One thing becomes clear after years of researching Bitcoin and its effect on the world: Bitcoin cannot succeed just partially. It won’t play second fiddle. Like Satoshi foresaw, it’s all or nothing. Global monetary evolution or irrelevance.
Why is this the case? Bitcoin is money, emerging in a bottom-up fashion, competing with top-down fiat money. Society needs money to smoothly exchange goods & services and to preserve the value generated for future use. In economic terms, money serves the role of being a medium of exchange and a store of value. Now fiat money works quite fine as a medium of exchange (especially in the Western world), but it’s been getting increasingly worse as a store of value over the decades.
To compensate for this failure of fiat money, people look to other instruments to use as a store of value, such as securities or real estate. Bitcoin thus competes with such instruments as well. Compared to other stores of value, bitcoin doesn’t fall under a particular jurisdiction (such as stocks, bonds, derivatives or real estate) and doesn’t require a third party for safekeeping (such as gold, diamonds or expensive art). These two qualities are sometimes overlooked even though they are as important (if not more) as the reliable monetary policy resulting in the 21 million final supply.
The case for storing value in the jurisdictional walled gardens with third-party risks will be harder to sustain as bitcoin becomes perceived as a mature asset with diminishing risks over time.
The instruments currently used as a provisionary store of value won’t disappear, they will just lose their “monetary premium” —which, as the term implies, should accrue to functioning money. When the problem of money is fixed via broad bitcoin adoption, the provisionary instruments will be repriced to a pure market value and utilized where it makes most sense: houses for living, bonds for predictable cash flow, stocks for capital allocation. These instruments are useful for society, but they have no place serving as a store of value. This is a role for sound money.
The Bitcoin Generation
Let’s consider things in the long term. I’m not talking about a Bitcoin Astronomy kind of timeframe now, more of a “grandpa, what did you do in the 20s?” kind of thing. If bitcoin succeeds and becomes the global sound money that the world so direly needs, we are going to be known as the first bitcoin generation. And it won’t matter whether you gambled on Mt. Gox, witnessed the blocksize wars or lived through the great Chinese hashrate migration. You will be considered an OG just because you were there before bitcoin fixed the world.
Now this may sound like I just smoked a huge bowl of hopium, but stay with me for a minute. Bitcoin today is nowhere near its potential. Remember: it’s an all or nothing kind of thing.
The current tally goes like this:
Bitcoin stands at 7% of gold’s market cap. While gold has a strong Lindy effect going for it, you definitely can’t teleport it to the other side of the planet in the blink of an eye like you can do with sats over the Lightning Network. Gold needs trusted intermediaries to function properly. Bitcoin wins over gold in the long run.
Only one country so far has adopted bitcoin as its legal tender. The game theory here is clear: the 20th century was the age of dollarization; the 21st will be the age of bitcoinization.
All the geopolitical games involving bitcoin are still ahead of us. In the words of the legendary Jack Mallers: “There’s no fucking way you are ready” for what we’ll see in the coming years. Grab your beef jerky and stash your sats in the coldest of storage. History is upon us.
Most people aren’t aware of the Lightning Network. How often do you hear the “Bitcoin can’t scale beyond four transactions per second” FUD? Lightning is working, here and now.
Many still aren’t aware of bitcoin’s divisibility into 100,000,000 units, aka satoshis or sats. The unit bias lures many into shitcoins, naively believing they found affordable alternatives to bitcoin. You can still get thousands of sats for one dollar — that is hilariously cheap.
Smaller central banks aren’t even accumulating bitcoin so far, even though bitcoin on the balance sheet offers a high chance of saving minor national currencies (in the interim at least, before they become obsolete as hyperbitcoinization occurs).
Large investors are only slowly waking up to the fact that there is something terribly wrong with bonds, equities and even money itself. But waking up they are.
Only one corporation is conducting a speculative attack on the US dollar, so far. When others realize how to leverage fiat’s monetary policy against itself, this will become a crowded trade.
The trends above, while not all measurable, tell us more about bitcoin than the short-term price performance (short-term being less than yearly candles). Short-term price action may be seductive to gamblers, but it’s quite irrelevant in the grand scheme of things. It really doesn’t matter whether the price is $3,000, $30,000 or $300,000. No fiat price tag actually matters because fiat money itself will not matter in the long run. As long as we denominate bitcoin in fiat terms it still is too early because that means that bitcoin hasn’t become the universal unit of account yet.
The “Too Late” Mindset is Toxic .
The too late mindset isn’t good for your psychology. It makes you feel like shit. When people think about bitcoin I quickly see them become disappointed. They wish they had listened earlier. Or they wish they had bought at least one bitcoin when the price was lower.
The problem with bitcoin is you can never buy at a good price. Why? Bitcoin keeps being the best-performing asset each year, and is now the best performing asset of the decade. Think about that. This is the superpower of bitcoin. It doesn’t matter when you buy it. What matters is that you do eventually.
Buy low, sell high
We’re taught to buy assets at a low price and sell them at a higher price. What if this was industrial age factory worker thinking?
The best time to buy bitcoin is when you decide to.
The reason is, bitcoin has a fixed supply of coins and predictable code built into it that tells you its future. You don’t have to be a genius to understand bitcoin’s future price.
A Dutch institutional investor known as Plan B created a stock to flow model which helps investors understand where the price is going based on the hard-coded, predictable monetary policy of bitcoin.
Once you understand stock to flow, then you’ll understand the overwhelming dollar value of guaranteed scarcity.
Forget the price. What's the opportunity?
I want to shake up your thinking. The opportunity of bitcoin has nothing to do with price. Bitcoin solves a problem. The current value of the circulating supply of bitcoin is roughly $355 billion.
The current value of the world’s supply of gold is about $9 trillion. The current value of the world’s supply of derivatives (a popular financial instrument people dump money into) is $640 trillion. The current value of the world’s supply of stocks is $95 trillion.
If only a small amount of money moves out of one of these asset classes and into bitcoin then the price will skyrocket.
Investment firms are buying bitcoin, not because they want to, but because they have to. There are very few places you can put your money and get a return. There are even fewer places you can put your money to store it safely in the event of a downturn or recession.
I don’t personally care about the bitcoin price. I care about the problem it solves and whether over the long-term there is a financial return likely to occur for doing so.
Long-term thinking
The worst way to invest as an everyday person is for the short term. One of my early investments in bitcoin was short term. I bought a lot and then sold it when the price crashed in 2017. That short-term thinking has meant I’m working a few years longer than I need to.
I would be retired if I still had all the bitcoin I owned in 2017. I’m okayTime in the market beats timing the market. with that. My investor psychology was weak back then. I needed to see a few 50% drops to learn my lesson. The March 2020 covid crash was certainly a good test, and I passed without selling any bitcoin.
Thinking about the assets you invest in over the long term helps reduce your stress levels. You’re less worried about whether it’s “too late” or “is now a good time” and focused on doing your research and understanding what you’re buying. This phrase sums it up better than I could:
Time in the market beats timing the market.
