Bitcoin: Why You Should Care

A letter I wrote to my current students before they graduate

Dear Students,

We are just about at the end of the semester. Many of you will graduate from Texas A&M in just a few weeks. Over the last several months, we have spent a lot of time understanding and interpreting financial statements. This class is one of the bedrock classes in every business school across the country.

But we did something different; we talked a lot about Bitcoin. We talked a bit about Bitcoin economics. We valued Bitcoin companies like MicroStrategy and Bitcoin mining companies. We also visited one of the largest Bitcoin mines in North America, Riot Blockchain, in Rockdale, Texas. I want to write about why Bitcoin matters, and why it is worth studying and caring about, in the context of your life and career.

The education you have received up until now at the Mays Business School has focused on mastering a set of quantitative skills in accounting and finance, practicing qualitative reasoning through management and marketing, and developing good relationships. All of these are important skills, and they will help you. But Bitcoin represents a tectonic shift in finance and economics that is, in my opinion, starkly different from the education that you have received, and different from the conventional mental models of business education today. Because Bitcoin is poised for growth, paying attention to those differences and leaning into them is important.

We’ve already shown in class and homework that Bitcoin has been the best-performing asset in the last decade, with an average annual return thus far of over 150%. Even if you bought at the peak and sold at the bottom, if you held for a long enough horizon you would still eclipse the market return. So this should certainly pique your curiosity about Bitcoin, given this unusual fact by itself.

But this is not the only reason to care about Bitcoin. Ultimately, Bitcoin is unique because it reasons from first principles, deeply utilizes technology, and aims to solve of the biggest problems in human society today. So, let’s go through each of these, which I will frame in terms of life advice for you.

1. Lean into technology. Your business education thus far certainly requires the use of technology. You have built financial models in Excel, programmed in Tableau or Visual Basic, discussed Porter's Five Forces, or used Bloomberg terminals for valuing stocks and bonds. Bitcoin goes deeper. It operates in the weeds of the computer and the internet, and rests on 50 years of mathematics, computer science, and cryptography. But you don’t need to invent Bitcoin to capture some of its returns. Many of the early investors in Bitcoin were simply curious about the technology itself. And that curiosity led them to understand the power of digital scarcity, Bitcoin’s core feature.

   Steer your career and decisions much closer to technology. Whatever you’re planning, increase it by a factor of 10 or 100. As Bitcoin has shown, technology has the ability to radically overturn existing models of the world. Bitcoin is already rebuilding the financial system on an entirely new foundation. In every way possible, orient your career and projects towards more technical areas. Even if you can’t predict the wind, get your sail up so that your boat can catch it when it comes. Pick teams, projects, companies, and industries that are close to the technical frontier. Bitcoin proves the power of technology and it is an important lesson to heed.

2. Reason from first principles. There’s a lot of technology today out there; the biggest now is AI. What differentiates Bitcoin from AI is the insistence on first principles. Bitcoin has a few core principles that run through its entire design. These are: distribute power locally away from central actors; use incentives, not mandates; build on the existing intellectual infrastructure. All these principles run through the entire software. Bitcoin is unique for its intellectual coherence and stands apart from much of technology for that reason.

   The more you can follow this example, the better. Don't just follow the herd. Identify and develop principles that you believe to be true, and adhere to them. In many ways, our country also began under a set of principles: the separation of powers, freedom over monarchy, the primacy of individual rights. Our constitution was not a specific blueprint to follow but a set of principles to guide an unknown future.

3. Aim high. Technology can be used to solve all kinds of problems. But within the pantheon of problems, pick one that is fundamental and has profound human impact. Bitcoin is not just another dating app or social network. It goes for the jugular, developing a new form of digital money. You might think that we've already had versions of this with PayPal and Venmo, but those companies just work off of the existing monetary system set by the Federal Reserve over 100 years ago that we are all a part of today. Bitcoin started from scratch, with the aim of developing an entirely new form of money outside of the fiat system. It's a tall order and requires a lot of math, code and, most importantly, conviction to make it happen.

   Bitcoin is proof that it's worth aiming high. If you dedicate yourself to solving a seemingly impossible problem, you just might be able to do it. For this reason, it is a paragon of human achievement, a deeply inspiring example of what humankind can do. This is the most important reason why I stay connected to Bitcoin. It is easy to become jaded and disillusioned today with all that goes wrong. Bitcoin is a reminder that the glass is half full, and that your only limit in this lifetime is your own imagination.

I hope you have learned how to value companies and understand their financial statements this semester. But I also hope that, going forward, you will pay special attention to Bitcoin, the most radical and inspiring innovation of our time. Bitcoin can transform not just your portfolio, but your worldview. For the better.