Unit 2: Bitcoin Investment
Why buy and hold Bitcoin? If you simply save in your local fiat currency (USD, GBP, EUR, and so on), you will be losing value over time. In this unit, we will explore this concept and why many people are now turning to Bitcoin as a way to protect themselves from the "melting ice cube" of fiat money. We will also explore Bitcoin's volatility, and whether it must be used as a medium of exchange in the short term to be viable. Bitcoin is moving through phases of evolution, and broadly remains uncorrelated with other assets. Bitcoin detractors also call it a Ponzi scheme or a bubble, or assert that the government will ban it. We will also address these topics.
Completing this unit should take you approximately 2 hours.
Upon successful completion of this unit, you will be able to:
- identify the loss to society from fiat money inflation;
- compare and contrast Bitcoin's monetary qualities with other assets; and
- discuss why Bitcoin is not a pyramid scheme and why it is not likely to be banned worldwide.
2.1: Fiat Money Inflation
Listen to Michael Saylor, the CEO of MicroStrategy, explain his thought process around protecting his company assets from fiat inflation with Bitcoin in this podcast episode. Listen from ~4:55 to 20:04 or read the transcript from "And I didn't pay much attention to macroeconomics until 2020..." until "...where I was conditioned to believe that you could you could get a decent return without becoming an investment analyst, or a speculator". What are some of the traditional investments that Michael mentions in this segment? Are they still suitable? What kind of returns did they offer in the past, and what kind of returns do they offer now?
2.2: Bitcoin Qualities
A common line of reasoning will be that money must be "backed by" something, whether that is another asset, government force, or something else. This article by Parker Lewis is an excellent answer to this challenge. Building on some of the ideas from Unit 1, read this article and see that ultimately it comes down to the credibility of monetary properties. What properties of a money are most important? How does Bitcoin compare against other potential monies? Why is it that government force alone is not enough for some governments, such as those of Venezuela, Argentina, or Turkey?
Read this article. Why do economic systems converge towards a single monetary medium? Why are there large gains to the economy under such a system?
2.3: Ponzis, Bubbles, and Government Bans
As you read this article, consider the utility and innovation of Bitcoin. Also, consider the definition of a pyramid scheme relative to Bitcoin's supply. What are the crucial distinguishing factors outlined in the article?
Read this article. What are the stages of grief in relation to Bitcoin as money? As Bitcoin grows in popularity and use, how feasible will it be for governments to ban or stop Bitcoin? Would it be feasible to shut it down globally?
Unit 2 Recap
Unit 2 Assessment
- Receive a grade
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.