Lyn Alden wrote a longform article about the 3 reasons why she is investing in Bitcoin. Lyn Alden is an investment strategist with a background in engineering and finance. She focusses on value investing with a global macro overlay.
What are the main reasons why you are bullish on Bitcoin?
“The first reason is, that, Bitcoin has demonstrated that it has a pretty strong network effect over time. The second reason is the halving, most of the bullish price action of Bitcoin tends to happen in the first year or two after a halving. And then the final reason was the macro backdrop, it pretty much, couldn’t be better for Bitcoin and also for things like silver and that’s because with so much money printing with so much bailouts happening, if you look at it historically, just whenever debt levels reach this high, there’s usually some sort of a macro economic event like a currency devaluation that happens over the subsequent decade.” – Lyn Alden
When I first heard Lyn Alden speaking I immediately knew, that I wanted to have her on my show, because her insights are smart, concise and I learned a lot about the global and US specific economical situation. I think it is one of the best interviews so far on my show. I hope you can take as much away from it, as I did.
- Her Bitcoin story
- Fitness and MMA
- The macro view on the economical situation
- The price to be the world reserve currency nation
- Reasons she is investing in Bitcoin
- Scarcity and network effect
- Why bitcoin is superior to altcoins
- Comparing Libra and gold to Bitcoin
- The thing nobody is talking about
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ShownotesRecording Date: July 28, 2020
Anita Posch [00:04:55] Hello, Lyn. Thanks for being on the show today.
Lyn Alden [00:04:58] Hey, thanks for having me.
Anita Posch [00:04:59] It's a pleasure to have you on, because it seems you're on the podcast carousel at the moment every other day. I see. Or hear you on a show. That's great.
Lyn Alden [00:05:09] Yeah. I've covered a couple of different topics lately. So I've, I've, you know, been able to share it in a couple different platforms, which is good.
Anita Posch [00:05:16] Great. Yeah, it's always good to do some marketing also, not only educating people. So I started doing my homework for the interview and I was visiting your website, looking for your article about why you invested in Bitcoin, which we will dive deeper into it later on. And I stumbled upon an article about 12 tactics to seriously boost one's energy I mean, that's a rather sidestep, but just for an introduction, it's a rather profound article. Are you a sporty person and doing a lot of sports and, looking to improve yourself all the time.
Lyn Alden [00:05:53] Yeah. So I I've, I've done martial arts for most of my life and, so I'm, you know, generally pretty into fitness. And so, you know, most of my content is about investing, but I also wanted to share that, you know, that kind of one article, just on, you know, fitness and, and, you know, ways to kind of boost energy, you know, a little bit health oriented, but not really from a medical perspective, just to kind of share my experiences and some of the science, and that's actually been a lot of feedback from the article over the years. So it's never, you know, definitely made the head deadlines, cause it's, it's one of my older articles and, but people find it eventually and I get, I still get emails every week from people that, that, you know, saw that some people tried some of the things on it and so it's been, it's been pretty good for people.
Anita Posch [00:06:34] Yeah, it's a great article. And you also write that you could do 80 pushups, 20 pull ups and the bench press with 1.5 of your body weight. I'm pretty impressed because I also was doing athletics in my early days, you know, so and, how, did you get from there to the investing world?
Please tell us a little bit about your story, your professional path, and, what's your current position or project.
Lyn Alden [00:07:01] Sure. So, my initial career path, went into engineering, so electrical engineering and, I did, industrial automation for a little bit, but then I shifted into, aircraft simulation, with an emphasis on, you know, the control systems and electrical systems for, you know, those systems.
Then I shifted more into engineering management. So, you know, in the, in the financial side of that, So I would oversee the facilities, purchases, and, serve as the head engineer for the facility and kind of manage the overall projects. Aside from that, I've just always been interested in investing and there's kind of a natural overlap between engineering and investing.
Cause they're both, they both very quantitative, very investigative. So you know, I've been following the market since even before I was, engineer ever since I was a teenager. And so it's always been a side passion of mine, but, over the last, you know, five years or so, I've really kind of brought it to the forefront to kind of make that my, my, main business, just because it's, you know, such a passion of mine and, it's, it's been a great ride to share it with people.
Anita Posch [00:08:01] And this is still a side business. Are you doing two jobs at the moment in a way, or is this going to be your first business?
Lyn Alden [00:08:09] This is my primary business at the moment, but I also still do engineering management for the facilities. So I still do, oversee the finances and the, and you know, kind of the main decision making for, for the kind of day to day operations at an engineering facility.
Anita Posch [00:08:23] Great. And when, and how did you hear about Bitcoin the first time?
Lyn Alden [00:08:29] Oh, well, the first time was way back I think it was around 2011 or so the shame I didn't, invest back then, but, I had, I knew someone that could, it was back in the days when you can literally mine it on a computer. Right. So it was, it was, it wasn't industrialized like it is now. So, you know, she was able to just kind of, mine it on her, like a gaming computer.
Back when it was very cheap and I thought, okay, like, I, I understood the basic idea of it. I just didn't really have a way to price it or, you know, kind of value it. So I just kind of thought it was something that was neat. And then, back in, 2017, when it had that, pretty big bull run, you know, Bitcoin and other cryptocurrencies all had that really strong bull market that year.
I started getting tons of emails from people, you know, asking my thoughts on, on cryptocurrencies. So I've wrote my first article, in the autumn of 2017 and I covered Bitcoin and other cryptocurrencies from a few different angles. And my overall outlook at the time was, was it was kind of bearish to neutral, right.
So I didn't, I didn't dismiss it outright. But because there's so much positive sentiment and, you know, I kind of approached it from a couple different angles, like either looking at Bitcoin as a medium of exchange or looking at it as a store of value and, you know, the medium of exchange situation it appeared overvalued to me, whereas a store of value was more interesting at the time. However, you know, in that period I stayed away and it was about in the, you know, it's funny during the course of writing the article, that was such a strong bull market that when I started writing the article, it was like 6,000.
And by the time I finished the article, it was like eight thousand. So I kinda, you know, kind of put that on the back burner. And of course in the rest of the year, it spiked all the way up to, you know, roughly 20,000 andthen it fell to below 4,000 the next year. And it's been in this, it's been in it's pretty wide consolidation pattern since then.
And, early, this year, in March and April, when we had that big liquidity sell off, I was watching Bitcoin and see how it behaves. And it behaved a lot like precious metals, and, for a variety of reasons after doing a lot of research, I went long in April. So, it was, it was kind of a big round trip because I went long in the upper 6,000.
It's like around 6,900 or so it was about the same price that I evaluated, two and a half years prior in the fall of 2017, however, there are a variety of macro factors and also this is where we are in the having cycle with Bitcoin. There are a bunch of factors that made me a lot more bullish this time around.
Anita Posch [00:10:54] Hmm. And your friend who mined Bitcoin, did she stick with it?
Lyn Alden [00:10:58] That's actually the funny thing, I have no idea because I haven't, I haven't spoken with her in years. I hope so. She, maybe she's a rich on some Island somewhere.
Anita Posch [00:11:05] Yeah, we hope so. I hope so too, for her. Yeah. So let's, let's take a macro view at the beginning, please. What would you say, how serious is the situation at the moment? What's your outlook regarding the economy for the coming say five years.
Lyn Alden [00:11:21] I definitely think it's a pretty serious situation. You know, the, the pandemic itself, of course, has been a pretty big impact on economies. Both economies that have, you know, shut down and even ones that have tried to stay more open, they've all experienced different levels of economic impact from this, especially cause we're also globally connected.
But then aside from that, it's the foundations, that were in place before this crisis that are big issues. So in most of the Western world, we have very high debt levels as a percentage of GDP. And if you look back in history, you know, there's, there's always these shorter term business cycles, the last five or 10 years.
Where, you know, businesses accumulate debt, and then, there's an, a recession and then there's some sort of de-leveraging event. And then they kind of start fresh. But if you look over the very long term, you know, that kind of debt tends to accumulate, from business cycle to business cycle. And after, you know, 50 years or sometimes longer, you can accumulate very high levels of debt in a society you know, and especially when it gets on the sovereign level, there's not really a lot of, you know, release valves for that. And historically when you get to that sort of situation, you're likely to see currency devaluations, you know, major kind of expansions, in the money supply, because you know, most countries rather than, ever, default on current, on, debts that are, denominated in their own currencies, usually they, you know, default in real terms.
So for example, we see, we've seen this in United States, multiple times in our past where, you know, we've never defaulted on treasuries, but we have, you know, inflated treasury value away, essentially. So I think we're in a period now where, you know, the world has so much debt, when it went into this crisis and of course this crisis itself is a very impactful for, for modern life and then that whole backdrop makes it so much worse.
Anita Posch [00:13:07] So that will mean like, many more jobs lost, people on the streets, homelessness, no medical support anymore. These kinds of things?
Lyn Alden [00:13:18] I hope it doesn't get that bad. I think it's just, it's mostly, it's also going to depend on how different countries handle it. Right. So, you know, I'm not, I'm not looking at something quite that severe, but it's more just like we're going through a period where, you know, it depends on the country and in the United States for example, we have a lot of wealth concentration. So the bottom half of our population doesn't really have much wealth and they live paycheck to paycheck. We have about 30 million people here, for example, that don't have a job. So they're on some sort of unemployment benefits so there's about 17 million people that lost jobs.
And then in addition, because so many self-employed people lost income, there's also, assistance for them, which is like another 12 million people. So it's about 30 million people that are on some sort of jobless support, and it's just, it's a very fluid situation. It's a far larger amount, for example, that happened during the global financial crisis.
Now, so far many European countries, especially, in, you know, Northern Europe have, have, so far your unemployment situation I believe is, is not as bad as ours in most cases, but it's, it's a very different system, right? So each, each country kind of has their own pros and cons and their own way of doing things, but the thing that most of these countries have in common is that they have pretty high debt levels. You know, whether you look at the sovereign level, the corporate level, or the household level, and, this is just a very problematic environment for a financial system that relies on kind of increasing leverage, increasing growth at all times.
If you go through a period, when you already have debt this high and you go through a kind of a multiyear period, regrowth can struggle. You know, that can cause a lot of issues and usually the currencies are the release valve. So we've seen, for example, very strong appreciation in gold. And another way of looking at that is that most currencies, in recent years have lost a lot of value compared to gold.
Anita Posch [00:15:06] Hmm. And also I found in one of your tweets, I think, the so-called N I I P the net international investment position, and this shows negative 9.7 trillion on the side of the U S. And so the U S was once the world's largest creditor nation. And now it's the world's largest debtor nation. So is this a reason that the power balance or the distribution in between nations will change?
Lyn Alden [00:15:36] It certainly could. So yeah, the way we've actually ironically had that develop in part, because we've had the global reserve currency. So after the World Wars, the United States, as you, as you mentioned, was large creditor nation. And what that means is that, Americans owned more foreign assets than foreigners owned of American assets.
However, over, decades of running, persistent trade deficits and current account balances, foreigners have gradually accumulated more and more U S assets. And part of running the world reserve currency is that, you know, you have to in order for the whole world to kind of price commodities in dollars, right there has to be enough dollars out in the world for them to be able to do that. And so the way that normally works is that the global reserve country has to run pretty persistent trade deficits in order to get their currency out into the world. And that kind of becomes self perpetuating because once a currency is the global reserve currency, there's a lot of demand for it.
And that helps kind of make it overvalued. And that helps, you know, it gives that country more importing power, but reduces their export competitiveness in a lot of areas. And that leaves the trade deficit. So the United States has had decades of, of trade deficits and current account deficits.
And so over time we shifted from a creditor nation to debtor nation. So the, the actual switchover happened in about 1985. But then, you know, the next, like, 15 to 20 years, we're still very minor. But then in the past, 10 or 15 years, it really moved pretty sharply to the downside. So now, the United States net international investment position is about negative 15% of our GDP.
So the last figure I saw was actually about 11 trillion US dollars, which is about half of our GDP. Whereas, if you look at, for example, Japan and Germany, they're the largest creditor nations. And if you look at it on a percent basis, also countries like Switzerland, Taiwan, Singapore those are very high creditor nations, but they are of course smaller countries. And what that generally means, you know, for the U S for example, is that we've historically been relied, relied heavily on foreigners buying our treasuries to fund our deficits. But what we've seen in recent years is that the foreign sector has not really been purchasing treasuries.
And so the federal reserve has had to print a lot of dollars to buy our own treasuries to kind of make up for that lack of foreign demand. And, historically that's, that's, you know, not been great for currency. So for example, when we had the repo spike back in September, so we had a big spike in the overnight lending rate, and for a variety of reasons the United States federal reserve had to begin buying treasuries around that time. And since then, I've, I've shifted to being somewhat more bearish on the dollar.
Anita Posch [00:18:14] Which country do you think we'll have the next global reserve currency?
Lyn Alden [00:18:19] So my, my base case is that there'll be no single, global reserve currency because, if you look at, for example, the U S after world war two, and when we really established that position, you know, with Europe damaged from the war, and, you know, just as many places around the world, that were troubled the United States was a very large percentage of global GDP.
And we were by far the largest commodity importer. So it, it, it gave us a way to kind of establish that currency system. But over time, after many decades, you know, we've had faster growth from emerging markets, we've also had a recovery in Europe and Japan. And so the United States share of global GDP has continued to decrease.
Right. So it used to be, you know, close to like 40% of global GDP. And now it's, it's somewhere in the low 20% range for global GDP. And it's actually somewhere around 15% if you look at a purchasing power adjusted basis, and we're no longer the biggest commodity importer, that's actually China now. So, however, there's no country, that has a large enough share of GDP, compared to what the United States had after world Wars, that they could realistically establish that sort of situation.
So my base case is that we're going to see probably eventually a more multi-polar currency world, which means we could see, for example, more commodity pricing in other currencies, as well as the dollar. And we could see just kind of, alternate payment systems, especially from China, from Russia, from Europe, from places like that, we could see kind of more diversification of the major currencies used in global trade.
Anita Posch [00:19:52] Do you think that the little price action we saw in the last days with Bitcoin going over 10,000 US dollars again, do you think, is this the start that people hedge against they're the depreciation of their currencies?
Lyn Alden [00:20:06] Oh, that's hard to say because it's also, part of my bullish case for Bitcoin is most of the bullishness price action in Bitcoin happens in the first year or two after a halving, if you count the launch cycle and then the three halvings we're now in the fourth cycle for Bitcoin, they last a little bit under four years and historically, this period is very good for Bitcoin pricing on average. So it's hard to say if this price action is specifically due to macro events or because of, just kind of natural demand for the Bitcoin protocol, but I certainly think it doesn't hurt. So if you look back in March, for example, Bitcoin had a very sharp sell off and that certainly was more tied to the macro situation just because, the whole world had just a sudden shortage of dollars, for example. And we had a very sharp liquidity problem. So we had to sell off an assets like stocks. We had sell offs and precious metals. We had sell offs in Bitcoin. However ever since then a lot of those things have recovered. We've had a lot of liquidity injections by central banks. We've had, just a more reflationary, macro situation. And I do think Bitcoin benefits from these trends, but it's also because it's a pretty small asset class still. And it kind of operates on its own cycle. I do think that the reduction in new supply Bitcoin is also playing a part here.
Anita Posch [00:21:18] Hmm. So what are the main reasons why you are bullish on Bitcoin?
Lyn Alden [00:21:23] Yeah. So the three main reasons I outlined in the article, the first reason is, that, Bitcoin has demonstrated that it has a pretty strong network effect over time. So when I analyzed Bitcoin back in 2017, that was that, that giant altcoin bull period. So we had kind of Bitcoin, lose some market share, compared to some of those other currencies, ever since then, Bitcoin has retained a lot of its market share, and even though at the moment, we're kind of in another alt season, right. Seeing a little bit of a decrease in Bitcoin's market share, it's Bitcoin has proven itself. Now over 11 years of being able to retain strong market share, it has the highest, you know, security, like the highest hash rate among cryptocurrencies and it's, you know, it has like the strongest network effect.
So in addition to the whole, you know, a lot of companies, kind of, operating in the cryptocurrency ecosystem, there's also a lot of Bitcoin specific companies like companies that only deal with Bitcoin and that holds pretty well for its prospects going forward when there's such a strong community builder on that specific protocol.
The second reason is the halving so, as I mentioned, most of the bullish price action of Bitcoin tends to happen in the first year or two after a halving, whereas usually two years after that kind of the second two years of the, of the halving cycle that tends to be more about consolidation and volatility.
So a lot of the bullishness happens usually, you know, after the halving and that's because, you know, if there's persistent demand for Bitcoin, however, the flow of new coins is reduced. And a lot of people are holding their Bitcoin, so they're not selling their Bitcoin. Oh, you can look at, for example, statistics that show that something like over 60% of Bitcoin supply, hasn't moved in the past year.
And this is a pretty consistent pattern that we see over the course of Bitcoins relatively short life cycle so far. So I think there's a lot of catalysts that say that if, if Bitcoin is going to have a moment, I think the next, you know, year or two is a very high probability time for that to happen, just because of where we are in the halving cycle.
And then the final reason was that, as we just discussed the macro backdrop, it pretty much, couldn't be better for Bitcoin and also for things like silver and that's because with so much money printing with so much bailouts happening, if you look at it historically, just whenever debt levels reach this high, there's usually some sort of a macro economic event like a currency devaluation that happens over the subsequent decade.
And so I do think we're going to see kind of a very unusual macro environment for the next, at least call it five years or more. And, scarce assets such as Bitcoin, gold, silver, certain types of other commodities or certain types of appropriately priced real estate, those scarce assets can hold up well in that sort of environment. Bitcoin was kind of born in the previous crisis and I think, this crisis, especially the aftermath of it with so much policy response is likely to be very bullish for it.
Anita Posch [00:24:16] I mean, for me, it's much easier to buy a fraction of a Bitcoin then to buy a house,
Lyn Alden [00:24:21] Oh, yeah,
Anita Posch [00:24:21] store my wealth. Yeah.
Lyn Alden [00:24:22] Yeah. Housing's very illiquid. Whereas Bitcoin, you know, in fact, one of the advantages of Bitcoin is that it's in most ways more liquid than, than say gold and silver are
Anita Posch [00:24:32] Yeah. And I can start with a small amount
Lyn Alden [00:24:34] exactly. Yeah. Anyone, anyone can buy a fraction. Yeah.
Anita Posch [00:24:37] Exactly. So talking about the network effect and security, how is it that a new cryptocurrency that would be superior to Bitcoin based on speed or efficiency still would find it nearly impossible to catch up with Bitcoins security?
Lyn Alden [00:24:54] Sure. Yeah, that's something I discussed in the article. So, we've had kind of, I mean, now there's something like over 5,000 cryptocurrencies in, in one form or another, and a lot of them professed to have some sort of advantage over Bitcoin. You know, some of them are faster. Some of them are more energy efficient. Some of them, they have all had these different claims of things they want to do that, supposedly improve on Bitcoin, however, they make trade offs. So all of those improvements that they make come with some sort of trade off. So the advantage of Bitcoin is that it's a very lean protocol it's fairly easy to run a full node, for example, whereas some of those other, currencies, it's very hard to run your own node. So Bitcoin is easily verifiable. You can verify the whole supply. It's very kind of simple and lean. And importantly, there's so much hash rate protecting the security of the protocol, right?
So some of those weeker cryptocurrencies, even if they have certain advantages, in some ways they also have trade offs and in the early stages, they don't really have much security backing them up. And they also tend to be very centralized, in some cases. So Bitcoins combination of being somewhat decentralized, having so much power, kind of among the nodes that are very decentralized. Anyone can run a node that gives Bitcoin a ton of advantages over a lot of these other cryptocurrencies. In my opinion.
Anita Posch [00:26:09] Hmm. Do you run your own node?
Lyn Alden [00:26:11] I personally don't, no.
Anita Posch [00:26:13] No, and, what would you say to Libra like a competitor of Bitcoin, is it a competitor, I mean, it's something completely different. I know, but, still, it could be easier with like over 2 billion people on Facebook. It would be much easier to get them on board.
Lyn Alden [00:26:29] Sure. I think it's, it's not necessarily a competitor. It's just it's as you mentioned it is different. So for example, you know, you can consider for example, the dollar and gold to be competitors. Right. But they're also very different. So with the Libra. You know, it uses some of the technology that we've had developed in the blockchain space over the past decade and applies that to FIAT currency. So Libra would be a basket of multiple major currencies, you know, wrapped in, in somewhat of a stable coin packaging. And I, you know, I think it's an interesting idea just because as I mentioned before, there's really no economy large enough to kind of have the global reserve currency anymore just because how the world's, you know, kind of, matured and diversified. And, we've actually had a lot of problems from, you know, even in the U S from having just so much centralization of currency. And one thing Libra tries to do is to basically package a large portion of the global money supply in a, you know, a kind of a stable point package. So it's got, it would have dollars, it would have Euros, it would have a variety of different currencies in it. And I think that it definitely introduced people, more people to Bitcoin. So in some ways it could, it could help Bitcoin, right?
Because it could get more people, you know, familiar with this sort of technology. And, you know, Facebook has so many users and, it kinda just, it ventures into a whole realm of corporations being able to release their own types of money. So for example, if you look back in a longer history, right?
Banks used to issue their own currency and it was backed by the trust in that bank, but in recent years we've been very kind of focused on sovereign issue of currency. And ever since Bitcoin was invented, it kind of opened the flood gate again for corporations being able to introduce their own currencies.
And then of course, in Bitcoins case, it's totally decentralized, which is one of its advantages. So I don't really see the Libra as a competitor. Bitcoin, if anything, it's kind of a competitor to a sovereign bank. you know, sovereign country currencies to eliminate a degree. And it also could be an on ramp to Bitcoin to get more people interested in the cryptocurrency space because unlike Bitcoin, the Libra won't be limited it won't be scarce that it's based on currencies that can be printed as much as central banks want. Whereas Bitcoin is a scarce asset, so it's kind of like comparing apples to oranges.
Anita Posch [00:28:41] Hmm, is comparing Bitcoin to gold also comparing apples and oranges?
Lyn Alden [00:28:48] I consider that somewhat of a closer comparison, right? Because they're, they're both, scarce assets that are used as a storage of value so even, even, Satoshi himself, when he was describing, Bitcoin, he kind of, he said, imagine there's this commodity, right that's, it's, it's gray, it's not very conductive, it's not very strong, but it has a unique property of being able to be transported over communication channel. So that's, that's, it kind of showed one of the ways that he thinks about Bitcoin, which is like a digital commodity, especially one that has like a monetary aspect to it. So the main aspect of both gold and Bitcoin is they have high stock to flow ratio.
And they're primarily used for their monetary value rather than industrial value. So for example, if you look at commodities like silver, copper oil, they, they tend to have very strong industrial elements. Whereas gold and Bitcoin are unique in that they are very rare and most of their use is as store of value and in some cases, medium of exchange.
Anita Posch [00:29:44] Many critics of Bitcoin say that it can't be money or an asset because it has no intrinsic value because it cannot be used for industrial purposes as gold can. But I think you also write about that in the article.
Lyn Alden [00:29:58] Yeah, I addressed that a little bit. I said, I consider that about 10% valid because gold has about 10% industrial use. And the other 90% of Gold's, demand is from a bullion and jewelry, which are very based on sentiment. And, just viewing it as a store of wealth. So. For example, if gold ever lost is network effect, if people ever, didn't want to store wealth in gold. And if the primarily demand was just industrial, it would lose a lot of this monetary premium. So gold is expensive in part because it has that monetary premium. So it is susceptible to a network effect. Bitcoin, it doesn't have that industrial use, but it's monetary use is in many ways superior to gold in the sense that it's, it's more easily transportable, portable, verifiable, things like that. So I did think it was a valid concern, especially in the beginning, but as you've seen this network effect develop so strongly around Bitcoin, in many ways it's kind of developed that same, monetary status as gold, but people can use, people have different philosophies for what they view as money ,so they can always kind of diversify or manage position sizes. So they don't make too much of a bet on any one commodity or any one form of money.
Anita Posch [00:31:06] Hmm. You also write in your article that currencies tend to have a winner take most phenomena. Why is that the case? And could this be the case for Bitcoin too?
Lyn Alden [00:31:18] Yeah. So the thing about a currency is it has it benefits from the network effect and you know, one example for example, is, is a social network, right? So, so anyone can go and make like a new, like a copy of Facebook, right? You can make a little social network website and it's got your friends on it.
It's got like 10 people on it. And it's just, it's really hard to build that out to something that's this large, right. Whereas some of the larger social networks they manage to succeed for one reason or another. And they get so large that they become, it becomes a virtuous cycle so they attract more and more people because there are so many people on it increases the value of that network.
So you feel like you have to be on it because all your friends are on it, all your family is on it, business contacts are on it. And so currency is kind of the same way where, when a currency becomes more widely viewed as money and more widely accepted, it increases demand for it because, when someone buys it, they know that they can find someone that they are able to sell in the future. Right. So, Yeah, most of us would be cautious about say taking currency from a small country that we don't do business in, right. Because if we had currency, we weren't sure how, who were going to give that currency to in the future.
We don't know if it's going to retain its value, whereas some of the major currencies like dollars and euros, because they're excepted in so many places and they're easily exchangeable we, we view them as money and we're, we're able to demand them pretty heavily. Bitcoin, because it's the first crypto currency and because it's been so successful, it's widely accepted, pretty much across the world, especially in niche circles.
Right? So you can't just go into any store and use Bitcoin. However, in many countries around the world, you can find ways to trade your Bitcoin for other currencies. So in that sense, even though there's now thousands of cryptocurrencies most of them don't have a lot of acceptance.
Whereas the top one or two that have most of the acceptance, they tend to kind of retain that mantle over time. They continue to build that network effect because they've already established a strong position.
Anita Posch [00:33:13] Do you also invest in altcoins or would that be just like gambling in a way for you?
Lyn Alden [00:33:19] Yeah. I personally just invest in Bitcoin. So you know, people are free to invest in altcoins. There are certainly trading opportunities people can have with them because they tend to be very volatile and when we have these Bitcoin bull runs, it can bring a lot of altcoins with them. In some cases, altcoins can front run Bitcoins, right? So when people are getting more bullish on the space, they might go in and buy some altcoins, but personally for me, I just prefer Bitcoin.
Anita Posch [00:33:42] And, what do you say to your followers? I mean, should they buy derivatives for instance, or the real Bitcoin?
Lyn Alden [00:33:50] Well, it depends. I mean, I prefer to hold the real Bitcoin. Because a lot of the bullishness happens, in the first year or two of a halving cycle there are some people that make speculative bets, with a very specific timeframe, right. So if you're very bullish on Bitcoin over the next call it 12 to 18 months, there are certain derivative contracts you can do that, if you're correct you can maximize your gains compared to buying Bitcoin outright. However, from a risk reward perspective, I prefer to hold the actual Bitcoin and there are a couple of other products that can, they can, you know, get Bitcoin and other types of accounts, but where possible I prefer to hold the actual Bitcoin.
Anita Posch [00:34:25] Hmm. You also made some estimations for the price of Bitcoin in the future. What's your current estimate, in which timeframe and what are the foundations of these estimates?
Lyn Alden [00:34:37] Sure. So if you look at the previous halving cycles, we're currently in the fourth cycle, if we include the launch cycle. They've all generally had the same shape of price action. So in the first 12 to 24 months after launch or after the halving, we have a very strong bull run in the price action and then, that kind of, pulls momentum traders in and speculative investors. And we usually get some sort of blow off top. And then we have a, you know, a kind of a longer period of consolidation, right? That could last a year, it could last two years or more. And by the time the next halving comes, we get another reduction in supply and we start to see kind of another bull run.
Oh, so my timeframe for this current outlook is, the next I'm calling about 18 months, but it could be, you know, 12 to 24 months, that I expect to see some pretty bullish price action on Bitcoin. And I don't have a specific price target, but I have a, I kind of shared a couple of different ranges. So if you look at, the previous cycles, each cycle had kind of a smaller magnitude than the prior one. So the, the first cycle had, you know, an infinite game, cause it went from worth nothing to at one point worth over $20 and then, the second cycle the peak hit over a thousand, right? So it had about a 50 fold increase from the, from the high in its previous cycle.
And then, the next cycle after that, touched in the ballpark of 20,000. So it was about a 20 fold increase over the previous high. And so my base case is that, you know, we're going to see this pattern likely play out again, where we see a smaller increase from the previous high. Right. So, definitely, I would expect under 20, you know, increase, but that could be, for example, a five fold increase. It could be a threefold increase. It could be a tenfold increase. I don't, I don't try to guess how high it's going to go. I think that depends on a lot of factors, including just trading sentiment, right. Because you know, when we hit that peak, all sorts of things can happen.
So my base case is that we're going to see new, all time highs, in the next 12 to 24 months. I expect them to be pretty considerably above the previous highs. I just don't have a specific price range. Other than that, I expect it to be kind of a smaller increase in the prior cycle, in percent terms, but still quite meaningful.
Anita Posch [00:36:42] I often hear people say it's too late to invest in Bitcoin. What do you think
Lyn Alden [00:36:49] I think if you look at the price chart in log form, it creates a pretty clear pattern of how this asset behaves over the course of its, roughly four year cycles. Part of my case, against it in late 2017 is I did feel it was late at that time. Right. Because we had so much bullishness, so much enthusiasm. I would turn on to major news networks and CNN talking about Bitcoin all the time. And so that was a concern. In that environment, I considered it kind of a little bit too late in the near term to purchase it.
However, we've had a very long consolidation period here. I personally don't think it's too late. It's a very small asset class still. The whole, I haven't checked the numbers recently, but all of Bitcoin markets cap is worth, you know, roughly 200 billion or less.
So I think when I wrote this article with something like 170 billion, we've had a price increase was probably around 200 billion now. But that, and that sounds like a lot, right? Because it's a size of a large company, for example, however, Credit Suisse estimates that there's, you know, over $360 trillion in global wealth and so Bitcoin is less than a 10th of 1% of global wealth. It's still, it's still a very small asset class. It's also very small compared to gold. So golds market capitalization is somewhere in the ballpark of seven to $10 trillion, you know, depending on price levels and depending on how accurate the estimates are from the world gold council and other estimates.
So, Bitcoin's market cap is still smaller than silver, and it's still a very small fraction of gold, even if Bitcoin were to increase tenfold, for example, and reach like a $2 trillion market capitalization, that's still a very small segment of global wealth. For an asset that is a very unique thing, it's not a single stock. It's not a single kind of a niche commodity, it's something that's globally available. And so it's still very small considering the context that it could grow to.
Anita Posch [00:38:38] Do you think that Bitcoin could still fail like go to Zero?
Lyn Alden [00:38:43] I think anything could fail. Right. So no one should take for granted that something cannot ever fail. Right. I think investors should, for example, use some sort of diversification to make sure that they're, that they have a risk appropriate for their situation. I like to say with Bitcoin that a lot of my article was addressed to people that have no exposure to Bitcoin.
Right. So to just generalist investors and so even having a 1% allocation to Bitcoin is technically an overweight position because bitcoin is less than one 10th of 1% of global market wealth. So I do think there is a good reason to have at least some exposure to Bitcoin and then for people that are very knowledgeable in this space that have their own convictions that have a ton of research that they've done that even that work in the industry it is definitely, easier to argue for much higher allocations for people that are willing to take on that risk and that have that kind of very, very knowledge, calculated bet for that, for the success of the protocol. So I do think of course it's possible that that protocol could fail. However, my base case is that, I expected to do pretty well in the foreseeable future.
One thing to watch for potentially as a failing is to see if it ever has a bad halving cycle. Right? So, so as I mentioned, the previous cycles all did very well, especially when, when new supply decreased. But if Bitcoin were for example, to have a very bad halving cycle this time and its market cap would not continue or fail to grow we'd have to reevaluate to see what's happening with the space. But overall, the log chart is, is very healthy in my opinion.
Anita Posch [00:40:12] Mm. I'm sure you've seen last week's OCC letter that allows for U S banks to hold crypto assets on behalf of their clients now. How good news is this? Do you think that the demand for Bitcoin will grow?
Lyn Alden [00:40:27] I think it could, that could take a little while to build out because a lot of banks aren't ready to do that yet, but, and they're, they're specialists that focus on that specific area, the intersection of banks and Bitcoin. So they would have more to say about the details. However, one thing that certainly helps with is that one of the concerns people have, and I know that, you know, for example, when I wrote my article, I got a ton of emails from people from readers, just asking me different questions.
And one of the concerns people have is what if governments ban it. Right. So what if, what if, you know, it's, it's banned in the US and it's banned in Europe and it becomes something that's, it's like a black market commodity as it is in some countries and, and the concern is that that could kill demand or at least like diminish demand among institutions, obviously, and also just, you know, among investors that don't want to break the law. However, this, this sort of decision shows that it's going in the opposite direction. It's going towards the direction of more acceptance, you know, at least in the U S here at the moment due to that decision.
So I do think it's, it's a very favorable decision, you know, that could benefit Bitcoin in the long run.
Anita Posch [00:41:30] What is fascinating you the most with Bitcoin? I mean, which feature or characteristic of Bitcoin?
Lyn Alden [00:41:37] I think the whole thing is just very interesting as someone with like a technical and financial background, it just, it blends so many things. So, you know, it, it blends, economics, it blends technology, it blends kind of game theory associated with the four year halving cycles. Just the idea of the creation of digital scarcity.
And then the specific aspect of how it kind of, it kind of adjusts its difficulty based on whether miners are successful or not to make sure that it always has mining, rather than to fail. I like the halving cycle. I like the fact that it has these, these big reductions in new supply you know, every four years or so, rather than just like a steadily decline in new supply production. So I like, I like so many details of this protocol. I like how lean it is. I like how verifiable it is. It's definitely just a very elegant creation.
Anita Posch [00:42:24] What is the thing about, or in Bitcoin that nobody's talking about, but should be more known?
Lyn Alden [00:42:35] I'm not sure, particularly. I would just say, I think a lot of people that don't study Bitcoin, don't really focus on the details of the halving cycle and how that historically has played into price action. So of course, people within the community are very aware of that dynamic, however, many people that I've talked to, that have heard about Bitcoin and they think it's just, it's, it's purely speculative like there's no rhyme or reason at all to it's price action over the years. But when you look at the chart in log form, and when you look at halving cycles and when you understand kind of the math of what happens when people are holding it and there's new supply reductions and more people still want to come into the space, what that can do for the price action.
I think when put that all together, I think it could make sophisticated generalist investors come into the space more if they took the time to understand it. So for example, Paul Tudor Jones, back in May publicly came out in favor of Bitcoin and he's one of the largest investors, a very famous investor.
And I think that there are a lot of other, major investors that have dismissed it. Right? So whether it's it's Warren Buffet or Ray Dalio, I think if they spent more time looking at some of the details of the protocol and some of the details of the network effect and the ecosystem of surrounding companies, I think that they would become, more bullish on it in the future.
Anita Posch [00:43:51] A side question, you have a lot of clients, how many female investors do you have, who are interested in Bitcoin?
Lyn Alden [00:43:58] I haven't done any sort of detailed statistics on it. I would say that, probably about a third of my readers are female. Probably about three quarters of the questions I got about Bitcoin were from men, but I would have to go back and analyze it in terms of statistics. There's definitely more interest that I've seen among men, but I have received questions from women as well.
Anita Posch [00:44:17] Yeah. Interesting. I mean, it's the same here. I have like a third of my interviews are with women. Yeah.
Lyn, thank you very much. Do you think we've missed a point that we should include anything you want to say?
Lyn Alden [00:44:30] No, I think this is just a very interesting time for the Bitcoin protocol and for kind of scarce assets in general. We've had a pretty interesting breakout in price action recently. And I don't know if that's going to hold or not. I don't really make short term trading calls, but I do think, it deserves a position in a portfolio, over the next, at least the next couple of years to see how it plays out.
And you know, people can always kind of adjust the position size based on their amount of knowledge and their amount of conviction in the asset class. I think it's a very useful technology and I think we're going to see good things from it in the years ahead.
Anita Posch [00:45:00] Thank you very much. Please tell our listeners where they can find and follow you and your work.
Lyn Alden [00:45:06] Sure. I'm on lynalden.com and I have a bunch of free articles there. I also have a premium research service, and then I'm on Twitter at Lyn Alden contact.
Anita Posch [00:45:16] Thank you very much. This was a great conversation. I've learned a lot again thank you and have a good day.
Lyn Alden [00:45:22] Yep, you too. Thank you.