Bitcoin does not fit the narrow definition of what a Ponzi scheme is, said Lyn Alden, founder of Lyn Alden Investment Strategy, who said that $50,000 is the next resistance level.
Then Aldean of Lin audit investment strategy is back to give us her economic outlook and talk about cryptocurrencies. We'll start with Bitcoin again. Uh, this time, Lynn, welcome back to the show. Hey, thanks for having me. Nice to see you in the new year. Bye. Nice to see you. You too, Lynn. I know you've been very busy and, uh, we'll talk about all these different things that have been keeping you busy.
But first I'd like to address a very interesting article you wrote recently, which is whether or not Bitcoin is a Ponzi scheme. First of all, uh, I think I know where you're going with this, but why don't you give us a synopsis of what this article is about? Yeah. So I kind of walked through, uh, the different definitions of a Ponzi scheme.
And, you know, for example, uh, the sec has a, has a good list of what defines Ponzi scheme and what some of the red flags are look for. And the reason I did that is because one of the common criticisms of Bitcoin is it's a Ponzi scheme that only, you know, you have to keep, uh, people have to keep buying into it in order for it to do well, which of course has some degree of truth to it.
So I, I went through it and kind of looked at it point by point. And you can kind of break that into a narrow definition of a Ponzi scheme, like an outright fraud versus a, a broader, uh, definition of it. And so from the narrow scope, one of the things I looked at was kind of the whole launch process of Bitcoin.
And so what we saw for example, was that the creator or creators, we don't really know if it was a person or a group, but Satoshi Nakamoto. Uh, it was interesting because they released a white paper, pretty much showing how to do it, uh, before they'd launched it themselves. And so rather than kind of keep all their secrets to themselves, Launch it, uh, they, you know, released the white paper, they got criticism on it.
They, you know, they kind of, uh, had some interaction with, uh, other experts in the field, almost like a thesis defense in a way. Uh, and then they went ahead and launched the software and then they gave themselves no pre mine. Uh, so they didn't give themselves coined and then launch it. Uh, they had to continue to mine.
It just like anyone else on the network. So they had really no. Inherited advantage. And, and that kind of contrast to a lot of the ways that later tokens, uh, launched themselves. A lot of them use pre vines, uh, you know, to their founders and their initial investors. Uh, whereas Bitcoin was launched more like a protocol, uh, rather than more like an investment.
And so right. You know, by most metrics that the narrow definition doesn't really apply. Uh, and then the broader sense is just the idea that, you know, really any non cashflow producing asset is only worth what you think someone else is going to pay you for it in the feature. And that's true for Bitcoin.
That's true for gold. Uh, that's true for. You know, fine arts, uh, beachfront property that you don't plan to rent out. Uh, you know, all these kinds of, uh, high-end kind of scarce goods, uh, they're always based on, you know, their scarcity and their desirability. And so it kind of goes through, it just compares Bitcoin to some of those other things.
And one thing that they all have in common is that they have some degree of utility, right? So, you know, fine art has utility, a classic car has utility beach, front property has utility. Gold has utility, but they also have a monetary premium associated with that. And so they're bought for, you know, more than just their, uh, utility and Bitcoin is kind of the similar way because for its utility, you have, uh, you know, permissionless international payments that pretty much can't be stopped and ease it.
Easy mobility of funds. Right. So you can just remember a 12 word seed phrase. And go anywhere in the world across borders and basically transfer wealth wherever you want that that's its utility. And then it has that monetary premium, uh, due to its scarcity. And so the overall point of the argued article is that, you know, Bitcoin still has a variety of risks.
It's going through an adoption period and we'll see, you know, how far it gets. Uh, but it doesn't really meet the definition of a Ponzi scheme, more so than any other kind of non cash flow producing monetary asset. The word Ponzi scheme may also be used loosely to describe something. That is not inherently trading a fair value or is difficult to value in the first place.
You mentioned assets that don't generate any free cash flow. Well, Bitcoin is one of them. Um, you mentioned art, for example. Well, if I go to an auction and buy, um, a famous painting for a million dollars, well, who's to say that I overpaid or underpaid, how can you value something like that? Well, that's actually one of the most challenging things, are they non, non cashflow producing asset?
And so the same is true for gold. And so for example, with gold, what I do is because it has a long history, I compare it to the broad money supply growth, you know, based on the premise that, you know, the amount of gold per person doesn't really change much over time. They it's mind actually almost at the exact rate of population growth, ironically.
And so there's about one ounce of gold in the world per person at, which is estimated. And so as, uh, the amount of Fiat currency multiplies. You expect goal to roughly keep pace with that. Of course it would undershoot it and, you know, overshoot it under shooted as sentiment changes, but roughly keeps up with that.
And that's what we see in history. Uh, you know, a similar thing, uh, you know, beach, front property, you have these periods where it goes up very rapidly, but then if it gets overvalued, it kind of. Go goes out of favor. And so with those things, it's actually, it's quite challenging to value them, uh, because they don't have cash flows.
You have to kind of estimate their attractiveness compared to other non cash flow producing assets. And you can do things like compare the size of those markets compared to that the expansion of the fee money supply. And with Bitcoin, it really comes down to estimating how large it will be when it's kind of finished this adoption curve.
Like, you know, some people say it be half as big as gold to market capitalization. Some people say it'll be as big or bigger. And you know, either way, it just comes down to estimating how big it will be. And then from there, you'd expect it to roughly grow with the rate of broad money supply increase that assumption.
Factors in constant growth of price for, for gold, right? Assuming gold isn't collapsed in value. You know, half of something that's collapsed value is still not going to go out very much, uh, going back to golden Bitcoin as assets that don't generate cashflow. All right. Well, would you agree with the notion that in that case, the market is always right in, in determining the price.
If gold is trading at 1835 today, let's say then that's because the market has bid for that price and deemed that to be the fair value at any given moment. Likewise, if Bitcoin is trading at $40,000 a coin, that should be the fair value because of market. At that point has indicated that should be what it's trading at or what it should be trading at.
How would you respond to that? I think there's some truth to that. Um, but of course we can always go back in history and find where, uh, you know, in the short term, the market can be silly. And there's that, there's that quote from, uh, you know, a long ago where, you know, in the short term, you know, the market's a voting machine, but in the longterm, it's a weighing machine.
And so the market is more prone to, you know, having errors in the short term. Like, for example, if you look@the.com bubble, you know, there were companies trading at absolutely extraordinary evaluations, you know, Rather than just the Cisco's of the world. There were, there were some like, you know, smaller companies that were trading at absolutely silly valuations.
Uh, and we're seeing some of that today, actually. And so you can have these periods of time where something trades at an irrational valuation, because there's so many people that, that want to get into it, or you can have the opposite where no one wants to touch it. And it's kind of like toxic and it's, you know, it's super cheap.
Right. But you know, over the fullness of it, Time, I think the market kind of ways things. And so we've seen for 12 years now, how Bitcoin has changed in price by the market, especially compared to some of the other tokens, uh, and you know, same for gold. I think gold, you know, I consider it fairly valued at this time.
I think it's doing what we'd expect it to. Uh, even though I expect in the years ahead, I think it will do pretty well. When I, when I see that we're probably going to have, uh, lower negative, real yields. Okay. I, well, I think going back to the Ponzi scheme argument, if you, if you were to consider that the.com bubble valuations are silly because these companies weren't actually generating any cash, but there was supposed to be, they weren't producing any output.
And yet there, they had ridiculous valuations. That make sense to me, but let's say Bitcoin tomorrow, let's say all the parlors of Bitcoin decide that it should be worth $20. And so they pushed the price down to $20 a coin. I think that's the risk that investors are considering that, uh, this, this group mentality, this herd mentality of irrationality could just all of a sudden push prices in either direction.
What could you see that happening? Well, Bitcoin is certainly one of the more volatile assets out there. And so that that's really true for any kind of monetary asset. And so we've built up a fine art prices to very high levels, and we could see, you know, next year that a lot fewer people want to buy that fine art and suddenly, you know, they all kind of.
You know, millions of them come to the realization that they should play. They should pay a third as much. Uh, and so, you know, that's, that's one thing to monitor, same thing, you know, there are $40 million beach front homes, you know, throughout Florida. And you could find out that, you know, maybe, uh, you know, next year they all want to pay 10 million for those.
And it's, you know, it's certainly possible know, but there are a lot of on chain indicators you can use. And so for example, we can see what long-term holders are doing with Bitcoin. And we see that as the price goes up much, much higher. Uh, they're slowly willing to sell, uh, you know, some of their tokens because they've, you know, they've gone up five X or 10 X in some cases.
Uh, but you don't see a lot of kind of, uh, movement, uh, from those long-term holders. A lot of those, those, uh, intermediate term kind of like the near-term kind of price volatility. A lot of that has to do with the trading activity that we see at exchanges. Whereas the long-term holding is actually kind of a steady thing to watch similar to committing other types of property.
Okay. And a final note on Bitcoin. You were bullish. Last time we spoke a few months ago. Are you still bullish now? Uh, yes, but I mean, it's, it's tempered somewhat how well it's done. And so for example, last time I was in your program was mid December. And I said, if it, if it breaks over 20,000 and the bull market's back on, and I expected it to, I I'm watching the $20,000 level very closely, uh, because, you know, until it breaks over there, it's at risk of further corrections and consolidations.
But once it punches over 20,000 firmly into new all time highs, uh, the ceiling above that work and go is rather high. Uh, and you know, now since then it's more than doubled. And so I see a similar situation now where the, that the resistance number is somewhere around 50,000, because that's a psychologically important number.
It's a round number. Uh, you can look at, you know, their, their sell orders in at that level. Uh, and so that's, that's kind of a resistance level that it has to break through in order to continue the bull market. Uh, and my base case is that I think it will continue the bull market in 2021. Uh, but you know, the higher you go, the less asymmetric.
That trade gets, you know, with any kind of 12 to 18 month view, uh, compared to how it was, uh, last year, would you, would you consider, uh, investing in any of the other, other altcoins that maybe have smaller market caps, but also upside potential? Uh, so personally, no, but I can see why people do it because the bull runs.
A lot of those tokens tend to, you know, even outperform Bitcoin in many cases, in terms of percent, uh, gains. Uh, the problem that you've run into is on the down leg of the cycle, you know, Bitcoin's volatile enough, but some of those alt coins falling farther. And then unlike Bitcoin that, you know, it goes to this four year, having cycle keeps making new highs, every cycle, a lot of those other all coins, they, after they have their blow off top, they'd never recovered.
In in later cycles. And so, you know, really the, the two big ones are Bitcoin and Ethereum. Uh, but as you start venturing down to some of those other tokens, uh, that gets increasingly risky and people should be aware of the risks they're taking on. If they want to go outside of Bitcoin, essentially, .