting development because the aforementioned are typically some of the most prudent cashflow managers, many businesses alike understand that cash is the lifeline of their operation. And given Bitcoin’s volatility, you wouldn’t think it’s desirable for these entities at first glance.

But having said that, it’s difficult to continue to ignore bitcoin’s outsized returns over its 14-year life span (see charts below), while equally becoming impossible to ignore what has happened to the value of fiat dollars after years of devaluation via inflation, https://infogram.com/value-of-one-us-dollar-in-the-last-50-years-1hzj4o3exm13o4p/. Sitting on excess cash reserves has necessitated the need to insure against value erosion. Bitcoin has become a worthy allocation in this regard thus far.

Legendary hedge fund managers like Paul Tudor Jones, George Soros, and Stanley Druckenmiller have made room for it in their portfolios. MassMutual, an insurer founded in 1851, purchased $100 million of bitcoin in December 2020. Large pensions & endowments such as Yale, Harvard & Brown which are some of the most sophisticated yet conservative investors in the world own bitcoin. The Houston Firefighters’ Relief and Retirement Fund (HFRRF), the pension fund for the City of Houston’s firefighters purchased bitcoin for the defined benefit plan’s portfolio.

One of the most noteworthy corporate Bitcoin advocates & accumulators of course has been Michael Saylor, CEO of MicroStrategy which has amassed ~140,000 bitcoin on their balance sheet since fall of 2020.

Despite who’s been jumping in, a new trend of accumulators has emerged & providing Bitcoin continues to work as effective as it has thus far, I don’t see this trend subsiding either. And given what I believe is the continuation of devaluing fiat currency globally, it will only accelerate in my opinion which perhaps makes not having a Bitcoin allocation strategy a financial blunder for the ages!

Until next time…….

Charts courtesy of https://twitter.com/case4bitcoin

When you arise in the morning think of what a privilege it is to be alive, to think, to enjoy, to love …”- Marcus Aurelius

Hello Again……

By | In my opinion | No Comments

Hey there,

After a 7+ year hiatus since my last post, hello once again.

Suffice to say things have changed quite a bit since & it would’ve been wildly prescient to say in the least had you predicted then, what has occurred over last several years!

Financial markets are at peak uncertainty, society often finds itself in precarious spots & politics, well, it’s entertaining when not embarrassing!

Yet here we are & if you’re reading this, it’s perhaps not such a bad sign. I’m hoping you’ve at least had the zen to weather through it all. I know it wasn’t easy for many but having said that, I really do believe we’re amidst a fundamental change that albeit will continue to be somewhat challenging, will usher in an era of new found prosperity.

While the site was in hiatus mode, I never stopped investing capital & time in financial markets. I remain keenly interested in macro & geopolitical affairs & I continue to observe technological trends emerge & evolve.

I believe capitalism, markets & economy can be reinvigorated to flourish IF we can realize the promise of distributed & sovereign systems/networks such as Bitcoin.

And so in the coming months & years, that’s where eHoldings focus will continue to be, on Bitcoin, as we’ve since 2015.

In the meantime, please check out the site, perhaps a little different than you remember it. Consider signing up to my “notions”-a free periodic email about what I’m thinking as it pertains to investing, markets, money & finance in general.

Until next time!

 

“It’s tough to make predictions, especially about the future.”- Yogi Berra

The Means of Traditional Wealth Creation Have Reached an Inflection Point

By | In my opinion | No Comments

It used to be that your options were limited unless you had a certain amount of wealth or connections when seeking lucrative investment opportunities. Today much of that has changed. As the internet progressed, what was once too big and too inefficient for individuals to acquire, quickly became readily available in abundance. Whether it be Amazon filling and shipping a single book order to your home or sending $500 to your friend across the globe at cost of .50 cents via Bitcoin on your smartphone-to describe this as an efficient and effective democratization of our economic landscape would be a gross understatement! Read More