Expectations for the coming months and decades
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CONTENT:
Intro | Forward | Upcoming | Macro | Scepticism | Conclusion
Intro
Let’s start with the notion that behind Bitcoin (BTC) is an Idea, essentially that the monetary system should not be controlled by the government. The reason being is that, since it is centralized and countries have monopoly over it, in the long period (50 to 100 years), it gets corrupted (e.g. US abandoned the Gold Standard in 1971). As such, it is misused which ends up with currency devaluation and high or hyper runaway inflation, as history often proved. Temptation to overuse money printer is just irresistible. That results in citizens’ savings being stolen, capital destroyed and economy broken. In addition, makes it easier to wage unjustified wars, fuels populist politicians, and at the same time increases wealth gap (income not keeping pace with price rise). As we all know Central Planning never ends well, and neither does money planning (unsolvable problem of lack of data).
So the proposal was to break this vicious circle by making a decentralized system where no authority will be able to print money with a click of a button (The separation of money and state). Similarly, Gutenberg printing press contributed to separation of church and state by making books widely available (it democratized knowledge).
Money is an abstract concept and a social construct of humankind, very old innovation that even precedes writing. Also it is a proxy for time, the most valuable human resource. And people don’t want more money, but what they can buy with it. So inflation is stealing people’s time, it is deceitful and ineffective, and disintegrates the cement that binds society together.
In principle Bitcoin is not anti-government, just for more efficient and transparent administration with proper checks and balances, opposite of today’s bureaucracy. We could say it is a movement towards financial liberalization and independence, individual sovereignty, autonomy and freedom. Practical and feasible attempt to fix the flawed monetary system (broken money), in other words Bitcoin fixes the Money (Integrity being core belief). Money is information but it currently has errors, and BTC is error correction. It is antithetical to centralised money creation (digital printing).
Countries have unfoundedly taken absolute control over money. Seigniorage is Not part of basic social contract, and legitimacy of governments regarding monetary control is questionable. Last 100 years with dominance of monetary policy over economy is unnatural state, an exception in long history of money, when observed from its origin.
– To quote F.A.Hayek, an austrian school economist, and author of ‘The Denationalization of Money’ who predicted Bitcoin in 1984 in one interview:
“Governments mostly abuse money and have stop its improvement, also Monetary policy has done only harm. We can’t take it violently out of the hands of government. All we can do is by some sly, roundabout way introduce something they can’t stop.”
– Furthermore Nobel prize-winning economist Milton Friedman in 1999 has stated:
“Internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing, that will soon be developed, is the reliable e-cache.” (electronic cache)
– Let’s also mention David Chaum, well-known cryptographer, who said: “Privacy in messaging and payments, and the like, is so fundamental to democracy.”
Bitcoin open protocol is simply the first functional implementation of this radical concept (courtesy of Cypherpunks). It is programming language (code) for communicating value and platform of trust which can run currency as a software (the Internet of Money).
Non-Inflationary sound money that is internet native, digital, smart (programmable), neutral (agnostic to politics) as bottom up emerging phenomenon.
Also being fully permissionless, censorship resistant and trustless, since people trust is often breached by large organisations (countries, big banks, mega corps). Can also be defined as free speech money, with keeping freedom even after speech.
As an Opt-In ecosystem it represents peaceful resistance from currency manipulation and debasement.
It was elegantly designed and programmed to have the best characteristics of Money:
1. Durable, 2. Divisible, 3. Portable, 4. Acceptable, 5. Scarce, 6. Uniform
Fixes bad features of gold regarding authenticity (hard to verify), difficult division (need melting) and expensive portability (costly transfer) because of which shiny yellow metal was concentrated and centralised.
In technical sence it is upheld by a significant computer science breakthrough: Decentralised Digital Scarcity, that is made using cryptography and which solved double-spending problem. Being Digital does not mean it is Virtual as it has real world costs and effects with consequences.
Way Forward
Next to lay out one possible way how we could get to this system. Since BTC is Scarce (most important feature) while state-issued (Fiat) currency is constantly inflationary and loses value (fiat fraud), people have INCENTIVE to save as much in Bitcoin. It represent hedge against inflation, often characterised as the ‘invisible thief’ or plainly theft, and also against systematic institutional collapse. What’s more it is not only hedge but also permanent solution for inflation. Institutional trust system were made for smaller industrial societies and now can’t scale to globalised information based society.
Proposition here is that it serves as (1) SoV - Store Of Value (digital Gold 2.0) in the long period (disregarding short term volatility). Let’s not forget that Value is partly subjective, so it is perceived, and not intrinsic in things. It have value precisely because of users’ desire to participate in a monetary system that does not have a central issuing authority (it is like ungovernable money).
Later when almost everybody has some of it, they will start paying and accepting it directly (creating circular economy) instead of converting it into Fiat that relies on faith in state. And so it slowly takes on the function of (2) MoE - Medium of Exchange. From that moment you will not need to sell it, instead will simply be spending it.
And the third phase (if it ever comes to this one) could be when prices are in it, so (3) UoA - Unit of Account feature (universal currency).
– BTC has enormous potential as it could be great at all 3 function, be first triple point asset, unique in history (has ability to change the world). Each phase (1), (2), (3) could last from 10 to 15 years (free estimate). Pre phase 0 was until recently - accumulations as Collectibles, with price discovery.
Here is one interesting idea. In current century average life span is estimated to be 84 years and half of that is 42 - answer to money. It wiil probably take that much for Bitcoin to grow to its full potential, so by mid century in 2050. This means that those who were 42 old in 2008 will live to see it, while new generation born then will be 42, in their best years (generational change).
Similar to internet evolution (1980-2020) with S-Curve growth (gradually then suddenly). With one important distinction that now there is direct value available for investing. Because of that it is prone to cyclic price swings with many speculators in the space, and that’s why adoption here also goes in cycles.
And if we go even further in the past we could observe how cars replaced horses, and see how some opposed the transport evolution. The same way some people today still oppose the financial evolution. Even Henry Ford said, to paraphrase: It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
Don’t Understand Bitcoin? Here’s 24 Reasons You Really Should.
First step will be selective adoption by 1% - the trendsetters (passionate supporters).
One assessment is that by 2030 adoption could get to 10%, just the right number as a tipping point for critical mass acceptance. By then it will be visible if it is going in this direction. At this point in time some consider this will inevitably happen.
And around 2040-2050 we will know the final result (needs generational change). In the best case 1 BTC could be worth million+ $ (an asymmetric bet) after long monetization process, while gradually demonetizes gold. At that point it would fully stabilize, and until then volatility would be lower each cycle. Bitcoin offers gradual soft landing for todays over-leveraged keynesian economy.
Also between countries there is Game Theory dynamics (USA, Russia, etc) so even some of them blocking it (aka China) can not stop it, besides ideas are bulletproof. And if few make it treasury reserve asset and/or legal tender, others would eventually join (FOMO - Fear Of Missing Out). In geopolitics US dollar has already started slowly to lose its supremacy as world reserve currency (De-dollarization) and Will Bitcoin replace Dollar? It is actually in USA interest to support Bitcoin, with inclusive regulatory framework, because it is their best option for the future (taking into account a power shift from the West to the East). Probably it will first be more used in developing countries (global south mainly) that lack financial services (bank the unbanked, remittances without intermediaries) and have weak currencies (Bitcoin’s ‘moral imperative’). Some will completely skip bank account, and leap frog directly into money app on smartphone, especially younger tech-savvy generation.
On the other hand, there are attempts to introduce CBDC (Central Bank Digital Currency) as a kind of counter-revolution, but it is only digital Fiat with more surveillance and therefore will not pass.
And even banks decision to embrace Bitcoin can be analysed from a game-theoretic perspective, where the payoff for each player (financial institution) depends not only on their own decision but also on the decisions of others (market race).
So this would be free-market chosen hard money, just as history suggests always happens (Thiers’ law - good money will drive out bad one, on commodity level field). But since it is not centralized it would keep permanently its hard cap (no central point of control/failure to increase the supply - removes the fallible human element).
At the end there would be balance with its total monetary units and the entire world economy (Hyperbitcoinization - everything divided by 21 million). Each Satoshi or Sat, Bitcoin subunit, would be stake in the abundant future (hope for better tomorrow and future generations).
It would be like a precise numerical measurement system for the economic activity - measuring stick (1 meter unit also does not change even as we have taller buildings).
Possible effects:
– people would spend more prudently (it imposes discipline), and would take only calculated risks/credits
– lower time preference, long-term mindset, less consumerism of junk goods (no overconsumption)
– real wages that keeps purchasing power with mild price deflation leading to greater prosperity
(no need to ask for raise just to keep up with inflation)
– fair distribution of economic growth by removing silent regressive Tax via inflation
(no Cantillon effect - those close to printing machine benefit the most, financial elite)
– simplified savings (also there is power of simplicity in Bitcoin architecture)
Upcoming period
April 2024 is when next halving occurs. Event refers to reducing (by half) creation of new coins that miners receive as reward, and it happens every 4 years in cycles. Miner’s reward includes newly generated coins and also transaction fees that will become more relevant as time pases (similar to the ratio of principal and interest in an installment loan during the repayment period).
Because many are buying regulary, doing DCA (Dollar-Cost Averaging) and Stacking Sats (accumulating Bitcoin) it should lead to price hike approximately 2 times.
It then gets media attention which attracts new people and traders, leading to hype and new all time high, that is followed by crash and bear market. So it has a specific market behavior but the 4 year moving average is constantly going up (logarithmic growth) and number of adopters increase with each round. Usage becomes easier as mobile apps are getting more user friendly every day. And imminent approval of Spot Bitcoin ETFs (Exchange-Traded Fund) will have additional impact on bull rally. To add here Fidelity research study Bitcoin First Revisited where it is explained why it should be considered separately from other digital assets.
Price rise can start several month before in anticipation of halving, so it is priced in but only partially. Expectations can lead to a self-fulfilling assumption.
If this logic is correct, and with multiplication factor (small liqudity can push price a lot), from current price of $ 27.000 on 2023/10/01, by the end of 2025 it could peak in range between 100 and 200+ thousand USD. After this in 2026 or 2027 maybe it will fall back again to little below 100 K, down to 50% of cycle maximum (estimation based on rainbow price chart - an informed guess). This could be the last cycle with such predictability. Another intriguing prediction model is The Bitcoin Power Law Theory (long term pow-law).
Very rarely in history was there an asset that is safe to hold while also having the most upside potential. At the moment, in beginning of phase (1) it is still an investment (like stocks), and an asimetric bet (possible upside much greater then downside).
Macro-Economic analysis (fixed money supply characteristics):
1. A singular interoperable global protocol for value transfer - Bitcoin Standard (standardization of money). It means no issues with conversion between currencies for global trade and international e-commerce (single common economic language). Economies converge on single form of money.
Superior new monetary order optimally engineered from First-principles thinking to be as efficient as possible.
2. This would be apolitical money, so countries effectively would no longer have monetary policy, only fiscal. Economy will have natural business cycles and become be more stable. Swings should be smaller since they could not artificialy rise as much because there is no government bailout (remember 2008 financial crisis).
3. Limited supply would not be fundamentally a problem as long as it is divisible downwards: 1 BTC = 100 million Satoshies (Sat-s). Total amount of units is 2.1 quadrillion, 21 mil * 100 mil (8 digits + 8 decimals) and Lightning even enables miliSats (1/1000). Try to avoid bias of unit size, it is not objectively relevant.
If the world economy grows on average 1% per year, some things would reduce its price by 1%. Of course, others with higher efficiency of manufacturing, enabled by technological progress, would fall even more to marginal cost of production and some could rise if there would be extra demand.
Also there is no risk of deflationary spiral since that is only possible in today’s Money As Debt system (Credit Money - created with each new credit while being destroyed when debt is paid off).
4. Hoarding is not an issue, as humans have everyday needs, but also wants, and would spend, save and invest during their life (nobody lives forever).
So there would be an equilibrium at any moment in time.
5. Credits would be a little more expensive than today, since they would have real cost. But it would give the correct price signal to market participants, resulting with less capital misallocation (inflation distorts the signal and Finding SIGNAL In A Noisy World - EXCELENT article, recommend to READ).
Banks (for loans) would be like in Free Banking, and would need to take care about duration of credits and term deposit. Central Bank (CB) would be obsolete in current function as it could not act as lender of last resort (could remain solely as an administrator of countries reserves), and this also would eliminate Modern Monetary Theory (MMT).
There would mostly be Full-reserve banking, limited with time deposits. And even if some type of Fractional-reserve banking emerges it would have an upper bound to risk exposure. No more too risky loans without any collateral, so called NINJA loans (No Income, No Job, no Assets) - one of causes of the ‘08 crisis.
Real estates would have lower prices since they would not serve as a Store of Value and would lose that monetary premium (reduced cost of housing).
Also to add an emergence of Bitcoin Money Market Funds.
To substantiate these claims there is an excellent article:
Why a fixed supply money does not lead to economic catastrophe
(And why it is in fact the only intellectually and ethically defensible monetary system)
Finally to address and elaborate some often given scepticism towards it:
1. Others cryptocurrencies (alt coins) are not real competition to Bitcoin because of:
First mover advantage (organic creation that can’t be replicated), larges Network effect momentum, best governance model (no known founder - follow the rules, not the ruler). Next it has most decentralized miners hashrate and wide node distribution, biggest community (contributors, developers) with strong ideological conviction, deep commitment and ever growing adoption from users (it became a brand). There is a phrase: Bitcoin, Not ‘Crypto’.
Besides ingenious system integration of all components, one novel item stands out as vital and that is Difficulty Adjustment of mining. It is a self-balancing probabalistic mechanism to keep issuance of new coins in line with predetermined schedule (this flexibility makes it hard and solid).
On the other hand, cryptos using PoS (Proof of Stake) consensus model are ‘securities’ like, do not have true decentralization, and are virtual in nature. They have no separation of power, and Staking is essentially a centralizing force. Some of them might find another use case but not as honest and reliable money, as that is too important function. Bitcoin is entirely self-contained (self-referential) and not capable of enforcing anything that exists outside the network, nor is any blockchain (the oracle problem, as saying goes: Bitcoin, Not Blockchain).
Only Bitcoin is considered as virtual Commodity (primary monetary good), confirmed as such by the SEC (US Security Exchange Commission). It is nascent Asset without issuer and digital Property (inalienable property rights).
So those others systems are neither money coins nor currencies, they can only be some type of tokens (alt-token can not be money). One practical use case is to represent share of a company, or to have some specific feature.
Also Side-chains (Liquid as an example) or Drive-chains (BitVM) as second layers could be better then separate Alts since they can tap into Bitcoin L1 base security. Even some Alts have a bridge to connect with BTC using Wrapped Bitcoin. Then there is RGB, a smart contract system on lightning nework.
And any real new innovation, since all are open source, could be added into Bitcoin with new updates. For example Litecoin is somewhat of a Test network for Bitcoin, Lightning feature was first implemented there. Similarly zk-rollup (zero-knowledge) originally implemented in Ethereum is being considered for Bitcoin. Still any change must keep main principles but also be backward compatible, as protocol base layer should not change too much (You don’t change Bitcoin, it changes you). Any alterations must be done very carefully because Bitcoin network has a fiduciary duty.
2. As for the criticism of being slow, there is a good reason for it, or a few of them.
Distributed ledger can have only limited size and growth based on world wide average internet connection and average disk size. Also all world transactions do not (and should not) need to be on public ledger. One payment for coffee has no place on a permanent immutable database whose main job it to uphold monetary policy (emphasis on structural efficiency). It is Blockchain trilemma between 1.Decentralisation, 2.Security, 3.Scalability.
So the only feasible solution, a trade-off, was to limit number transactions per second on the main layer, and solve scalability on top layers. In the future it is expected that the base layer would serve as a settlement between lightning nodes, custodians and banks with published proof of reserves and liabilities, countries, etc. Just like today there is RTGS (Real Time Gross Settlement) or GIRO as interbank clearing, or similar to how swift works. Therefore regular transactions would be on Lightning and other Layer 2 (L2) solutions, where it is faster (instant), low cost (1000 cheaper than visa), has bigger capacity (potentially 1 million+ TPS) and with more privacy. Large capacity is excellent for micropayments, a usecase that was not possible before. As a global settlement layer it is actually extremely fast, has finality in 30 minutes, instead of 3+ days with legacy systems.
We can make analogy with PayPal which is a Method of Payment but the underlying Medium of Exchange is still the dollar. The same way Lightning or even some custodial payment service would be method of payment while Bitcoin can remain as a Medium of Exchange.
Interesting note to mention here is that on top of lightning rails we could see implementation of StableSats that could be used instead of centralized stable coins USDT/USDC, until the Bitcoin Sats themselves become stable enough.
And last but not least it can fuel new social media network like Nostr, also known as decentralised twitter (now X), where the user is owner of his data (The Tyranny of KYC on published on Primal - nostr web client app).
3. To be future-proof from changes towards the inflationary model it needs high level decentralization which requires real world cost (anchor in physical reality). That is manifested in digital ‘mining’ so called Proof of Work - PoW, consensus mechanism with a fascinating power projection (backed by energy).
Regarding this power consumption, the argument is that using 0.3 to 0.6 % of the world’s electricity is pretty cheap to have a global high-quality monetary network for the long term. Even the banking industry today has higher power expenditure than this.
At the same time miners can help stabilize the grid (symbiotic relationship) and also they can consume stranded and wasted energy.
Electrical production is another issue and in the future all power should be sustainable and from renewable sources.
4. On the issue of fair distribution, early adopters are fairly rewarded for the risk and time they invested. Also Holders for having nerves of steel and determination to hold (HODL meme) for long through uncertainty and turbulent times (BTC as only certain thing for foreseeable future - Tick Tock Next Block). It takes courage and resilience to stay committed during dips and bust. And without them the network would not be able to survive at an early stage. Besides most early buyers and miners have sold theirs coins at one point during the bumpy ride. And lastly it is becoming more evenly distributed over time.
Conclusion
Personal assessment currently is that Bitcoin has 51% chance of growing and expanding
(in 2017 was 30% and in 2013 maybe 10% then).
The longer it exists (15 years so far) the higher are chances of succeeding (Lindy effect), as it grows stronger and becomes more robust (was rigidly tested).
Like any investment it is a venture, as every decision in life is. For risky ones, invest only what you can afford to lose.
Also keep better part of them off crypto exchanges (Self-Custody - not your keys, not your coins).
Either way, it’s always good to be educated on the subject.
DYOR (Do Your Own Research) and make your probability for each hypothetical scenario.
Apps and Services for regular buying and/or DCAing Bit (BTC-DCA_CompareSheet) with Credit/Debit Card for future spending and retirement:
| 1.River | 2.Strike | 3.CashApp (US only) | 4.Swan |
YT talks to listen:
-Bitcoin is World Hope (Natalie Brunell)
-Introduction: What is bitcoin and why does it matter? (Andreas Antonopoulos)
-For Beginners: Bitcoin Explained in Simple Terms (-||-)
-Good Deflation, Bad Inflation (Jeff Booth)
-Why Deflation is Key to an Abundant Future (The Price of Tomorrow)
-The Bitcoin Standard (Saifedean Ammous)
-Can Bitcoin Replace Government-Issued Money? (A Debate)
Epilogue: Following months will be interesting to see how this plays out, stay tuned.
For those eager to find out more and deep dive into it, first Bit post was mini eBook: (r)Evolution of Money
Also great literature is educational book from El Salvador: Bitcoin-Diploma (MiPrimerBitcoin - My first Bitcoin) to increase financial literacy and awareness.