Bitcoin – The Ultimate Bearer Asset?

As you already know, there’s a lot of things to love about Bitcoin. You can use it to protect your wealth from debasement, send permissionless transactions, and move money across borders with zero friction.

And best of all, Bitcoin allows you to ‘be your own bank’ and secure your wealth without any third parties or counterparty risk.

These are all mighty fine features!

But there’s another reason to love Bitcoin that perhaps doesn’t get the attention it deserves. What’s often underappreciated about Bitcoin is that because you can hold it in full self-custody, it holds the title of being the world’s ultimate bearer asset!

But what exactly does that mean?

A bearer asset is a type of financial instrument or property that grants ownership rights to the individual who is in physical possession of it, without the need for any other additional documentation or registration. Ultimately, whoever "bears" or holds the asset is considered its owner and beneficiary.

You can own all sorts of assets, but few would be considered a true ‘bearer asset’. Registered assets like stocks or even real estate require a central authority to verify ownership, whereas with a true bearer asset simple possession is proof enough.

Common examples of bearer assets would include things like physical cash, bearer bonds, and in some cases precious metals. With bearer assets, the fact you have it in your hand is verification enough that you own it.

Bearer assets are attractive because they are often more portable, more convenient, and more private than assets where a third party is required to verify ownership.

Bitcoin has these same benefits. If you hold the private keys to your Bitcoin wallet, then you’re the only one who can prove ownership and benefit from being able to transact with it. Holding your private keys equates to ownership in the same way that holding dollar bills would.

But not only is Bitcoin a bearer asset, it’s the ultimate bearer asset. Unlike cash, it can’t be debased, becoming worth less and less over time. Unlike precious metals, it’s easy to transport and transact with. And unlike bearer bonds, it doesn’t come with any counterparty risk (holding bonds doesn’t guarantee your counterparty will honour the interest payments on them).

Being able to hold your wealth in a bearer instrument like Bitcoin is a great way to gain more autonomy, more privacy and avoid the risks of trusting third parties. But there is yet another enormous benefit to bearer assets that should not be overlooked!

Bearer assets come with zero ‘carry cost’.

They allow you to hold your wealth with no ongoing storage fees, no management fees, and no hidden charges being levied by third parties. Unlike other assets, bearer assets allow you store your wealth without incurring ongoing expenses.

This is more important than a lot of people realise. Not having the burden of servicing carry costs can significantly accelerate the rate at which you can grow your wealth. Especially over a meaningful timeframe.

Let’s do some basic maths and demonstrate why Bitcoin being a bearer asset with zero carry cost is one of the features that you should probably love most…

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Paying Fees to Custody Your Bitcoin?

Despite Bitcoin being the world’s ultimate bearer asset it’s remarkable how many people negate these benefits completely by trusting third party institutions to help custody their Bitcoin.

There are countless drawbacks to this approach. You lose any semblance of privacy; you lose a lot of autonomy, you reintroduce counterparty risk, and in a lot of cases you find yourself once again asking permission from a third party to access your own money.

You took the world’s ultimate bearer asset and thoroughly neutered it.

But one of the most overlooked drawbacks to involving financial institutions in your custody setup is the carry cost. The ongoing financial burden of introducing rent seekers to help look after your wealth.  

Never Pay% Based Fees to Custody Your Bitcoin

Some Bitcoin custody providers charge % based fees on the amount of Bitcoin you custody with them. Typically you’ll see rates of around 1% per annum.

At first glance this doesn’t seem particularly noteworthy. The fee appears relatively small. But dwell on it a little longer and you realise that a % based fee means that the more Bitcoin you hold, the more expensive the service becomes.

That’s not a service fee. That’s a wealth tax.

And the problems don’t stop there.

If you regularly add to your stack and it grows larger? Well that means your fees will go up too. You’ll be punished for being prudent and saving money in Bitcoin.

And if you’re just holding? Well, you’ll get punished by Bitcoin’s success. For the past 5 years Bitcoin has performed at a Compound Annual Growth Rate (CAGR) of over 50% compared to the dollar. If your stack continues to appreciate at that pace, then in dollar terms, the % based fee you pay to custody your Bitcoin will get more expensive VERY quickly.

The significance of that last point can only truly be appreciated if we run some numbers.

So, let’s build a scenario that demonstrates just how quickly a 1% annual fee can add up to an eye-watering expense if Bitcoin does what we all expect it to do, and rockets in value over the next decade:

The Scenario - Bob the Bitcoiner:

Meet Bob the Bitcoiner. He’s been stacking for a few years and recently reached a huge milestone. He now owns one whole Bitcoin! Understandably, he wants to keep it safe and has plans to hold it for the long term. Let’s build a picture of Bob’s plans and then work out how much it costs him to custody his Bitcoin with a third party charging 1% per annum.  

The core assumptions:

• Bob owns 1 whole Bitcoin currently worth $90,000.
• Bob has decided to keep his 1 BTC in collaborative custody.
• His collaborative custody fees amount to 1% of his stack every year.
• Bob plans to hold this Bitcoin for ten years.
• Bitcoin appreciates at CAGR of 50% for the next decade.

The Questions We Want to Answer:

1. How much will 1 Bitcoin be worth in 10 years with a CAGR of 50% from a starting price of $90,000?
2. With a 1% annual fee, how much Bitcoin did Bob spend on custody fees over 10 years?
3.  What % of Bob’s Bitcoin stack was spent on custody fees over the 10-year period?
4. With Bitcoin performing at a CAGR of 50%, what would the Bitcoin that Bob spent on fees be worth in dollar terms the ten-year period?  

Running The Numbers (Verify Don’t Trust):

Below we will run the numbers to establish answers to each of the questions above. Given this is a Bitcoin newsletter, we know you’d prefer to verify things for yourself instead of just trusting our answers, so you can find our workings below:

Question 1:

How much will 1 Bitcoin be worth in 10 years with a CAGR of 50% from a starting price of $90,000?

To figure out how much Bob will pay in fees in both Bitcoin and dollar terms during his ten-year hodl, we first need to figure out what Bitcoin would be worth in dollars after ten years at a CAGR of 50%. we can calculate this using the following formula:

Future Value = Present Value * (1+CAGR) ^n

Where:

• Present Value = $90,000
• CAGR = 50% (0.50)
• n = 10 years

Calculation:

  $90,000 × (1 + 0.50) ^ 10
= $90,000 × 1.50^10
= $90,000 × 57.665
= $5,189,850

Answer:

With a starting price of $90,000 and a CAGR of 50%, 1 Bitcoin will be worth $5,189,850 in 10 years. This is tremendous news for Bob! He’s made an absolute mint!

Question 2:

With a 1% annual fee, how much Bitcoin did Bob spend on custody fees over 10 years?

Bob starts with 1 Bitcoin, and the fee is 1% of his stack annually. This means his fee in year one will be 0.01 Bitcoin leaving him with 0.99 BTC.

Because Bob’s fees are charged annually as % of his total stack, in year 2 his fee will be slightly smaller, as he is now only being charged 1% of 0.99 BTC instead of 1% of 1 BTC.

As Bob is not adding or removing any Bitcoin (other than the fee), we can calculate how much of his stack will be remaining after ten years by using the following formula:

Remaining Stack = Initial Stack * (0.99) ^n

Where:

• Initial stack = 1 Bitcoin
• (0.99) = Stack remaining, minus 1% fee
• n = 10 years

Calculation:

Remaining Stack = 1 × (0.99) ^ 10 = 0.904382 BTC

Answer:

By paying a 1% fee each year, after a decade Bob’s stack has reduced from 1 whole Bitcoin to 0.904382 BTC.

If we deduct Bob’s remaining stack of 0.904382 BTC from his initial stack of 1 Bitcoin, then we can calculate that he spent 0.095618 Bitcoin on fees in total during the ten-year period.

That’s almost a tenth of a Bitcoin! Bob might be starting to wonder if this was a good idea after all….

Question 3

What % of Bob's Bitcoin stack was spent on custody fees over the 10-year period?

Bob started with 1 Bitcoin, and the total fees he paid over the ten-year period are 0.095618 BTC.

we can now calculate what this represents as a percentage of his initial stack:

Percentage = (Fees Paid / Initial Stack) × 100
= (0.095618 / 1) × 100
= 9.5618%

Answer:

Bob spent 9.56% of his total Bitcoin stack on fees during his ten-year hodl in collaborative custody. When Bob realises that almost 10% of his Bitcoin has evaporated, he might not see a 1% fee as being so reasonable anymore.

Question 4:

With Bitcoin performing at a CAGR of 50%, what would the Bitcoin that Bob spent on fees be worth in dollar terms by the end of the ten-year period?

From the answer to our first question we know that with a CAGR of 50% and a starting price of $90,000, that 1 Bitcoin would be worth $5,189,850 after 10 years.

And from the answer to our second question we know that Bob spent a total of 0.095618 BTC on fees.

This means we can now calculate what the value of those Bitcoin fees would be worth in dollar terms by the end of the ten-year period.

= 0.095618 × $5,189,850

= $496,238.63

Answer:

The Bitcoin Bob spent on fees (0.095618) would be worth $496,239 in dollar terms by the end of the 10-year holding period (rounded to the nearest dollar).

Ouch! By outsourcing his trust and paying a 1% fee to a 3^rd party institution every year Bob spent the equivalent of almost half a million dollars!  Whoops!

The Final Results

Now we’ve run the numbers, let’s summarise the results to see how Bob’s 10-year hodl worked out, and how much his collaborative custody fees ended up costing him:

• Bob started with 1 whole Bitcoin worth $90,000.
• Bob paid a 1% fee each year to custody his Bitcoin costing him 0.095618 BTC.  
• The 0.095618 BTC paid in fees reduced Bob’s Bitcoin stack by 9.56%.
• The size of Bob’s stack reduced from 1 BTC to0.904382 BTC.
• After ten years at a CAGR of 50% 1 Bitcoin became worth $5,189,850.
• The dollar value of Bob’s fees at the end of the period is $496,239.

Quite astonishing results! When Bob started this journey, he probably didn’t appreciate just how expensive 1% could get!

But in the interest of fairness it should be recognised that if Bitcoin does sustain a CAGR of 50% for 10 years then ANY Bitcoin you spend today comes with a huge opportunity cost later.

So, the more important question to ask is, ‘Did Bob receive good value for the opportunity cost he suffered?’ All his collaborative custody partners do is hold private keys on Bob’s behalf while keeping them secure. It’s not a capital- or labour-intensive service to operate. Does 1% of your wealth per year really constitute good value for money?  

I suppose it’s slightly better than the Fed’s target of stealing 2% of your money via inflation each year, but not by much.

And let’s not forget that this isn’t the only cost that Bob had to bear. He also had to give up all his privacy, reduce his sovereignty and introduce unnecessary counterparty risk.

The companies offering collaborative custody will claim they offer much more than just holding your private keys. Afterall, they offer ‘expert education’ as part of their service. But what you will find is that this ‘expert education’ mostly consists of lukewarm macro-economic analysis and banal market commentary. What they won’t teach you are any practical Bitcoin skills that might result in you becoming more competent and self-sufficient.

I wonder why that might be….

In the end, perhaps the most savage opportunity cost Bob must bear is his enduring ineptitude. By outsourcing his trust and not learning the skills to secure his Bitcoin himself, he remains trapped in a world of ongoing costs.

If Bob remains in collaborative custody for an 11^th year his next 1% fee will be a further 0.00904382 BTC worth a staggering $46,933.61.

Bob gave up all the benefits of the world’s ultimate bearer asset and paid a handsome price for the privilege!

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Make Bitcoin Your Ultimate Bearer Asset

Bitcoin isn’t a bearer asset by default. You only win the benefits of increased privacy, autonomy and zero carry cost by learning how to hold your Bitcoin in full self-custody.  If you don’t have those skills yet, then it’s important you acquire them.  

One of the ways you can achieve this is to hire an expert team like The Bitcoin Way to train you one-on-one. We can transform you from being someone like Bob, perpetually reliant on others, into a sovereign individual capable of using Bitcoin as it was intended, as the ultimate bearer asset.

And perhaps the most important point to make….

It’s true that any Bitcoin you spend with us comes with the same opportunity cost as spending it with a custodian.

BUT

Any Bitcoin spent with us is an investment. An investment in yourself that pushes you towards freedom and sovereignty. Whereas any Bitcoin spent on ‘custody fees’ is dead money, keeping you trapped at someone else’s behest.

Don’t be like Bob. Choose freedom. Choose The Bitcoin Way.

Book a free 30-minute call with one of our experts today.