The Bearish Case for Bitcoin

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Key Takeaways

  • Bitcoin must be the preferred store of value to be widely accepted 
  • Bitcoin’s main attack vectors are: Custodial, concerted state attack, supply overhang, and rehypothecation
  • Bitcoin is our “One true hope for liberty, but there have been so many times in history when human liberty has been stamped out by governments.” – Boyapati


Bitcoin as Money

  • Store of value is the most essential aspect of money. Merchants want to accept savings as income.
    • The bitcoin fork of 2017 was due to the debate between the use of BTC as a medium of exchange or a store of value.
  • The pool of savings is the original fount of power, which is why the government wants to control it.
    • Governments lose power if they cannot change the monetary policy of the means of savings through inflation.
  • A useful money is bad money because demand will be shifting. Eg. using wheat or cows as money.
  • The price of the asset reflects its reservation demand.
    • A common misconception is that Ethereum is valuable because of everything being built on top of it and smart contracts. In reality, its the holders that keep the price what it is.
  • Speculation is necessary for monetization and hastens the process according to Boyapati.
  • The financialization of Bitcoin may have eliminated the cycles we have seen in the past.

Evolution of Money

  • Collectible (Gold is shiny, shells are cool)
    • Store of Value
      • Once it plateaus in its purchasing power, it becomes a medium of exchange.
        • Unit of account.
  • Money gets its value from its monetary premium. Which is how well it works as the money.


Custodial Risk

  • Big institutions are entering but they’re not holding their own keys.  
  • If a major crash happens due to the failure of a major custodian, it may take years for buyers to regain confidence  
    • Counter-Argument: Key management has improved drastically. Self-custody culture is strong.


  • In 2008, liquidity disappeared from the system when people realized the loans were bad
  • Now, the financialization of bitcoin is happening and institutions are loaning out bitcoin and giving interest to the lender. If the loans are “bad” there could be a massive liquidity crisis in the Bitcoin market.

Supply Overhang

  • Two Supply Overhangs: Satoshi’s Bitcoin stack and the Mt. Gox Trust overhang
  • Mt. Gox overhang is about 150,000 BTC. If people were to dump the Bitcoin on the market, the price to absorb the shock will be lower.
    • Counter-Argument: These trustees may now just be hodlers. Or large corporations (Saylor?) may be willing to will be willing to buy. And it’s highly unlikely Satoshi’s coins will move.

Federal Reserve Policy

  • The Fed has the power to raise interest rates incentivizing people to save in fiat. The fed did this in 1980, halting the gold bull market.
    • Counter-Argument: America would not be able to service its debt.

Concerted State Attack

  • The state can ban exchanges, hunt down miners, ban ownership or transactions of Bitcoin.
  • The state can get people to do crazy things as we’ve seen recently.
  • Once Bitcoin reaches the market cap of gold, it will face its largest state-sponsored attack according to Vijay.
    • Counter-Argument: There is a growing base of pro-bitcoin politicians. But it’s not nearly enough yet.
CryptoStephan Livera Podcast : , , ,
Notes By Paul Keating

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