January 19, 2021

Snappa: Why We Keep Our Reserve Assets In Bitcoin

In this article, an entrepreneur and co-founder of Snappa, an app company providing online service for graphic design, ChristopherGimmer shares his experience of coming to Bitcoin and talks about the reasons that influenced his company's choice of Bitcoin as a financial reserve asset.

Let me ask you a question ...

Would you rather keep your money in foreign currency, volumewhich supply is growing every year? Or will you give preference to the currency, the supply of which is rigidly fixed at the level of the program code?

Considering everything that is happening today in the worldeconomy, we have had to take this seriously as our online service, Snappa, continues to gain momentum and brings us more and more free cash.

This question has acquired an even greaterRelevance after the bank cut the interest rate on our “high yield” savings account to 0.45% earlier this year. That meant the actual decrease in the purchasing power of the Canadian and American dollars in our accounts after adjusting for inflation.

We are very fortunate, and I am absolutely sure of this that we now have a much more advanced savings technology at our disposal. And that technology is Bitcoin.

After falling down the rabbit hole and hundreds of hours,spent learning Bitcoin, its founding protocol and the complete theory behind the game, we have started to accumulate bitcoins steadily since March of this year. This position now represents a significant percentage of our company's total cash reserves.

In this article, I will give a full explanation of the reasons that led to this decision.

A brief history of money

To truly understand the meaning of Bitcoin,you need to understand the history of money. Even though I studied finance with a major in economics, this topic was completely ignored when I was at university.

If you go back thousands of years, you candiscover that different groups of people have used a wide variety of forms of money to facilitate trading. Money took many different forms, including seashells, glass beads, and eventually precious metals. You can learn more about the origin of money by reading Nick Szabo's brilliant cycle of works under the general title "The History of the Origin of Money."

Use of collectibles inas a means of exchange within the tribes worked quite effectively, but later it became difficult, since world trade began to develop rapidly. Some communities have learned the hard way that scarcity is one of the most important factors when it comes to money. If the supply of money you use can be overblown, your purchasing power will drop dramatically as a result.

This is exactly what happened in West Africa in the 15th century. At that time, glass making was not widely developed in this region, and due to the primitiveness of the technology, the manufacture of such beads was very difficult, as a result of which glass beads were in great demand and served as a generally accepted medium of exchange. Unbeknownst to the Africans, the Europeans have learned to forge such glass beads very cheaply. Taking advantage of this economic opportunity, the Europeans began to trade cheap-to-manufacture counterfeit glass beads for disproportionately more valuable African resources, including ivory, gold and even slaves, exploiting and literally plundering the West African population.

A similar situation has developed in India and China in20th century due to the demonetization of silver. Since silver is more common as a natural resource and much easier to mine than gold, this has allowed foreigners with silver to come to these countries and seize control of the growing volumes of goods and capital from India and China.

To avoid the complete destruction of wealth,as happened with West Africans, Indians and Chinese, the world community naturally turned to gold, which was the hardest form of money available.

While gold served as an excellent formmoney due to a number of factors, including durability, portability and interchangeability, however, I would bet that its rarity was the most important factor in this case.

Since gold mining has been (and still isremains) a very costly task, the volume of supply of new gold mined from the earth's interior remains at a consistently low level, amounting to about 1-2% per year.

Due to such a shortage, gold with the flowtime retains its purchasing power. If in 1920 an ounce of gold was valued at 20 US dollars, now the same ounce of gold is worth almost 2,000 US dollars. In other words, the US dollar has lost 99% of its purchasing power in relation to gold since the beginning of the last century.

Price per ounce of gold in US dollars | : Macrotrends.net

You can also notice in the aboveSee the chart that the devaluation of the US dollar accelerated significantly after 1971, just as the US abandoned the gold standard (we will come back to this issue later).

Now that you have a little understanding of the history of money and how scarcity affects the value of gold, let's take a closer look at Bitcoin.

Bitcoin and digital scarcity

Bitcoin is incredibly complex and at the same timeextremely simple. While the Bitcoin protocol includes cryptography, proof-of-work (PoW), difficulty adjustment, and a bunch of other components to make it all work, they all contribute to a single overriding goal: digital scarcity.

If there is anything you need to understand aboutBitcoin is the fact that only 21 million coins will ever be issued. This limit of 21 million units has been hardcoded into the protocol, and network consensus rules are maintained by the thousands of nodes running the Bitcoin software.

In 2009, when Bitcoin was firstpresented to the world, the reward for "mining" the new block was 50 bitcoins. After the last halving in May 2020, the reward was further halved to 6.25 BTC per block.

This reward will continue to declineby half about every 4 years, until the very last bitcoin (its one hundred millionth part) is mined sometime around 2141. Although it will take another 120 years to mine the last bitcoin, more than 99% of the total supply will be mined by the end of 2034!

Here is a graph showing the Bitcoin release schedule:


Unlike fiat currencies, which become less scarce over time, bitcoin, on the contrary, becomes more and more scarce over time.

Stock-to-Flow (S2F)

In his book "Bitcoin Standard" (in Russianpublished under the title "A Brief History of Money, or Everything You Need to Know About Bitcoin") Saifedean Ammous introduces a concept called "stock-to-flow", abbreviated as S2F, which is used to quantitative assessment of the scarcity of a particular product. Inventory represents the total supply of a product in circulation, and increment is the number of new shipments of that product that appear annually.

An example is gold,the existing (already mined) reserves of which are estimated at about 190,000 tons, while the new supply (increase) entering the market annually is about 3,260 tons. Thus, dividing 190,000 by 3,260 gives an S2F value of 58.3.

Since Bitcoin is a software product withopen source and completely transparent, we can actually measure Bitcoin's S2F with 100% accuracy at any point in the past and at any point in the future. With the recent halving in mining rewards (called halving), Bitcoin's current S2F is 56, which is roughly equivalent to gold. However, after the next halving, Bitcoin will be twice as scarce as gold.

Knowing about the relationship between the gold deficit and itsmonetary value, a certain quantum exchange trader known by the pseudonym PlanB ("Plan B"), back in March 2019, tried to model the value of the price of bitcoin, based on its scarcity. With a shockingly high R2 of 95%, the original model showed that there is in fact a strong correlation between the price of bitcoin and its S2F.


PlanB will later update the original model toCross Asset Models (S2F Cross Asset Model, S2FX). This latest model predicts that the price of bitcoin could hit $ 288K in the current four-year cycle if the model does not lose its relevance and remains valid.

Here is an updated version of the Stock-to-Growth Ratio (S2FX) model.


If history repeats itself again, then the price of bitcoinshould continue to rise as indicated by the red / orange dots from previous cycles. Whether it can reach $ 288K in this cycle or not is a controversial issue that is beyond the scope of this article. That being said, I personally believe that the Bitcoin price of $ 100K by the end of 2021 is quite realistic, given its fundamentals and the current state of the macroeconomy.

Bitcoin vs. Gold

If we are talking about a reserve asset, the mainthe purpose of which is to maintain purchasing power, it is quite logical that the most scarce asset will eventually prevail. We have seen many times throughout history how good money drives bad money out of circulation.

Considering the limited supply of Bitcoinis proven to be fixed, we can confidently say that Bitcoin outperforms gold in this respect. But what about other monetary properties that collectively provide an excellent store of value?

In the Bitcoin Bullish Trend series, Vijay Boyapati has done an excellent job comparing and evaluating Bitcoin and gold for the best store of value.

I suggest you read a short summary of that cycle:

Durability: Gold has existed for thousands of years, so thisthe undisputed king of longevity. Bitcoin, on the other hand, is still in its infancy, so it's too early to draw conclusions. Nevertheless, it remains resistant to various attacks and at the moment has already proven its anti-fragility.

Portability: Bitcoin is the standout here. You can transfer billions of dollars over the Bitcoin network in minutes. I wish you the best of luck in transporting this amount of gold across borders without the huge investment of time and transaction costs.

Interchangeability: Gold is the standard of interchangeability,as one ounce of gold is indistinguishable from any other ounce when melted. While bitcoin is fungible at the network level, some people worry that a certain bitcoin could become tainted if there are no privacy and anonymity improvements at the base layer.

VerifiabilityA: Bitcoin's authenticity can be easily verified with a 100% guarantee by simply running a full node. Gold, on the other hand, is not at all immune to counterfeiting.

Divisibility: Bitcoin wins easily here. One bitcoin can be divided into 100,000,000 units known as satoshi. Gold bars are much more difficult to subdivide into smaller units.

Long history: This is where gold has the greatestan advantage over Bitcoin as it has been used as a store of value and exchange for thousands of years. Bitcoin has only been around for 11 years and is still in its very early stages as a reliable store of value. However, this can be seen as an opportunity as the future potential of Bitcoin has yet to be fully appreciated.

Vijay also provides a handy spreadsheet that compares bitcoin, gold and fiat currencies according to the monetary attributes listed above.


Considering that Bitcoin's share is only 1.7%on the market capitalization of gold, while outperforming it in many ways, I am confident that Bitcoin will continue to outperform gold in the coming years and decades.

Current state of the macroeconomic environment

At this point, I hope I have provided you witha sufficient explanation of why scarcity is essential in order to protect purchasing power, and why I believe Bitcoin will continue to outperform gold as a store of value.

I usually don't care much about maintaining purchasing power, but these are truly unprecedented times. And COVID-19 is only part of this story ...

Information for those who do not know how it iseconomic situation in the world - the national debt of nation states around the world has steadily increased exponentially since the US abandoned the gold standard back in 1971. At the same time, interest rates have been steadily moving towards zero as central banks continue to cut rates in order to stimulate economic growth.

Here is a graph showing the yield on ten-year US Treasury bonds:


Now we have reached the final stage, when rates can no longer go lower, unless we lower them into negative values, as has been done in some countries.

Since interest rates are no longerAn effective stimulus policy tool, the Federal Reserve and other central banks are scaling up their quantitative easing (QE) program, in which they “print” money to buy financial securities from banks and inject liquidity into the system.

While many debate whether QE leads toCPI inflation (which, in my opinion, is a misguided metric), it seems pretty clear that QE led to asset price inflation. In addition, due to the inequality in wealth that continues to increase as a result of these policies, there are increasing calls for more permanent forms of unconditional basic income (UBI), which will certainly lead to consumer price index (CPI) inflation.

Preston Pysh explained perfectlythe current situation in their posts on Twitter. I highly recommend reading the entire post thread in its entirety (* for your convenience, a translation is attached below *).


Here's what he writes:

“I can no longer put up with the misuse of these terms.

Inflation… Deflation…

That's my point.

Central banks are aggressively inflating the fiat monetary base. Since 2008, the US Federal Reserve has increased its balance sheet from $ 0.8 trillion. up to $ 7.1 trillion.

Total assets of leading central banks. Red line - Fed assets.

This means they inflated the monetary baseFiat supply up 21.9% EVERY YEAR for eleven years. Then why haven't we seen the “inflation” of the consumer price index (CPI)? Simply because they are buying up financial assets with this freshly printed money. Bonds are purchased from the open market and new cash flows into the "free and open economy."

The problem is money goes straight into your handspeople who own assets, and only a thin trickle seeps into the low-income strata of the economy, where the majority of the population (in percentage terms) is found. As the well-to-do segment of the population continues to benefit from the process of injecting freshly printed money into the system, their net worth continues to grow, and they gain priority access to the opportunity to invest capital in even more profitable, high-yield assets. Call it whatever you like, but this is NOT a "free and open" economy. This is a manipulated economy. You won't find CPI inflation because the newly printed money is being invested in financial assets, pushing the market capitalization higher and higher.

Now to deflation.

When the money supply in the economy is exposedinflationary manipulation, this stimulates aggressive investment (see above). This is because, if the cash is simply held, its value will continue to depreciate over time. But if the money is invested, it could potentially outpace depreciation. When deeply manipulated inflationary monetary expansions occur over many years and decades, they actually create deflationary prices for some goods and services. Remember that newly printed money drives up asset prices, which means the gap between rich and poor will only widen. If the majority of the population cannot afford goods and services (because the percentage of the poor is increasing every day), then the demand for goods and services decreases. If the demand for goods and services falls, then the price must follow.

But with regard to goods and services thatare absolutely essential to life, the opposite is true. Means for health care, nutrition and education. Look at this diagram - it clearly explains everything.


So what do we see? And we see deflation of prices for non-core goods and services. And, on the contrary, inflation of prices for essential goods and services. Added to this is excessive inflation in the bond and equity markets due to the government's unceremonious manipulation of these markets.

Why is the Fed doing this? Because she has to do it. Right now the money they print and inject into the economy (unevenly) is not reaching the general public. For this reason, the speed of circulation of funds in the system continues to decline.


This is why the government is now implementing

All of the above is the reason whyI have bitcoins. All measures taken by the government, including the endless printing of fiat money, are a short-term patch from an irrepressible spiral of fate. People who peacefully protest in the streets have every right to feel discontent and resentment over the murder of George Floyd. But I think that everything is much more serious and deeper. I believe that the African American community (which I love very much) is furious because the existing financial one appears to be fake. And judging by everything that I wrote above, it is so! "


Summing up, we can say that now wewe are at a stage where putting dollars in a savings account or buying government short-term debt yields negative inflation-adjusted returns.

More worryingly,nation states around the world are in more debt than ever and are likely to continue to undertake ever-increasing volumes of QE and UBI in the future. This will ultimately lead to further currency depreciation and loss of purchasing power.

Bitcoin as a reserve asset

While many people hastily refusefrom bitcoin for being “too risky,” I believe there are significant risks currently for holding fiat currencies, especially for a long time.

It turns out that professional investors seethe same risks and, as a result, they are starting to take an increased interest in bitcoin. One of the most notable examples of this is billionaire / hedge fund manager Paul Tudor Jones. He recently announced that he holds nearly 2% of his net worth in bitcoin.

This particular quote echoes my current sentiment about keeping cash at the moment:

“If you take cash and look at it in terms of purchasing power, you realize that your central bank has a clear goal of reducing its value by 2% per year. Thus, you have in your hands, in fact, a depleting asset. "

And although what Paul Tudor Jones and others are famous forInvestors embrace Bitcoin is significant, but not nearly as revolutionary as MicroStrategy's recent announcement that they have adopted Bitcoin as their primary reserve asset. In doing so, they purchased 21,454 BTC (worth $ 250 million), which is half of the cash and other alternative assets on their balance sheets.

It's one thing for a rich person to acquirebitcoins at its own discretion, but it is a completely different matter if it is done by a public company with a capital of more than $ 1 billion, which needs board approval to make such a purchase.

What struck me about this announcement is that

“This investment confirms our belief in

And then he continues:

“MicroStrategy spent months discussing

more weakened the risks of bitcoin, trust that other hedge fund managers and CEOs of public companies will take a closer look at it.

The risks

Although I am a staunch supporter of Bitcoin and my confidence in it is very high, it is important to discuss the possible risks associated with it.


If we are considering taking


To minimize the risk of a forced sale at a loss, it is important to maintain sufficient working capital in USD to meet any short-term obligations that may arise.

Regulatory risks

Regarding regulatory risk, it is important to note thatthat Bitcoin itself cannot be banned given its decentralized nature. Instead, governments can decide to deny access to Bitcoin deposit and withdrawal services (i.e. exchange exchanges), making it difficult to buy and sell. In theory, governments could also prohibit their citizens from openly owning bitcoin.

Personally, I believe that the risk thatdemocratic governments will ban Bitcoin, highly unlikely at this point. For starters, the cost of implementing such a policy would be extremely high, given that bitcoin is completely digital and cannot be easily confiscated, of course, unless individuals voluntarily give up their private keys. Second, game theory suggests that any government banning Bitcoin would be at a huge disadvantage if adopted as a global reserve currency. Wealthy people will simply flee to Bitcoin-friendly jurisdictions and spend their wealth there.

Digital currencies of central banks

Another potential risk is thatgovernments of various countries will come together and create a digital currency with agreed rules similar to the Bitcoin protocol. However, I find it hard to believe that many countries will readily unite and give up their monopolies on money.

Alternatively, this option is also possible.- central banks may decide to issue their own digital currency, which in fact is already starting to happen. The problem is that individuals will have to trust central banks that they will not inflate the supply of such a currency. In essence, it will be nothing more than a fully digitalized fiat currency.

Protocol risks

Finally, due to the digital nature of Bitcoin,There is always a risk that a bug will be found in the software or, even worse, the network itself will be hacked. However, Bitcoin has continued to function flawlessly for eleven years in a row, and the hash rate that protects the network continues to grow exponentially. With each passing day, the risk of being hacked becomes less and less.

If you've heard people talk about hackingBitcoin in the past, they always meant Bitcoin wallets or exchange offices, not the protocol itself. It's like claiming that the US dollar was hacked instead of saying that the bank was actually robbed. A huge difference!

If ever there was a serioushacking the Bitcoin network, it would always be possible to hard fork. Admittedly, this would have a very bad effect on the price of bitcoin, and the loss of trust in general could jeopardize the long-term viability of the network.

It is also worth noting that mostthe cryptography and encryption used in the Bitcoin protocol is also applied in the existing financial system like many other Internet protocols. Therefore, if vulnerabilities were discovered in the cryptographic side of Bitcoin, we would have much more serious problems.

Let's sum up

The current state of macroeconomics and Bitcoin itself are likely to be highly debated topics in the coming years.

On one side of the barricades are people whobelieve that a constantly expanding monetary base and increasing volumes of public debt do not matter as long as "inflation" is at a low level.

And on the other side - a very numerousa group of people who believe that quantitative easing (QE) and an increase in government debt will lead to asset price inflation and a widening wealth gap.

Having done my own research, I believe thatmassive quantitative easing coupled with fiscal stimulus will continue to drive currency depreciation. In addition, I expect governments to continue to do the same in an effort to combat the natural deflationary pressures of technology.

To hedge this risk, we decided to approve Bitcoin as the main reserve asset on our balance sheet.

What do you think about this decision?