Why One of the Smartest Investors Bought Bitcoin and Thinks You Should Too

On What Bitcoin Did podcast, ARK Invest’s CEO Cathie Wood shed some light Bitcoin (BTC -0.39%). Perhaps the most exciting, but not the most important, part of the interview was that she finally revealed for the first time when she originally bought Bitcoin. Back in 2015, Wood bought $100,000 in Bitcoin when the price was hovering around $250. This investment is worth around $7.5 million today.

Wood’s belief in Bitcoin has only grown since 2015. When her firm began researching the world’s first cryptocurrency, she said they quickly realized that Bitcoin had the potential to be “one of the most profound innovations of our time.”

Gold, Dollar and Bitcoin

During the initial research of Bitcoin, Wood and her team worked with one of the world’s most prominent economists with expertise in monetary policy, Art Laffer. Laffer served under President Ronald Reagan on the Economic Policy Advisory Board and has been active in economic policy on the national and international stage ever since.

Wood said it was Laffer’s analysis of Bitcoin that led her to make her first purchase. She said Laffer was in awe of the dynamics behind Bitcoin. As she put it, Laffer said she had been looking for a currency like Bitcoin “since we went off the gold exchange standard.”

Before the United States left the gold standard in 1973, the value of the dollar was fixed in relation to the price of gold. It is believed by many that the gold standard curbed the issuance of money and subsequently stopped inflation because the amount of physical gold held by a government acted as a limit to the creation of new money.

After the gold standard was dropped, there was little to deter the government from printing more money or manipulating monetary policy. When a government can control the money supply, it can finance any agenda or project regardless of how popular it is or not. This is simplified to maintain brevity, but theoretically all it needs to do is print more money and it can come up with the funding. Today, the dollar lacks the intrinsic value qualities it had when it was on the gold standard, and is almost constantly inflated to finance government budgets.

As the state takes on more costs, the subsequent debt burden increases. To get a better idea, we can take a look at the US national debt, which has increased by more than 6,500% since 1973. Some debt is considered healthy, but a balance sheet with an exorbitant liability compared to assets can create problems for economies when this debt must eventually be paid.

Like gold, but better

Laffer was not a big fan of the current monetary standard, and when he discovered that Bitcoin had many properties that were better than gold, he was sold on its potential. Bitcoin one-top gold. Unlike gold, Bitcoin is private, digital, easily divisible and rules-based.

Let’s unpack it one by one because Wood believes that each of these characteristics makes Bitcoin even more valuable than gold. First, because Bitcoin runs on a blockchain, which means all transactions are encrypted and pseudonymous. Transactions on the blockchain cannot be changed, and they can only be stopped if the user does not have enough funds.

Second, Bitcoin is digital. This makes it much more portable than gold and even dollars. Bitcoin holders only need a digital wallet on their phone or computer to hold or transfer value. If you lose your phone, your funds are protected and you can access your money by entering your unique password on another device. In addition, digital money serves an integral role in the age of the Internet that gold or dollars fall short.

Bitcoin is also easy to share. Although the price is around $20,000 today, users can send and receive fractions of Bitcoin with just the push of a button. You don’t need to carry extra money, find bigger or smaller bills in your wallet or carry around gold bullion (although of course almost no one does).

Finally, Bitcoin runs on specific rules. It is a limited offer that cannot be inflated or manipulated. That means no government can interfere with how it operates or even block transactions.

Most importantly, it does all this without any centralized authority overseeing it. Instead of a person or agency running it, computers, referred to as nodes, around the world run the Bitcoin blockchain to ensure it remains decentralized and functions without disruption.

Bitcoin’s potential

Considering all this, Wood needed no further convincing. She made her original purchase and continues to hold onto her original investment. But since 2015 a lot has changed. Bitcoin peaked at nearly $70,000 in November 2021, and its rise to prominence has even led to publicly traded companies that Tesla keeping some on the balance sheet as an alternative to cash, further legitimizing it as a viable asset.

It has been nothing less than an astronomical rise. Still, Wood believes Bitcoin has more in store. In her and Laffer’s opinion, Bitcoin may have a value roughly equal to the value of the entire US monetary base. During their research in 2015 when they originally suggested this, the figure was around $4.25 trillion. If Bitcoin’s market cap reached this mark, it would mean that one Bitcoin would be worth close to $215,000 – a far cry from its current price of $20,000.

So what’s Wood’s best advice? Please be patient. She said that by investing with a time horizon of more than 10 years and ignoring price fluctuations, “you’re going to win.”