This article is a republishing of “Mimesis Capital: Inside The Event Horizon, Report #14”
Bitcoin Versus Bonds: Asymmetric Assets
Jack Bogle, the founder of Vanguard, popularized the idea of a “60-40 portfolio.” The 60-40 portfolio is the basic idea that passive investors looking to efficiently transfer wealth through time should diversify their assets into 60% stocks and 40% bonds.
If bitcoin’s performance over the last decade tells you anything, it should scream that the 60-40 portfolio is dead.
Yale’s endowment fund is a prime example of forward-thinking asset allocation. As of 2020, the endowment held only 6% of their portfolio in bonds, and they also began stacking bitcoin.
What is the catalyst for this shift by “smart” money?
Why Shift Out Of Bonds Into Bitcoin?
First, bitcoin is the world’s hardest monetary good. It is the only asset with no counterparty risk and no dilution risk and is therefore “the world’s safest asset.”
These two unique characteristics will eventually enable Bitcoin to store a near-infinite amount of wealth. This means that the upside of allocating capital (savings) into bitcoin is orders of magnitude higher than its current market price.
Additionally, the maximum potential downside of using Bitcoin is -100%, meaning that it is only possible to lose what you put in.
These unequal potential outcomes create a unique dynamic called asymmetry.
The potential asymmetric return of Bitcoin becomes even more interesting because it is nearly inevitable in the long run, and total loss is nearly impossible.
In contrast, traditional fiat-denominated debt held by investors as bonds and bank deposits has a similar asymmetric return, but to the downside.
Unlike the case with bitcoin, the potential return of a 10-year US Treasury Note is only 1.63% annually. If you hold the 10-year note to maturity (a total of 10 years), you cannot earn more than that predetermined return (denominated in USD). At best, this would somewhat…