Many people think that Bitcoin is like the wild wild west, that it is lawless, but it’s actually the total opposite of that.

Bitcoin is not “the wild wild west”. In fact, the only reason Bitcoin still thrives to this day is because it is a system of rules, a protocol, and not following the rules instantly disqualifies you from using the network.

Bitcoin is not “lawless”. In fact, Bitcoin follows one law: the law of supply and demand. In the context of what Bitcoin wants to achieve, supply and demand is as hard a law as gravity. You cannot cheat supply and demand in a long enough time horizon. And in a monetary system, supply and demand is everything.

Just because something has no rulers, it doesn’t mean it has no rules. Just because something does not follow man-made laws, it doesn’t mean it does not follow natural laws.

Obsessing about the unit price of one bitcoin “currency”, like the media and mainstream investors do, will easily lead you to the false conclusion that it is a hot potato game. Of course “one bitcoin” has no intrinsic value! Of course “one bitcoin” worth $100,000 sounds preposterous! It looks like mania, it sounds like a greater fool game. But looking at the unit price of one bitcoin is looking at a tree and not seeing the forest.

Obsess about the metrics that reveal the network effects and give us hard data about how the law of supply and demand is playing out in this system, and the “insane” valuations will suddenly make much more sense.

Look at the the market Bitcoin is trying to address:

All the world’s wealth: $360 Trillion

Image from howmuch.net

Stores of Value, sovereign and non-sovereign (estimates)

  • Gold = $12 Trillion
  • Fiat = $90 Trillion
  • Stocks = $100+ Trillion
  • Bonds = $100+ Trillion
  • Real estate = $250 Trillion

Look at the some demand metrics of Bitcoin over the last 10 years:


Look at the companies with notable commercial activities related to Bitcoin - value created outside the network, all with one primary purpose: To support the development and the growth of the network and to allow as many people as possible to access and find utility for the network.

Common services are cryptocurrency wallet providers, bitcoin exchanges, payment service providers and venture capital. Other services include mining pools, cloud mining, peer-to-peer lending, exchange-traded funds, over-the-counter trading, gambling, micropayments, affiliates and prediction markets.

The industry employs an estimated 100,000+ jobs all over the world.

Look at the supply of Bitcoin:

There will only ever be 2,100,000,000,000,000 individual units of account, otherwise knows as satoshis, in the Bitcoin network.

Only 21 million Bitcoins in supply
Issuance is in a predetermined and fixed rate


Now, Look at some of the dynamics between supply and demand its effects the value of the network, and its impact on real-world assets and currencies:


You can’t fake supply and demand, or you can try, but you can’t cheat it for long. If Bitcoin is only able to tap into 1% of the wealth of the world in the next decade, that’s already $3.6 Trillion. Five percent? $18 Trillion.

At 5% of the world’s wealth captured by this network, one satoshi will be $0.0085. It will be a tiny fraction of real estate and derivatives markets, but at that valuation, it will finally be playing the role that the market seems to demand the most – an insurance policy against irresponsible state monetary policies and economic manipulation, a voluntary and peaceful option for people who do not believe in legacy financial systems.

Don’t be distracted by the price of one Bitcoin. Zoom out and see the forest for the trees. Don’t compare the limits of market price versus the limits of human ingenuity and network effects of technology.

Fin.

Sources:

https://howmuch.net/articles/distribution-worlds-wealth-2019

https://www.blockchain.com/explorer?utm_campaign=dcomnav_explorer

https://medium.com/@nic__carter/nine-bitcoin-charts-already-at-all-time-highs-78abbfe82804

https://unchained-capital.com/blog/bitcoin-obsoletes-all-other-money/

Note from DT editors

Miguel's thought provoking piece is the 4th in our year end series about all things Bitcoin. The concluding piece will be from the Mango Cart as they conclude their trilogy on the future of cryptocurrencies next week.