Why I’m bullish on Ethereum

Michael Saylor and Bitcoin

Due to the influence of a friend, I’ve listened to 8+ hours of Michael Saylor preaching about BTC and its inevitable supremacy.

Michael Saylor is the CEO of MicroStrategy, an enterprise software company listed on the Nasdaq.

In August 2020 Saylor invested $250 million of MicroStrategy’s cash in Bitcoin as a treasury reserve asset, citing declining returns from cash, a weakening dollar and other global macroeconomic factors. As of today, it has stacked over $2 Billion in BTC.

The guy was already super-bullish on BTC before investing the company’s money in it and now he has even more reasons to pollinate others with his conviction.

The podcast series is great and although I do not agree with 100% he believes, I do agree with many of his logic deductions. He also tells many interesting historic facts and correlates them with the present.

(friendly tip for whoever is going to listen to the podcast series: skip the host’s comments at the end of each episode. You won’t miss anything new. Jump straight to the next episode)

Time horizon

I was amazed by Saylor embracing the fact that Bitcoin (at least L1) won’t be the best option for most high-frequency use cases such as paying for coffee.

He even goes to the point of saying the digital networks (centralized networks) will almost always be better in certain use cases and even if you’re a diehard BTC fan you shouldn’t care about it.

It became clear to me that Saylor cares a lot about the long long-term (100+ years) and how Bitcoin is the perfect solution for long-term due to it’s intrinsic characteristics and incentives.

I find it awesome that this asset is long-term proof. Because of this, it attracts long-term-oriented money and it drives the price up.

I don’t particularly care much about this 100-year time length. I’m mid-term oriented (3,5,10 years).

I don’t plan to die so soon and at this point in life I don’t really care if my wealth just vanishes or gets stolen when I pass away (having kids will change this, I’m sure).

This makes the long-term optimization aspects kinda useless to me directly.

Optimizing wealth allocation for 3-10 years is ideal because that’s a time frame I can easily adapt, inform myself and change my positions once meaningful circumstances change.

ETH vs BTC

50% of my crypto holdings are on ETH, 35% in BTC.

“Ethereum isn’t as defensible as BTC in the long-term”

I agree. And I don’t care. I’m now analyzing the crypto game with mid-term lenses, although I’m confident this is a long-term asset class.
I’m not placing my bets as if I could only place one bet for the next 50 or 100 years. I place them to last 2-5 years.

As long as ETH is defensible enough in the mid-term and its upside potential clearly surpasses the higher risk, I’m down for it.

I believe its upside potential is much higher than BTC’s for the coming years.

Ethereum supremacy

One thing that I like about Ethereum is that it has the potential to become “gold+salt”.

The word “salary” stems from the word that meant “salt” because in some period of time and specific geography, this substance was rare enough that it could be used as a store of value and medium of exchange, and was adopted as a way to pay people’s actual salaries.

Besides being a “coin” that had “trade value”, it was directly intrinsically useful and necessary for the survival of men and animals.

Gold, on the other hand, was much less useful and only had cosmetic purposes. It was valuable because it was scarce.

Salt became abundant everywhere, gold maintained its scarcity. Gold won as a reserve of value for thousands of years.

I believe ETH has the potential to be both Gold and Salt, scarce and useful.

Betting on Ethereum is betting that its network’s network effects will make it as indispensable as the internet we know today (you can build your version of the internet on top of the same physical infrastructure but no one will connect to it, and it will be worthless and much less useful).

If Ethereum achieves the goal/status of being as valuable and irreplaceable as the internet’s protocols we know today, the return for ETH holders will be ABSURD.

ETH is mathematically scarce (akin to gold) and might be physically useful (akin to salt).

It’s the best of 2 worlds. The opportunity of a lifetime.

As for its risks, I don’t perceive Ethereum’s mid-term risks to be that much higher than Bitcoin’s. Its upside potential on the other hand…

Imagine

It’s like you purchased a piece/share of the internet network in 2002 and people needed to pay you royalties to transact bytes on your network.

Risky???

Risk in the 5-10 year term: Pretty damn big!! 

Ethereum’s network might end up being inferior to traditional centralized networks; it might be too hard for ETH holders to capture a significant portion of the value that the Ethereum platform creates (like Tim Berners Lee didn’t capture 0.0001% of the value that was created on top of his invention)

Risk in the 1-3 years term: not so much…

the whole world is desperate about ESG. Ethereum (as an entity) saw this market demand and quickly organized itself to attend to this condition. Now they’re stress-testing the whole proof of stake (which isn’t a novel concept), validating it, educating the stakeholders and the market.

In a matter of a year, the Ethereum chain will be in the headlines of all media outlets and might attract applications, attention and resources from all environmentally concerned companies in the world.

That’s free marketing!! (as long as the proof of stake works, of course)

I can’t see this not driving adoption, attention, and thus, value creation for ETH holders.

I can also easily conceive Ethereum having a larger market cap than BTC in the next 2-3 years due to herd mentality, network effects and ESG tailwinds.

If/once it passes the market leader, there’ll be even more migration of hodlers and appreciation of the ETH. It can be another “gradually then suddenly” event since the world that the multiple reserves of wealth inhabit/compete follow follow a non-normal distribution on value perception (aka: the #1 is disproportionally more valuable than the #2 and the rest).

After all that said,

Amen.

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*This essay was born after a conversation with a dear BTC diehard friend. Its purpose is not to provide financial advice or try to convince anyone of anything.

I’m turning myself into a disciple of Jeff Bezos and seeing the value of putting my thoughts in written to better organize and polish them, besides being able to share and let ideas be criticized by others.

Strong convictions, loosely held.