The Stock Market Risk

In Bitcoin, we talk a lot about counterparty risk. If you keep your money in the bank, you accept the risk that the bank may not keep your money on hand, could prove insolvent, or might prevent withdrawals if politically pressured. Yet nobody outside of Bitcoin bats an eye at this.

It’s funny how comfortably some people tolerate these risks yet are quick to criticize an open-source, fully decentralized monetary system that is free from censorship.

If you store your savings in self-custodied Bitcoin, your risk is mostly limited to one factor: you assume the risk that the Bitcoin protocol will continue to operate (e.g., quantum computing won’t break it - something unlikely given it’s utility could be used reciprocally to defend the network if that day comes any time soon). At 10+ years of 100% uptime, this seems a safe bet for the foreseeable future.

Now, that isn’t to say that governments couldn’t try banning it or adoption couldn’t decline or governments couldn’t suddenly get responsible, go back to a gold standard, and start spending within their means. But the notion that these are risks with a high likelihood of happening globally (after all, Bitcoin is global money) is low to the point that it’s probably not worth losing sleep over.

Regardless, most people buy the Bitcoin FUD and then…

…store the majority of their wealth in the stock market. Namely, into the big tech companies or a passive index of which they have no particular knowledge. And much less as to all of the risks to those companies.

Just this week, one such risk was highlighted. News from China came that an AI startup known as DeepSeek was able to build a ChatGPT competitor of greater quality, at a fraction of the cost, and using inferior (i.e., non-NVIDIA) chips. Pretty crazy.

The stock market took a big hit because suddenly the billions of dollars poured into American AI firms looked like one big capital misallocation.

Will the stock market rebound? Probably. Maybe it already has by the time this newsletter hits your inbox. But the fact that factors well beyond your control and infinitely more numerous and complex than those affecting Bitcoin can take a turn for the worst mean that significant value is often wiped out of equities with a single headline story.

Couple this with the fact that the S&P 500 has basically just matched the growth in the money supply for the last 25 years. That is, the nominal value of your wealth may appear increasing in the stock market but all you’re really doing is keeping pace with the devaluation of the US dollar.

That’s hardly a performance financial advisors can brag about, never mind the fact that a “balanced, diversified portfolio” including lower yielding bonds would have underperformed the growth in money supply.

The good news for many is that 7.1% might outpace a rise in food prices and many other goods. But if you’re looking to buy a new home or send your kid to college, you’re paying a premium in very real terms: both will be a lot more expensive since price inflation isn’t evenly distributed across goods and services.

The point here isn’t to not to invest in stocks. The point is that you have to evaluate the risks you are taking when doing so. Are you really becoming wealthier or are the dollars your stocks are denominated in simply becoming less valuable? It’s almost undeniably the latter.

The same could be said about Bitcoin, you say? Sure, part of Bitcoin’s upwards price trajectory could certainly be traced to inflation of the money supply.

But that would only account for about 6.8% of the 50%+ compound annual growth rate over the last decade. (6.8% is about the average increase in M2 money supply from 2015 to 2025).

And a final thought. Most investing in the stock market are doing so somewhat blindly based on historical trends and recency bias: “it’s gone up for a long time so it will keep going up for a long time.”

The people saving in Bitcoin, on the other hand, are doing so because they’ve taken time to look back even further at the history of money and make an informed and calculated bet.

The bet is that fiat system is broken, our current fiscal trajectory is unsustainable, and, eventually, the world will converge on the strongest form of money available.

And that is irrefutably Bitcoin.

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