The original Chinese version of this article was first published in March 2021. For the Chinese version, see here.

What is Demystification?

In Chinese, "祛" means to eliminate, and "魅" refers to supernatural beings or demons. However, "demystification" (祛魅) isn't a native Chinese term; it's a borrowed word. The German term is "Entzauberung," and the English is "Disenchantment," which has been creatively translated into Chinese as "祛魅," a truly fitting and evocative translation.

German philosopher Max Weber was the first to use the concept of "disenchantment." He used it to describe a secularized Western society—a society devoid of myths and deities. Essentially, it means the world is not mysterious; all "supernatural" phenomena can be scientifically explained, and we should stop deceiving ourselves.

The disenchantment of the world has led us to stop believing in ghosts and gods, with rationality starting to dominate societal development. Of course, rationality isn't omnipotent. There are also many conflicts within rationality itself. We'll discuss these conflicts later, as this knowledge will help deepen your understanding of Bitcoin.

Bitcoin also needs to be demystified because it has been "demonized." As Wall Street money poured in, Bitcoin was no longer temporarily seen as a "demon" (bubble), despite eight Nobel Prize-winning economists still insisting on this view. The facts speak louder than words. However, denying the "bubble" narrative doesn't complete the demystification of Bitcoin.

Bitcoin still needs further demystification because it is being increasingly "mythologized." As Bitcoin prices soar, the voices proclaiming Bitcoin as "divine" grow louder. The most vivid metaphor is that Bitcoin is digital gold, even more golden than gold itself.

Today, I'll try to contribute to the latter half of Bitcoin's demystification, attempting to decouple Bitcoin from gold and pull Bitcoin down from its pedestal. In the first half of Bitcoin's demystification, facing a common enemy—the Bitcoin bubble narrative—enthusiasm for Bitcoin's value was seen as a positive force, promoting Bitcoin's development. But now that the common enemy is defeated, Bitcoin's fervent supporters, especially those who advocate sky-high prices, have become Bitcoin's enemies. So, the next phase of demystification will be even more challenging, not easier.

Why am I doing this? Because I like Bitcoin. I don't want to talk too much about Bitcoin's price because I believe that price is a double-edged sword. Rising prices will eventually kill Bitcoin. In my heart, Bitcoin has a mission, and if Bitcoin dies due to price issues before fulfilling its mission, it would be a foolish and tragic outcome. So today, I'll try to pull Bitcoin down from its "divine" pedestal. If I don't succeed, I'll try again next time.

Many people have linked gold with Bitcoin, but the most famous is economist Paul Krugman, the 2008 Nobel Prize winner in Economics. However, he didn't say anything positive. On the contrary, he predicted that Bitcoin would ultimately fail.

On September 7, 2011, Krugman coined the term "Golden Cyberfetters" specifically for Bitcoin and wrote a blog post under this title. To explain, "Golden Cyberfetters" originally came from "Golden fetters," a term used to criticize the gold standard. Many economists believe that the deflation caused by the gold standard led to the Great Depression of the 1930s.

Krugman argued that Bitcoin, compared to gold, is not scarce but even scarcer, with only 21 million in total. He described Bitcoin as a new gold standard for the digital age, which would eventually lead to "hoarding, deflation, and depression."

"So to the extent that the experiment tells us anything about monetary regimes, it reinforces the case against anything like a new gold standard—because it shows just how vulnerable such a standard would be to money-hoarding, deflation, and depression."

For more about Krugman's love-hate relationship with Bitcoin, I recommend checking out an article I wrote previously. It's quite entertaining.

However, nowadays, seeing Bitcoin as gold is more of a compliment. Previously, Bitcoin was mostly viewed as a bubble. Going from bubble to gold should be considered progress, right? So why is it wrong now?

Because it's 2021, and Bitcoin has been around for 12 years. The development of Bitcoin forces us to discard the "gold" concept crutch as soon as possible. Purely from the sensitive point of "price," Bitcoin can no longer be considered gold.

Eleven years ago, if you spent one dollar on Bitcoin and another on gold, how would your returns differ?

68 million times.

The chart below vividly illustrates this point: Bitcoin and gold are now "worlds apart."

Here's an even flashier chart that seems eager to let everyone know how valuable Bitcoin is. The chart comes from the website Bitcoin Priced in Gold, where they priced Bitcoin directly in gold ounces rather than dollars. Today, one Bitcoin is worth 30 ounces (850.5 grams) of gold.

After seeing these two charts, do you agree that calling Bitcoin "gold" or "digital gold" is a bit inappropriate?

There's another crucial point: gold can be infinitely abundant, but Bitcoin cannot.

You already know there are only 21 million Bitcoins, as was established from the start. But how much gold is there? According to the World Gold Council, the total gold reserves on Earth are 197,576 tonnes, with an additional 54,000 tonnes yet to be mined. If all this gold were put together, it would form a pure gold cube with sides measuring 21 meters.

Total Gold Reserves (as of the end of 2019): 197,576 tonnes

1. Jewelry: 92,947 tonnes (47.0%)

2. Private Investment: 42,619 tonnes (21.6%)

3. Official Holdings: 33,919 tonnes (17.2%)

4. Other: 28,090 tonnes (14.2%)

5. Underground Reserves: 54,000 tonnes

Sources: Gold Mining Services, Thomson Reuters, US Geological Survey, World Gold Council

Do you think that's all? Note that the earlier figures are limited to "on Earth." The BBC reported that there's gold on the moon as well.

Even after the moon's gold is mined, there's no need to worry. We can continue "producing" gold. As early as 1924, Japanese physicist Hantaro Nagaoka successfully synthesized "gold" using a simple method: neutron bombardment of mercury. Nowadays, gold can be produced by irradiating platinum or mercury in a nuclear reactor.

"Gold can currently be manufactured in a nuclear reactor by irradiation either of platinum or mercury."

Of course, this method of producing gold is costly, troublesome, and unsafe, as it requires a nuclear reactor. But theoretically, it's possible, and when the need arises, you can believe that someone will indeed do it. Never underestimate human creativity. Just look at how specialized mining ASICs were developed. Producing gold is indeed challenging.

Interestingly, the knowledge of synthetic gold is only available on English Wikipedia, not the Chinese version. The reasons may be many, but you don't need to delve into them. Just know that learning English is crucial. The internet world is different from the world around you—60.7% of the content is in English, while the Chinese content you're familiar with is only 1.4%. In the future, if you only know Chinese, you're practically illiterate. This might sound a bit extreme, but it's meant to inspire your enthusiasm for learning English.

Alright, back to the topic. I've been tirelessly comparing the price and quantity differences between Bitcoin and gold for one reason: to help you decouple Bitcoin from gold.

However, don't assume that Bitcoin can fully replace gold. Bitcoin still lacks one crucial quality.

The most straightforward issue is that Bitcoin is less stable than gold. Stability means not fearing risk, and gold can be a good safe-haven asset.

"Gold in troubled times" embodies this idea. The saying "antiques in prosperous times" also applies here, as seasoned investors would know. You might think Bitcoin could be the "antique," but don't be naive; it's definitely not. Bitcoin is something with vitality, with even more challenging tasks to accomplish. We'll delve into this later.

But Bitcoin has not proven itself as a safe haven, as evidenced during the COVID-19 pandemic.

This chart vividly shows that Bitcoin does not have the ability to counteract bear market risks. When the stock market plummeted during the COVID-19 outbreak, Bitcoin's price also declined. Here's a small tip worth learning: the S&P index and Bitcoin's prices are very different. To eliminate these differences, a baseline is chosen, and subsequent data is compared to each asset's baseline. This chart uses February 19, 2020, as the baseline, setting the S&P 500 index and Bitcoin's price to 100 on that day, with subsequent values compared accordingly.

This chart comes from a 2020 academic paper titled "Safe haven or risky hazard? Bitcoin during the Covid-19 bear market," which has been cited 90 times on Google Scholar. The authors concluded that Bitcoin, based on its performance during the COVID-19 pandemic, cannot be considered a safe haven asset. Including Bitcoin in a portfolio increases risk.

"Examining the impact upon an S&P 500 portfolio diversified with an allocation to Bitcoin, our results indicate that Bitcoin does not act as a safe haven. During the period under consideration, we find that the S&P 500 and Bitcoin move in lockstep, resulting in increased downside risk for an investor with an allocation to Bitcoin."

So how did gold perform during this period? To satisfy your curiosity, see the chart below.

Do you see it? It seems gold didn't fare well this time either. It dropped from $1611.35 to below $1470.9. For convenience, we converted gold prices. If we set $1611.35 as 100, then $1470.9 is equivalent to 91.28. By combining the two charts, you'll reach a different conclusion.

The red arrows represent the starting and ending points of gold prices, with fluctuations omitted. This time, you should see clearly that although gold prices also fell, the drop was much smaller than the S&P 500 and even smaller than Bitcoin's. In other words, buying gold during this period could minimize losses. Therefore, gold can be a safe-haven asset against the S&P index, while Bitcoin cannot.

Bitcoin is not a safe-haven asset. There's not much theory behind this; it's mainly based on historical performance.

However, remember that just because Bitcoin can't be a safe haven now doesn't mean it will never be. Stocks, gold, and Bitcoin all emerged slowly, and people need time to understand them. We must always pay attention to new situations and changes. After all, economics is different from physics. In human society, there are few axioms or theorems; more often than not, consensus rules.

Remembering that Bitcoin isn't a safe haven is as important as knowing that no one is perfect. Because I'm worried that the following content might undo my efforts to "demystify" Bitcoin. Of course, if you remember more of Bitcoin's other shortcomings, that would be even better. For instance, Bitcoin is an embarrassingly high-energy-consuming high-tech product.

The following content also comes from summarizing historical experiences, based on comparisons, not derived through rigorous logical reasoning, and is easily overturned by future experiences.

I'll say it tentatively; you listen tentatively.

Bitcoin ascended to the divine altar by becoming "the most investable asset." As I say this, I feel a bit uneasy.

Because this is clearly a "bold" conclusion. It's not just "blowing one's own trumpet," it's "arrogant." Fortunately, this conclusion is supported by data. Let's see if it holds water. This conclusion was drawn by Chris Burniske and Adam White.

They didn't directly say, "Bitcoin is the most investable asset," but expressed it through Bitcoin's Sharpe ratio. See the chart below: as of May 6, 2016, Bitcoin's Sharpe ratio over the past 1 to 5 years was relatively high. Except for the past 2 years, where it was lower than the stock and real estate markets, Bitcoin's Sharpe ratio far surpassed other assets. You also noticed that this data is a bit old, only up to May 2016. But that's not a problem; there will be more recent data shortly.

Now, your main concern is whether a high Sharpe ratio means this asset is the most investable? Of course, it does.

Let's briefly explain what the Sharpe ratio is.

Starting with something you're more familiar with: the return rate. High returns make an asset worth investing in. This is common sense, but it's not scientific because it doesn't consider risk, so it can't be a basis for investment decisions. For example, selling "white powder" surely makes more money than selling flour, right? But many people are unwilling to do it because the risk is too high, even life-threatening. Therefore, high returns alone cannot determine whether an investment is good or bad. Hence the Sharpe ratio, which considers both returns and risks.

To make each investment's Sharpe ratio comparable, a risk-free asset must be chosen as a benchmark, and each asset's Sharpe ratio is calculated relative to this risk-free benchmark. The above calculations used the US 3-month Treasury bill as the risk-free asset. Once the different assets' Sharpe ratios are calculated, it becomes clear: the higher the Sharpe ratio, the more investable the asset. I hope I've explained the Sharpe ratio clearly. If you understand, remember to give a thumbs up.

Another point to note: such significant results weren't specially published but were hidden in an article co-authored by the authors. Why?

Below is a screenshot of the cover of that article.

Note the three logos in the top right corner, larger than the article's title—ARK, Coinbase, GDAX. It's clearly a blatant "puff piece," or the article was sponsored by these three institutions, or this is simply a work-for-hire by the two authors. Chris Burniske is a blockchain analyst and product manager at ARK Invest, and Adam White is Coinbase's head of business development strategy.

To their credit, the three institutions didn't hide their identities; instead, they chose to openly emphasize them. In larger text than the title, they told everyone that they wrote this article. Whether you read it or not is up to you. As for these institutions, we'll discuss them later. Let's first see if anyone actually read the article.

The article titled "Bitcoin: Ringing the Bell for a New Asset Class" was published on June 2, 2016. I read it carefully—it's logically rigorous, well-argued, and all viewpoints are supported by data, without subjective conjecture or nonsense. At least it's of much higher quality than some papers from non-commercial institutions in China. The article has been cited 64 times on Google Scholar, indicating it's a decent paper worth reading.

About the Sharpe ratio, don't be too obsessed, thinking you've found the ultimate investment tool. Because scammers can also manipulate data to make a Ponzi scheme's Sharpe ratio look exceptionally high. The reason Bitcoin's Sharpe ratio is still somewhat credible is that Bitcoin's trading is global, making manipulation challenging.

Are you intrigued by the article's title, "Bitcoin: Ringing the Bell for a New Asset Class"? The authors used an entire article to tell us that Bitcoin is a new asset class. Is that necessary? It seems as obvious as 1+1=2 today, right?

But if you return to the historical context, you'll find that Bitcoin was under comprehensive "siege" from academia, politics, and business at that time.

On December 4, 2013, renowned economist and former Federal Reserve Chairman Alan Greenspan stated that Bitcoin was a bubble without intrinsic monetary value.

On March 1, 2014, Robert Shiller, who had just won the Nobel Prize in Economics in 2013, wrote in The New York Times that Bitcoin exhibited many characteristics of a speculative bubble.

On March 14, 2014, renowned investor Warren Buffett said on CNBC, "Stay away from Bitcoin. It's basically a mirage."

You can probably feel how much Bitcoin needed a different voice, a fair word, at that time. So ARK, Coinbase, and GDAX came together to release this article. They didn't claim Bitcoin was great; they simply stated that Bitcoin, in the cryptocurrency space, was a new asset class. How humble and low-key is that?

Clearly, these institutions caught the zeitgeist, and they seem to have taken off. In fact, they have:

ARK Invest, founded in 2014, is a U.S. investment firm that managed $50 billion in assets as of February 2021. The Wall Street Journal reported that the company's investment returns from 2014 to 2020 were as high as 39%, outperforming the S&P 500 index.

Coinbase, founded in 2012, is the first U.S.-licensed cryptocurrency exchange, offering Bitcoin brokerage and storage services in over 190 countries. In 2020, its revenue reached $1.285 billion, with a net income of $127.5 million. GDAX, later renamed Coinbase Pro, is now a more secure cryptocurrency trading service for professional investors provided by Coinbase.

One more point: was Bitcoin, identified as the most investable asset in 2016 based on the Sharpe ratio, still so today? Here's a website with the latest Bitcoin Sharpe ratio.

Do you see it? Even now, Bitcoin's Sharpe ratio remains the highest. It seems Bitcoin's divine days are far from over.

Bitcoin's price is experiencing positive feedback, self-reinforcing. To experience the power of positive feedback, find a venue, place a microphone in front of a speaker, and then gently cough into

the microphone. Soon, you'll hear a piercing screech.

Currently, the optimism about Bitcoin is growing increasingly high and outlandish. This article even used "Bitcoin+Gold=Bold" as the title, playing on the substitution of gold's first letter with Bitcoin's.

I must admit that Bitcoin's price will continue to rise because of "positive feedback" and because more people will recognize Bitcoin's value. However, I firmly believe that Bitcoin's price can't rise forever.

The second half of "Bitcoin Demystification" may be an impossible task, unless a black swan event occurs, or Bitcoin can be reborn after a catastrophe. But if that happens, it might be too late.

Perhaps this is the harsh truth, which we must face with resilience; Perhaps, in the end, we are powerless, but we must give it our all.

The original Chinese version of this article was first published in March 2021. For the Chinese version, see here.

What is Demystification?

In Chinese, "祛" means to eliminate, and "魅" refers to supernatural beings or demons. However, "demystification" (祛魅) isn't a native Chinese term; it's a borrowed word. The German term is "Entzauberung," and the English is "Disenchantment," which has been creatively translated into Chinese as "祛魅," a truly fitting and evocative translation.

German philosopher Max Weber was the first to use the concept of "disenchantment." He used it to describe a secularized Western society—a society devoid of myths and deities. Essentially, it means the world is not mysterious; all "supernatural" phenomena can be scientifically explained, and we should stop deceiving ourselves.

The disenchantment of the world has led us to stop believing in ghosts and gods, with rationality starting to dominate societal development. Of course, rationality isn't omnipotent. There are also many conflicts within rationality itself. We'll discuss these conflicts later, as this knowledge will help deepen your understanding of Bitcoin.

Bitcoin also needs to be demystified because it has been "demonized." As Wall Street money poured in, Bitcoin was no longer temporarily seen as a "demon" (bubble), despite eight Nobel Prize-winning economists still insisting on this view. The facts speak louder than words. However, denying the "bubble" narrative doesn't complete the demystification of Bitcoin.

Bitcoin still needs further demystification because it is being increasingly "mythologized." As Bitcoin prices soar, the voices proclaiming Bitcoin as "divine" grow louder. The most vivid metaphor is that Bitcoin is digital gold, even more golden than gold itself.

Today, I'll try to contribute to the latter half of Bitcoin's demystification, attempting to decouple Bitcoin from gold and pull Bitcoin down from its pedestal. In the first half of Bitcoin's demystification, facing a common enemy—the Bitcoin bubble narrative—enthusiasm for Bitcoin's value was seen as a positive force, promoting Bitcoin's development. But now that the common enemy is defeated, Bitcoin's fervent supporters, especially those who advocate sky-high prices, have become Bitcoin's enemies. So, the next phase of demystification will be even more challenging, not easier.

Why am I doing this? Because I like Bitcoin. I don't want to talk too much about Bitcoin's price because I believe that price is a double-edged sword. Rising prices will eventually kill Bitcoin. In my heart, Bitcoin has a mission, and if Bitcoin dies due to price issues before fulfilling its mission, it would be a foolish and tragic outcome. So today, I'll try to pull Bitcoin down from its "divine" pedestal. If I don't succeed, I'll try again next time.

Many people have linked gold with Bitcoin, but the most famous is economist Paul Krugman, the 2008 Nobel Prize winner in Economics. However, he didn't say anything positive. On the contrary, he predicted that Bitcoin would ultimately fail.

On September 7, 2011, Krugman coined the term "Golden Cyberfetters" specifically for Bitcoin and wrote a blog post under this title. To explain, "Golden Cyberfetters" originally came from "Golden fetters," a term used to criticize the gold standard. Many economists believe that the deflation caused by the gold standard led to the Great Depression of the 1930s.

Krugman argued that Bitcoin, compared to gold, is not scarce but even scarcer, with only 21 million in total. He described Bitcoin as a new gold standard for the digital age, which would eventually lead to "hoarding, deflation, and depression."

"So to the extent that the experiment tells us anything about monetary regimes, it reinforces the case against anything like a new gold standard—because it shows just how vulnerable such a standard would be to money-hoarding, deflation, and depression."

For more about Krugman's love-hate relationship with Bitcoin, I recommend checking out an article I wrote previously. It's quite entertaining.

However, nowadays, seeing Bitcoin as gold is more of a compliment. Previously, Bitcoin was mostly viewed as a bubble. Going from bubble to gold should be considered progress, right? So why is it wrong now?

Because it's 2021, and Bitcoin has been around for 12 years. The development of Bitcoin forces us to discard the "gold" concept crutch as soon as possible. Purely from the sensitive point of "price," Bitcoin can no longer be considered gold.

Eleven years ago, if you spent one dollar on Bitcoin and another on gold, how would your returns differ?

68 million times.

The chart below vividly illustrates this point: Bitcoin and gold are now "worlds apart."

Here's an even flashier chart that seems eager to let everyone know how valuable Bitcoin is. The chart comes from the website Bitcoin Priced in Gold, where they priced Bitcoin directly in gold ounces rather than dollars. Today, one Bitcoin is worth 30 ounces (850.5 grams) of gold.

After seeing these two charts, do you agree that calling Bitcoin "gold" or "digital gold" is a bit inappropriate?

There's another crucial point: gold can be infinitely abundant, but Bitcoin cannot.

You already know there are only 21 million Bitcoins, as was established from the start. But how much gold is there? According to the World Gold Council, the total gold reserves on Earth are 197,576 tonnes, with an additional 54,000 tonnes yet to be mined. If all this gold were put together, it would form a pure gold cube with sides measuring 21 meters.

Total Gold Reserves (as of the end of 2019): 197,576 tonnes

1. Jewelry: 92,947 tonnes (47.0%)

2. Private Investment: 42,619 tonnes (21.6%)

3. Official Holdings: 33,919 tonnes (17.2%)

4. Other: 28,090 tonnes (14.2%)

5. Underground Reserves: 54,000 tonnes

Sources: Gold Mining Services, Thomson Reuters, US Geological Survey, World Gold Council

Do you think that's all? Note that the earlier figures are limited to "on Earth." The BBC reported that there's gold on the moon as well.

Even after the moon's gold is mined, there's no need to worry. We can continue "producing" gold. As early as 1924, Japanese physicist Hantaro Nagaoka successfully synthesized "gold" using a simple method: neutron bombardment of mercury. Nowadays, gold can be produced by irradiating platinum or mercury in a nuclear reactor.

"Gold can currently be manufactured in a nuclear reactor by irradiation either of platinum or mercury."

Of course, this method of producing gold is costly, troublesome, and unsafe, as it requires a nuclear reactor. But theoretically, it's possible, and when the need arises, you can believe that someone will indeed do it. Never underestimate human creativity. Just look at how specialized mining ASICs were developed. Producing gold is indeed challenging.

Interestingly, the knowledge of synthetic gold is only available on English Wikipedia, not the Chinese version. The reasons may be many, but you don't need to delve into them. Just know that learning English is crucial. The internet world is different from the world around you—60.7% of the content is in English, while the Chinese content you're familiar with is only 1.4%. In the future, if you only know Chinese, you're practically illiterate. This might sound a bit extreme, but it's meant to inspire your enthusiasm for learning English.

Alright, back to the topic. I've been tirelessly comparing the price and quantity differences between Bitcoin and gold for one reason: to help you decouple Bitcoin from gold.

However, don't assume that Bitcoin can fully replace gold. Bitcoin still lacks one crucial quality.

The most straightforward issue is that Bitcoin is less stable than gold. Stability means not fearing risk, and gold can be a good safe-haven asset.

"Gold in troubled times" embodies this idea. The saying "antiques in prosperous times" also applies here, as seasoned investors would know. You might think Bitcoin could be the "antique," but don't be naive; it's definitely not. Bitcoin is something with vitality, with even more challenging tasks to accomplish. We'll delve into this later.

But Bitcoin has not proven itself as a safe haven, as evidenced during the COVID-19 pandemic.

This chart vividly shows that Bitcoin does not have the ability to counteract bear market risks. When the stock market plummeted during the COVID-19 outbreak, Bitcoin's price also declined. Here's a small tip worth learning: the S&P index and Bitcoin's prices are very different. To eliminate these differences, a baseline is chosen, and subsequent data is compared to each asset's baseline. This chart uses February 19, 2020, as the baseline, setting the S&P 500 index and Bitcoin's price to 100 on that day, with subsequent values compared accordingly.

This chart comes from a 2020 academic paper titled "Safe haven or risky hazard? Bitcoin during the Covid-19 bear market," which has been cited 90 times on Google Scholar. The authors concluded that Bitcoin, based on its performance during the COVID-19 pandemic, cannot be considered a safe haven asset. Including Bitcoin in a portfolio increases risk.

"Examining the impact upon an S&P 500 portfolio diversified with an allocation to Bitcoin, our results indicate that Bitcoin does not act as a safe haven. During the period under consideration, we find that the S&P 500 and Bitcoin move in lockstep, resulting in increased downside risk for an investor with an allocation to Bitcoin."

So how did gold perform during this period? To satisfy your curiosity, see the chart below.

Do you see it? It seems gold didn't fare well this time either. It dropped from $1611.35 to below $1470.9. For convenience, we converted gold prices. If we set $1611.35 as 100, then $1470.9 is equivalent to 91.28. By combining the two charts, you'll reach a different conclusion.

The red arrows represent the starting and ending points of gold prices, with fluctuations omitted. This time, you should see clearly that although gold prices also fell, the drop was much smaller than the S&P 500 and even smaller than Bitcoin's. In other words, buying gold during this period could minimize losses. Therefore, gold can be a safe-haven asset against the S&P index, while Bitcoin cannot.

Bitcoin is not a safe-haven asset. There's not much theory behind this; it's mainly based on historical performance.

However, remember that just because Bitcoin can't be a safe haven now doesn't mean it will never be. Stocks, gold, and Bitcoin all emerged slowly, and people need time to understand them. We must always pay attention to new situations and changes. After all, economics is different from physics. In human society, there are few axioms or theorems; more often than not, consensus rules.

Remembering that Bitcoin isn't a safe haven is as important as knowing that no one is perfect. Because I'm worried that the following content might undo my efforts to "demystify" Bitcoin. Of course, if you remember more of Bitcoin's other shortcomings, that would be even better. For instance, Bitcoin is an embarrassingly high-energy-consuming high-tech product.

The following content also comes from summarizing historical experiences, based on comparisons, not derived through rigorous logical reasoning, and is easily overturned by future experiences.

I'll say it tentatively; you listen tentatively.

Bitcoin ascended to the divine altar by becoming "the most investable asset." As I say this, I feel a bit uneasy.

Because this is clearly a "bold" conclusion. It's not just "blowing one's own trumpet," it's "arrogant." Fortunately, this conclusion is supported by data. Let's see if it holds water. This conclusion was drawn by Chris Burniske and Adam White.

They didn't directly say, "Bitcoin is the most investable asset," but expressed it through Bitcoin's Sharpe ratio. See the chart below: as of May 6, 2016, Bitcoin's Sharpe ratio over the past 1 to 5 years was relatively high. Except for the past 2 years, where it was lower than the stock and real estate markets, Bitcoin's Sharpe ratio far surpassed other assets. You also noticed that this data is a bit old, only up to May 2016. But that's not a problem; there will be more recent data shortly.

Now, your main concern is whether a high Sharpe ratio means this asset is the most investable? Of course, it does.

Let's briefly explain what the Sharpe ratio is.

Starting with something you're more familiar with: the return rate. High returns make an asset worth investing in. This is common sense, but it's not scientific because it doesn't consider risk, so it can't be a basis for investment decisions. For example, selling "white powder" surely makes more money than selling flour, right? But many people are unwilling to do it because the risk is too high, even life-threatening. Therefore, high returns alone cannot determine whether an investment is good or bad. Hence the Sharpe ratio, which considers both returns and risks.

To make each investment's Sharpe ratio comparable, a risk-free asset must be chosen as a benchmark, and each asset's Sharpe ratio is calculated relative to this risk-free benchmark. The above calculations used the US 3-month Treasury bill as the risk-free asset. Once the different assets' Sharpe ratios are calculated, it becomes clear: the higher the Sharpe ratio, the more investable the asset. I hope I've explained the Sharpe ratio clearly. If you understand, remember to give a thumbs up.

Another point to note: such significant results weren't specially published but were hidden in an article co-authored by the authors. Why?

Below is a screenshot of the cover of that article.

Note the three logos in the top right corner, larger than the article's title—ARK, Coinbase, GDAX. It's clearly a blatant "puff piece," or the article was sponsored by these three institutions, or this is simply a work-for-hire by the two authors. Chris Burniske is a blockchain analyst and product manager at ARK Invest, and Adam White is Coinbase's head of business development strategy.

To their credit, the three institutions didn't hide their identities; instead, they chose to openly emphasize them. In larger text than the title, they told everyone that they wrote this article. Whether you read it or not is up to you. As for these institutions, we'll discuss them later. Let's first see if anyone actually read the article.

The article titled "Bitcoin: Ringing the Bell for a New Asset Class" was published on June 2, 2016. I read it carefully—it's logically rigorous, well-argued, and all viewpoints are supported by data, without subjective conjecture or nonsense. At least it's of much higher quality than some papers from non-commercial institutions in China. The article has been cited 64 times on Google Scholar, indicating it's a decent paper worth reading.

About the Sharpe ratio, don't be too obsessed, thinking you've found the ultimate investment tool. Because scammers can also manipulate data to make a Ponzi scheme's Sharpe ratio look exceptionally high. The reason Bitcoin's Sharpe ratio is still somewhat credible is that Bitcoin's trading is global, making manipulation challenging.

Are you intrigued by the article's title, "Bitcoin: Ringing the Bell for a New Asset Class"? The authors used an entire article to tell us that Bitcoin is a new asset class. Is that necessary? It seems as obvious as 1+1=2 today, right?

But if you return to the historical context, you'll find that Bitcoin was under comprehensive "siege" from academia, politics, and business at that time.

On December 4, 2013, renowned economist and former Federal Reserve Chairman Alan Greenspan stated that Bitcoin was a bubble without intrinsic monetary value.

On March 1, 2014, Robert Shiller, who had just won the Nobel Prize in Economics in 2013, wrote in The New York Times that Bitcoin exhibited many characteristics of a speculative bubble.

On March 14, 2014, renowned investor Warren Buffett said on CNBC, "Stay away from Bitcoin. It's basically a mirage."

You can probably feel how much Bitcoin needed a different voice, a fair word, at that time. So ARK, Coinbase, and GDAX came together to release this article. They didn't claim Bitcoin was great; they simply stated that Bitcoin, in the cryptocurrency space, was a new asset class. How humble and low-key is that?

Clearly, these institutions caught the zeitgeist, and they seem to have taken off. In fact, they have:

ARK Invest, founded in 2014, is a U.S. investment firm that managed $50 billion in assets as of February 2021. The Wall Street Journal reported that the company's investment returns from 2014 to 2020 were as high as 39%, outperforming the S&P 500 index.

Coinbase, founded in 2012, is the first U.S.-licensed cryptocurrency exchange, offering Bitcoin brokerage and storage services in over 190 countries. In 2020, its revenue reached $1.285 billion, with a net income of $127.5 million. GDAX, later renamed Coinbase Pro, is now a more secure cryptocurrency trading service for professional investors provided by Coinbase.

One more point: was Bitcoin, identified as the most investable asset in 2016 based on the Sharpe ratio, still so today? Here's a website with the latest Bitcoin Sharpe ratio.

Do you see it? Even now, Bitcoin's Sharpe ratio remains the highest. It seems Bitcoin's divine days are far from over.

Bitcoin's price is experiencing positive feedback, self-reinforcing. To experience the power of positive feedback, find a venue, place a microphone in front of a speaker, and then gently cough into

the microphone. Soon, you'll hear a piercing screech.

Currently, the optimism about Bitcoin is growing increasingly high and outlandish. This article even used "Bitcoin+Gold=Bold" as the title, playing on the substitution of gold's first letter with Bitcoin's.

I must admit that Bitcoin's price will continue to rise because of "positive feedback" and because more people will recognize Bitcoin's value. However, I firmly believe that Bitcoin's price can't rise forever.

The second half of "Bitcoin Demystification" may be an impossible task, unless a black swan event occurs, or Bitcoin can be reborn after a catastrophe. But if that happens, it might be too late.

Perhaps this is the harsh truth, which we must face with resilience; Perhaps, in the end, we are powerless, but we must give it our all.