Resistance to censorship. That would be the short answer to the question about why the millionaires of Latin America and Spain are exchanging their gold for bitcoin; an answer with a lot of meaning for those who have spent some time unraveling the intertwined fabric of this network, but which may seem somewhat cryptic for those who are just beginning to snoop on it.
From CriptoNoticias we delve into this question with Carlos Mosquera, founder and head of strategy at Solidus Group, a company dedicated to the management of digital assets for High Net Worth Individuals and Family Offices. Conversation that you can listen to by clicking on the featured image of this article or by accessing this link.
From the libertarian dream to the seizure of miners
Carlos Mosquera, a Venezuelan, discovered Bitcoin in 2011 and was soon captivated by this monetary technology, first on a theoretical and political level; then commercial. “It is the materialization of the libertarian dream”was what Mosquera observed, who was active in what was then called Individual Freedom Party from Spain, where he lived at the time.
Understanding the long-term implications for society, he soon focused his efforts on participating in the open Bitcoin economy through mining. At the end of 2012 he buys su first mining equipment, at a price of 22 BTC, equivalent to about a thousand dollars; the only thousand dollars he had after going bankrupt in a retail business. He would soon begin his life as early adopter of Bitcoin.
They moved their operations from Madrid to Venezuela, where the electricity cost favored them incomparably. After establishing alliances with international technology experts and high net worth investors, Solidus managed to consolidate operations with more than thirty thousand miners distributed between Poland, the United States and Venezuela, says Mosquera. He even says that they came to develop their own mining hardware, named V6, which was never publicly traded. “One megawatt, around 2015, was giving us between 80 and 90 bitcoins per month«, reveals.
It is known that success is usually accompanied by notoriety; and in the shadow of notoriety, hostilities boil. Solidus was one of the first mining farms to be victims of police persecution and extortion in Venezuela. When the personal threats began to arrive, the risk outweighed any financial benefit. Exile ensued. What happened to the machines? “The ones in Venezuela were taken from us all. They asked us for $100,000 in bitcoin, too.”
From mining to high net worth
But what does all this have to do with the investment of Hispanic millionaires in Bitcoin? Everything’s good. Although the violence forced Solidus into exile, by having their capital in Bitcoin instead of a traditional bank account, they managed to avoid the capture of their money in the country, as happened to businessman Michael Saylor in Argentina. This was also one of the attributes that the first wealthy families who invested in the Solidus investment fund saw in Bitcoin.
“These families in particular, who are Central Americans, had lived through all the political turmoil of the 70s, 80s and 90s in that area, they are the typical Salvadoran families that have investments in Nicaragua, but they also have one foot in Costa Rica, in Honduras. So they had already experienced civil wars, dictatorships of the left. And these families have historically been accumulating gold as part of their family-level macro strategy. Furthermore, the patriarchs of these families moved in unison in almost every strategy and investment they made. They are the typical Latin American families, high net worth, but very little internal Family office structure: a patriarch makes the decision and has several caciques below him who are often the executors of those strategies. So they were worried about what would happen if that political chaos of the 70s and 80s was repeated in that area, but this time each family had positions of seventy or eighty million dollars in gold and they were looking for other ways to preserve value.
Carlos Mosquera – Founder of Solidus Group.
Not all of their assets were in gold, but what they did have was in both derivatives and physical gold. “They had accumulated so much that getting it out was cumbersome not only logistically, but even at the cost efficiency level, sometimes it wasn’t even possible,” says Mosquera. Just at a time of generational transfer of fortune, where the chiefs of these families would become patriarchs, and in a world that is becoming more digitized every day, the need arises to achieve a reserve of value that can be transported in space without national borders implying a limit.
Already at the beginning of 2016, when the price of BTC had not exceeded five hundred dollars per unit, “these patriarchs were visionary enough to understand that Bitcoin could be the gold 2.0 of the future”, and they did a first experiment to prove it, investing two million dollars per family with an exit horizon of fifteen years.
Although it may sound like a lot of money, especially considering the low liquidity of the time, for these families it was like money for beers: «60, 70 million that each one had in gold, investing two million is an asymmetric investment that they could endure quite a lot in time”, explains Mosquera.
The mentality of these families regarding Bitcoin was confirmed when Mosquera recommended selling part of the investment at the time when bitcoin was approaching twenty thousand dollars in 2017, and their initial investment had already appreciated by more than thirty million dollars.
“These families tell me: look, we are not here for an economic gain, we are checking if this is gold 2.0, at a logistical level. If the family is going to divest the gold and transfer it here”.
Carlos Mosquera – Founder of Solidus Group
The years clearly passed and Bitcoin gave these families the answer they needed. Not only have they been changing their physical gold to gold 2.0, but they have also begun to spread the word about the benefits of Bitcoin among other wealthy families, both in Latin America and in Spain, many of whom would later become Solidus clients. Bitcoin was becoming in this way in su card up his sleeve in the face of the potential political chaos of the future.
Resist censorship, hedge against inflation
“Bitcoin has several qualitative and quantitative characteristics. For me, the most important at a qualitative level is resistance to censorship. You literally have an asset where the politician cannot put his hand, and that obviously makes his head itch”, thinks Mosquera.
While one might expect these wealthy families, perhaps more tied to the status quo than a retail investor might be, to be more conservative about such a disruption, Solidus’ experience belies such thinking.
“They come with these ideas precisely to protect themselves against these possible scenarios. Let’s not talk about Latin Americans whose most precious asset has always been the dollar. So they say, now I also have to protect myself from the dollar in the same sense that I protected myself from my local or regional currencies. They understand the fundamentals very well.”
Carlos Mosquera – Founder of Solidus Group
From Mosquera’s perspective, Latin Americans, as well as residents of other areas such as the Middle East who have long lived through political and social turmoil, are better able to understand Bitcoin’s profound value proposition than residents of more stable countries. : “it is still difficult for the American; the American has no idea what inflation is; the American has no idea what debasement is; much less does he have an idea of what a cyclical political crisis is like every ten years at the regional level, ”says the executive.
Resistance to censorship, to the confiscation of property, to the expropriation of wealth created in a life of work, is, from Solidus’ perspective, the main characteristic that wealthy families in Latin America and Spain are seeing in Bitcoin. In an inflationary environment, where what used to be the international reserve currency does not even escape, and where even the most democratic states are showing totalitarian tendencies, Bitcoin appears as a way out.