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Bitcoin a new asset class and a hard asset

Bitcoin for beginners course 1 | 03/09


1. Weak assets.

Big companies produce as many stocks and bonds as they want and, by doing so, they become poorer contrary to popular belief. Indeed, the current economic situation allows these companies to reward their shareholders with huge profits increase. But every time one of these businesses buys back its own shares or creates new bonds, it dilutes its assets and the whole company’s worth weakens. All of this is possible because the interest rates are low. The situation is complex and confusing because, on the one hand, the profits earned by these companies are enormous, but it is also difficult to ignore that this prosperity is based on a misunderstanding. Indeed, the wealth created does not correspond to an enrichment and to the creation of value but rather to accounting tricks.

2. Hard assets.

However, a hard asset is difficult to produce because it is scarce. It exists in limited quantities on the planet, and it is extremely difficult to obtain. You can’t create it by a few keystrokes on a computer terminal. A kilo of gold, a Picasso, a Manhattan penthouse are scarce, therefore expensive and practically impossible to replicate. This is not at all the case with the US dollar or the euro. The ultra-rich and the more sophisticated investors are fond of these assets because they allow to preserve wealth against the destructive effects of inflation.

Before bitcoin was created, gold was considered the scariest metal although its annual production is in the order of 1.8% a year.

3. Supply shock.

But bitcoin has a characteristic that cannot be changed because it is written into its base code. Every four years, the number of bitcoins created each day is halved. In technical terms, this is called "Halving" or “halvening”. This produces a supply shock that propels the price of bitcoin to new highs.

Let's quickly explain what is happening. Satoshi Nakamoto predicted that after the production of 210,000 blocks of the blockchain, the "halving" must occur. And since a block is produced on average every ten minutes, it is possible to predict when the "halving" will occur. When the day comes, the production of bitcoin is halved but the number of people wanting to buy bitcoin increases on average by three million per week on a global scale, bitcoins are becoming scarcer and demand increasing, the price goes up sharply.



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