Investment Under a Bitcoin Standard
Introduction
Link to the full Research in PDF
After 55 years of fiat money, and more than a century since the end of the Classical Gold Standard, it can be difficult to imagine a world in which money preserves, or even gains, purchasing power over time. In such a world, people can save in currency rather than having to risk capital simply to maintain their wealth. Yet this was the norm for much of the late 19th century: during that period, gold-backed currencies gradually appreciated in real terms as productivity rose and prices fell.
From 1850 to 1900, the prices of wholesale goods declined over time, as the US mostly operated with money backed by gold and / or silver. The Civil War from 1861–1879 brought the suspension of redemption of gold and silver for the dollar, coinciding with a spike in inflation. Despite the jump of inflation during that time, wholesale prices still declined over the half-century timeframe.
We believe that, over the coming decades, Bitcoin will absorb the monetary premium embedded in non-monetary assets such as bonds, real estate, and equities on its journey to becoming a global reserve asset.
The question, then, is what investment and finance under a Bitcoin Standard might look like. How will returns compare to those under fiat? What hurdle rates will investors use? How will it reshape capital structures, leverage, and the kinds of businesses entrepreneurs build?
We cannot answer these questions conclusively, but we can make informed assumptions by reflecting on investment during the last hard-money era and applying principles from Austrian economics. This paper begins by reviewing lessons from the Gold Standard, then considers what investment might look like under a mature Bitcoin Standard. Finally, it presents a playbook for investors to use during Bitcoin’s current monetization phase, when fiat remains the dominant unit of account.
Time Preference
Why does the soundness of money influence investors’ behavior and, by extension, the world in which they operate?
Every monetary system carries an implicit view of time. When money is easy to create, rising demand for it leads to more issuance, since producers are rewarded for expanding supply. Tomorrow’s unit buys less than today’s, and savers are pushed to spend or speculate to preserve purchasing power. When the monetary base is hard, as under the Classical Gold Standard or Bitcoin, supply cannot expand in response to demand. Money holds or gains value over long time periods, and people become more willing to save and plan for the future. Saving and investing are distinct. Investing one’s savings, i.e., risking capital for a prospective return, becomes more discretionary and purposeful.
Economists call the rate at which people discount the future their time preference. It is always positive, since the future is uncertain. However, when money is debased, individuals discount the future heavily; when money is sound, they discount the future to a less significant degree. In Austrian terms, time preference underpins interest. In modern finance, it is reflected in the real interest rate. When simply holding money has a positive real return, the hurdle rate for new investment rises. Capital becomes more selective, and investors require a meaningful spread above the return on money to compensate them for taking risk.
When the supply of money is elastic and politicized, the opposite occurs. The opportunity cost of holding cash collapses, pushing savers into ever-riskier assets just to stay ahead of debasement. From 1959–2025 (the largest sample of reliable data), M2 money stock grew about 6.8% per year on average, although this rate has not been constant. During 2020 and 2021, the US money supply grew by 26% and 11%, forcing investors to chase nominal returns above those figures simply to preserve value, inflating asset bubbles and destroying capital when promised returns failed to materialize. Artificially low interest rates and the declining future value of cash on hand distort capital allocation by inflating the present value of future cash flows, making low-returning projects seem more attractive than they truly are.
Bitcoin’s monetary policy is hard-coded, its issuance schedule is public, and its supply is perfectly inelastic to demand. This makes it an even sounder store of value than gold, whose supply has historically expanded 1–2% per year through mining. The collective knowledge and execution of better products and services in society make humans more efficient and thus the products and services measured in an asset which cannot be inflated will be deflationary. Thus, holding money in itself will allow for purchasing power to increase, rather than savers getting punished as they do today.Investment and Capital Formation Under the Gold Standard
While it may seem counterintuitive to look to history to predict the future, the era of the Classical Gold Standard (1870–1914) offers the best historical model for what investing under a Bitcoin Standard might look like.
In the late 19th century, much of the world operated on a shared monetary system. National currencies were convertible into gold at fixed rates, anchoring a global system of trade and finance. London served as its hub, but New York, Paris, and Berlin were integral nodes in a network bound together by trust in gold convertibility. Governments that honored convertibility to gold could borrow at narrow spreads to the safest sovereign debt, while those that suspended convertibility paid far higher interest rates. Sovereign debt was not ‘risk free’, since states could not print their own money. To maintain credibility, states were forced to maintain balanced budgets, limited note issuance, and high reserve ratios. The virtuous circle of trust, rule, and reward was the foundation of pre-1914 globalization.
Between 1870 and 1913, real short-term interest rates across the major economies averaged around 2–3 percent, while prices drifted gently downward by about half a percent a year. Wages were typically static, but their purchasing power rose in real terms. Despite frequent sharp recessions, real GDP per capita in countries such as Britain, the United States, and Germany grew steadily at about 1–2 percent annually, financed largely through retained earnings and genuine savings rather than credit expansion. Contrary to modern fears, mild deflation did not paralyze investment, it merely set a higher hurdle rate for returns.
The architecture of that market was naturally conservative. Investors preferred instruments that guaranteed repayment in gold and prioritized creditors in liquidation: e.g., debentures, mortgage bonds, and preferred stock. Equities were often thinly traded and regarded as speculative indulgences rather than core portfolio holdings.
When individuals did take equity risk, it was more through active business partnerships than passive portfolio investment. Indices of equities were regarded as illogical over saving capital given the operational risk embedded in the businesses. Ordinary savers were able to save in currency, as they did not need to risk their capital to protect it from debasement.
None of this implies utopia, as the gold standard’s rigidity could be brutal. Adjustment to shocks required internal deflation rather than currency depreciation, a process that fell hardest on wages and employment. Periodic banking panics exposed the absence of a lender of last resort. Yet, judged over decades, the system produced fewer prolonged crises than the fiat century that followed. It is interesting to note that prior to the invention of fiat money and the financialization of the real economy, finance and banking was considered a dull and safe profession rather than a risky and adventurous one.
Culturally, the gold standard coincided with an extraordinary confidence in progress. The decades preceding the First World War, known as La Belle Époque in Europe and the Gilded Age in America, were marked by ambitious infrastructure and institutional investment. Bridges, railways, and universities were financed by long-term private savings accumulated under sound money. Investors trusted both the currency and the rule of law. In contrast, the first decades of the twenty-first century have produced meme stocks, negative-yielding debt, and financial engineering on an industrial scale, while trust in institutions fell. The form of money itself changed the texture of capitalism and, by extension, society.
Investment under a Mature Bitcoin Standard
Suppose the multi-decade monetization of Bitcoin is complete. Volatility in purchasing power has subsided, and every major institution, from central banks to corporate treasuries, now measures value in bitcoin terms. National currencies likely still exist, but they merely represent value backed by the issuing bank’s Bitcoin holdings and are interchangeable with other Bitcoin-backed currencies at fixed rates. Investment funds report returns in Bitcoin terms. What does finance and investment look like in this world?
The answer begins with an inversion of today’s logic. Under a Bitcoin Standard, saving is the default and investing is optional. After fully absorbing the monetary premia locked in other store-of-value assets, Bitcoin appreciates slowly with productivity growth, driven by the collective knowledge and efficiency, driving the prices of goods and services down over time.
For the median household, this regime is liberating. There is no need to allocate savings to levered real estate or risky stocks and bonds just to preserve purchasing power. Most individuals simply hold Bitcoin securely. Some use lines of credit to make larger purchases, although with the higher costs of credit, this is significantly less common than the norm today. This reduces the need for financial intermediaries, from investment platforms to fund managers and stockbrokers, de-financializing the economy and freeing up resources for more productive uses. House prices as a multiple of income fall as real estate demonetizes, and the appeal of using leverage to own one’s home greatly diminishes since it is no longer profitable to short the currency.For businesses, day-to-day capital allocation decisions also change fundamentally. With the cost of capital reflecting the real return on money, managers become far more disciplined in deploying working capital. Holding idle balances is no longer penalized by inflation, so liquidity management becomes strategic rather than reactive. Investment committees scrutinize projects for their ability to generate durable, Bitcoin-denominated free cash flow. Share buybacks and acquisitions are approached cautiously, since any deployment of capital must clear a meaningful hurdle above the risk-free rate. The result is a culture of prudence: firms reinvest selectively, maintain stronger balance sheets, and treat every satoshi of retained earnings as scarce and valuable capital.
For investors, a mature Bitcoin standard makes investing boring again. With the risk-free asset now offering a real return for the first time in decades, investors no longer need to chase yield simply to avoid debasement. They can move down the risk curve, which itself shifts lower and flattens. The hierarchy of financial instruments – from short-term Bitcoin paper and high-grade credit at one end to common equity and private investments at the other – remains intact, but nominal returns compress across the board.
Equity markets and stock indices still exist in this world, but they are far less relevant than today and attract a smaller proportion of total wealth. Most investment capital is allocated based on expertise and understanding of the business, rather than passive ownership of an index without deep understanding. A larger savings base allows entrepreneurs to bootstrap a greater proportion of start-ups, and many companies prefer to stay private rather than raise capital from public markets. Growth is typically funded by reinvestment of retained earnings rather than multiple venture rounds, so there is a greater incentive to reach cash flow profitability early on. Debt is less widespread, not only since it adds brittleness to a company’s balance sheet, but because debt becomes more difficult to service in a deflationary world.
Valuations multiples likely fall. While it is difficult to speculate on precise levels, it seems reasonable that multiples should settle at the conservative levels seen in the early industrial age, e.g., price-earnings ratios in the low teens, price-book ratios closer to 1x, and dividend yields higher than bond yields. The derivative markets likely shrink dramatically. Without free floating currencies and central bank manipulation of interest rates, there is no need for FX swaps and little need for hedging interest rates. The financial sector’s share of GDP declines. Indeed, finance itself becomes more commoditized, closer to a utility than an industry.
Credit still exists in this world, but typically on collateralized terms. Fractional reserve banking, with its maturity mismatch and implicit state backstop, becomes technologically difficult and socially intolerable. Consumer deposits are primarily held by custodians and money warehouses rather than with banks. ‘Narrow banking’ has become the norm, with long-term lending conducted primarily by private credit institutions with matching long-term liabilities, such as life insurers. Without fractional reserve banking, the credit cycle flattens. This doesn’t mean that economic volatility disappears altogether; in fact, GDP becomes more volatile year-to-year than during the fiat era, as productivity shocks and mild recessions cannot be papered over with money printing. But recoveries are rapid and result in higher through-cycle growth without policy-induced distortions.
Behaviorally, this world looks old-fashioned. With no inflation tax eroding balances, households save more and borrow less. Families hold generational treasuries in multisig vaults, and countries own large Bitcoin reserves. Lacking the ability to inflate away debt, governments are forced to live within their tax revenue, which is in turn constrained by their democratic mandates. Investment decisions shift from central planners and central banks to households, individuals, and private companies.
One critique of sound money is that it advantages the already-wealthy by rewarding saving over borrowing. Under a Bitcoin standard, the initial distribution of coins indeed confers windfalls on early adopters. But over time, the absence of inflation and asset bubbles may narrow inequality. Workers who save a portion of wages in Bitcoin see their purchasing power rise without needing speculative exposure. The social ladder becomes less dependent on access to leverage, and the Cantillon effect diminishes.Ventures on a Bitcoin Standard
Founders with business ideas will be able to save long enough to fund their own ventures for a long time. Most businesses will be bootstrapped, and a far greater number of businesses will take no outside capital, as founders with good ideas will want to reap the rewards of their work, and will not likely want to risk their own capital on speculative ventures. Founders will only look for and take capital from outside investors with expertise in their field that can add strategic benefits to the business.
Venture capital also changes. With the end of artificially cheap capital, less funding flows into speculative, ‘disruptive’ ventures, while more supports steady, compounding businesses that build value year after year. Entrepreneurs are incentivized to reach profitability early and not to rely on multiple follow-on funding rounds to fund indefinite periods of cash burn, as the real value of that capital and thus opportunity cost is increasing over time, not decreasing.
The total amount of capital available for higher risk ventures likely decreases, but the venture success rate increases. In short, the high time preference mentality of ‘moving fast and breaking things’ gives way to slower, purposeful building, funded only by experts in their crafts. As the absolute amount of capital available for venture investment decreases, investment success requires a greater degree of domain expertise and operational support than in the fiat era; venture capitalists must add value to businesses beyond the capital they provide.
Investment During Bitcoin’s Monetization Phase
In some ways, this is the hardest era to forecast, even though we are already living in the early innings of this period. The closest analogy might be gold demonetizing silver in the 19th century, but this was a gentler process since both metals had co-existed as money for centuries.
The transition period from fiat currencies to Bitcoin will be disorienting. Investors who denominate their wealth in fiat terms will initially be pleasantly surprised as the nominal value of their wealth soars, but they will find that the purchasing power of this wealth diminishes even faster. By contrast, investors who denominate their net worth in Bitcoin will find themselves living in a deflationary world despite reading headlines about hyperinflation in the fiat economy. Over time, parallel economic systems will emerge: a thriving Bitcoin economy will grow within the decaying fiat system.
During this phase, Bitcoin’s price in fiat terms will be unstable, and its purchasing power will also fluctuate. While some of its nominal return will be driven by fiat debasement, most of its real return will be driven by user adoption. Speculation and leveraged trades will continue to dominate over short time horizons, which will cause challenges for those who make it their unit of account given the changes in working capital and need to service obligations; however, over longer time horizons its volatility will diminish.
Bitcoin’s monetization phase poses a challenge for investors. Any investment funded in fiat must beat Bitcoin both nominally (in dollars) and in Bitcoin terms (i.e., deliver more BTC in the future) to create value. If it cannot, it is a misallocation of capital. This is a far tougher hurdle to reach than investing under a mature Bitcoin standard, when adoption no longer drives Bitcoin’s real return.
During this phase, venture capital is likely to bifurcate between the legacy industry that denominates its return in fiat and the emerging category of Bitcoin-denominated venture firms. As Bitcoin absorbs value from weaker monies, volatility and liquidity cycles may drive extreme booms and busts in funding. Capital inefficiencies persist, as fiat-denominated funds and valuations continue to distort pricing signals. Hybrid models might emerge, where VCs raise or deploy capital in Bitcoin but still report returns in fiat.
Over time, as Bitcoin liquidity deepens and price stability increases, these transitional distortions would diminish, paving the way for the more disciplined capital formation seen under a mature Bitcoin standard.
Outperformance in the monetization era will typically require operational excellence, revenue exposure to fast growing industries, or operating with bitcoin as the hurdle rate – all three likely drive the best outcomes. This is not an absolute rule: truly exceptional businesses – for example, Nvidia over the past five years – have outperformed Bitcoin on their own merits. There will be similar cases as bitcoin faces the law of diminishing returns following its adoption to date.
The investors, investment managers, and businesses which identify these confluence of concepts and allocate capital accordingly will benefit from outsized returns based on the identification of the growing trend early in its adoption.Enticing Business Models During Bitcoin’s Monetization
With these caveats in mind, we believe the following categories of Bitcoin infrastructure represent phenomenal opportunities during the monetization era. This list is not exhaustive; the most successful Bitcoin companies may well develop truly innovative business models with no analog in the fiat world.
1. Trading infrastructure: Prime brokerages, exchanges, retail brokerages, market makers and derivatives providers will see extreme benefits as more institutions come into the bitcoin space and want to save more capital in bitcoin, expose market inefficiencies, and speculate on the future.
2. Custodians: Multi-institutional custody (MIC), institutional key-management, multisig wallets, and hardware wallets. These are the modern equivalents of 19th-century merchant banks or trust companies. They grow with adoption and monetize this through custody fees and complementary services.
3. Lending markets: Technology providers and loan servicers who offer fiat based credit for overcollateralized bitcoin will benefit significantly, as individuals and institutions use their assets to pay off their fiat denominated obligations.
4. Treasury management solutions: Those who can best offer access to bitcoin, dollars, stablecoins, money market funds, and higher yielding assets will benefit from outsized returns.
5. Security infrastructure: Both bitcoin native key management agents and adjacent security services will perform well doing the important job of securing private information.
6. Energy and mining adjacencies: Firms that arbitrage stranded or intermittent power to bitcoin.
7. Payment & Settlement Layers: Lightning and similar protocols create fee markets and liquidity pools that monetize routing efficiency. Businesses providing liquidity, risk insurance, or analytics at these layers capture expanding network throughput.
8. Mining pools and infrastructure: Those who aggregate global hashrate, optimize block construction, and take a small fee on every reward. Efficient, non-custodial pools with low latency and strong reputations can expand margins and hashrate share faster than the network itself, giving them leverage to Bitcoin’s growth.
Each of these categories has a structural advantage: revenue and profits grow with Bitcoin’s adoption, but costs are denominated in fiat and lose value against Bitcoin over time. This makes them effectively high-beta plays on Bitcoin’s own monetization. However, it is important to note that many of the best business ideas have not yet been conceived.
Conclusion
Bitcoin is often mischaracterized by Wall Street as ‘tech’, something that should trade like the NASDAQ or chip stocks. In fact, it represents a return to the principles of sound money and a modern solution to humanity’s oldest financial problem: how to preserve value across time without debasement.
As argued throughout, a world on a Bitcoin Standard would more closely resemble the disciplined capital markets of the Classical Gold Standard than today’s era of perpetual stimulus and negative real yields. When money retains or gains value, capital allocation becomes more discerning, and stable, profitable enterprises are favored over speculative, loss-making ones. For investors, Bitcoin itself becomes the hurdle rate.
The challenge is not how to allocate capital under a mature Bitcoin Standard but how to deploy it during Bitcoin’s rapid monetization phase. While Bitcoin-adjacent businesses will not be the only outperformers, those aligned with its monetization will have an advantage, particularly firms building infrastructure or issuing fiat-denominated long-term debt to acquire Bitcoin while servicing interest through internal cash generation.
Under a Bitcoin Standard, the cost of money once again reflects the cost of time. Every investment must prove it is worth more than holding the hardest asset on earth. Investors will still matter, but their prominence will fade. The central figure in a world built on the Bitcoin Standard is not the investor or financial engineer but the entrepreneur.
Author: Early Riders