The excitement and hope that comes with being a Bitcoiner is often tempered by a nagging, sinking feeling in your stomach that perhaps you’re too late to the party.
It’s like holding the winning lottery numbers in your hand. For last week’s draw.
When you look at previous price action you will want to kick yourself for not buying bitcoin at a dollar, or for not taking the opportunity to mine it by the bucketload with a basic laptop when you had the chance.
It’s difficult to shake off the green-eyed monster (jealousy, not Yoda, but probably Yoda too). But you have to get over it. You have to zoom out and look at the bigger picture.
Predictions are hard. Especially about the future
In 1999 the singer David Bowie gave an interview to the BBC in which he gave his thoughts on the emerging internet (from 7 min).
The interviewer was fairly dismissive of the new technology’s implications but Bowie was steadfast in his view that humanity was on the verge of something extraordinary.
There was one part of the interview that has always stuck in my mind. It serves as a constant reminder of just how bad humans are at predicting the future, and of how quickly we can adopt a new technology or protocol whose time has come.
At 10 min 20 sec Bowie explains that at the dawn of another technology - the telephone - the US president at the time was ridiculed for saying he foresaw the day in the future when every town in America would have a telephone.
The implication from Bowie was that this vastly undercooked prediction about the adoption of the telephone was probably representative of our 1999 understanding of what the internet would do.
Bowie says, “I don’t think we’ve even seen the tip of the iceberg. I think the potential of what the internet is going to do to society, both good and bad, is unimaginable. I think we’re actually on the cusp of something exhilarating and terrifying.” The interviewer responds that, “it’s just a tool, isn’t it?” and Bowie says, “no, it’s not, it’s an alien life form.” (This description of the internet happens to tie in nicely with some of the more abstract views that Bitcoin is an organism and that it cannot be killed.)
Note how the president was ridiculed by his contemporaries for being too bullish about the telephone, whereas we now ridicule the same person for not being nearly bullish enough.
This is how I think of Bitcoin. None of us – even OG Bitcoiners – have any idea just how crazy this thing can get. We are all terrible at predicting the future. It is perfectly possible that future generations will watch Michael Saylor videos and howl with laughter at his poor foresight.
Fig. 1: I find Michael Saylor’s lack of bullishness disturbing
When I wore a younger man’s clothes and had to revise for exams I would memorize spider diagrams. If I was trying to prepare for a number of possible essay subjects I would draw something like this for each subject and then commit it to memory:
Fig. 2: proof-of-no-work improving my slide deck skills
All I had to do was remember, say, three or four themes for each essay subject, and then if that particular essay subject came up I would be able to write an entire essay based on my memorized spider diagram. Remembering three or four starter themes for each essay subject would prompt me to remember all the issues, sub-issues and sub-sub-issues that followed on from those initial themes.
Where am I going with this? The point I am trying to make here is that our ability to predict the future – in this case, the path to hyperbitcoinization – is constrained by the starting themes of the spider diagram that we have in our heads. We then assume that for each theme there are a range of possible outcomes 1, 2 and 3, and then we give each of those outcomes 1, 2 and 3 their own sub-outcomes and sub-sub-outcomes.
But what if outcome 1 changes slightly from what we predicted? That will then have a ripple effect where its sub-outcomes are altered, and so on.
What if there was an outcome that we completely overlooked in our model? By definition we will have also overlooked each of that outcome’s possible sub-outcomes.
What if there was an entire theme that we hadn’t conceived of at the very beginning?
There are an infinite number of variables that we can get wrong or overlook completely when we make predictions. In trying to predict what path Bitcoin or any other technology will take, all that is required for a completely unexpected result is for it to go down one minor alleyway that we didn’t foresee. What happens after that is then a journey of discovery for all of us, even battle-scarred Bitcoiners.
Take Bitcoin’s energy usage as an example of this unexpected journey of discovery. It is clear that energy was always going to be central to Bitcoin’s proof-of-work consensus, but the general impression I get from having watched dozens of podcasts about bitcoin mining is that no-one really foresaw just how key the energy dimension would be, or at least how quickly the energy arms race would escalate.
At Bitcoin’s birth you could mine it for virtually negligible cost by plugging your standard laptop in to your domestic electricity outlet. This will probably be as close as ordinary people will ever have come to legally printing money. The cost of printing that money was a basic laptop (which you probably already owned anyway), plus some negligible or very low electricity cost. In principle nothing has changed. It’s just that you now need dedicated hardware and an insane amount of energy.
Fast-forward fourteen years. We now have a nuclear facility mining bitcoin. Bitcoin miners are constantly hunting out stranded or wasted energy sources. Bitcoin is stabilizing energy grids. I doubt anyone really saw all these things coming, or at least not this soon into Bitcoin’s lifespan. It’s like having a smart kid and knowing he is destined to achieve great things, but then he still surprises you by becoming the first person on Mars – at the age of fourteen.
And this is an aspect of Bitcoin – energy – that was well understood from the very beginning as being fundamental to its character. Try to think of the unknown ripple consequences of something that we have completely overlooked. At any point in time bitcoin can go absolutely bananas and all we’ll be able to do is stare in amazement, like apes watching a rocket take off.
Fig. 3: you’re gonna need a bigger nuclear bitcoin mining facility
Of course, overlooked or under-considered variables won’t necessarily always have a future positive effect: they might have downsides. One example of this is the ordinals debate. I still don’t really know what to make of ordinals. My initial reaction was one of negativity. I saw no reason why we needed a money that performed any function other than money, and I was concerned it would open up attack vectors.
I am more open-minded now. My view is that Bitcoin’s free-market incentive structure will either make ordinals irrelevant and they will go away, or the incentives will be such that Bitcoin’s remit is expanded beyond indestructible and incorruptible money to encompass indestructible and incorruptible information, too.
After all, money is just information anyway so perhaps there is a strong case for having one network for financial information and for non-financial information that market participants consider to be valuable. What price do you put on the monetary units for that super-network?
I was worried about ordinals initially but I now take a similar approach to when I have forgotten something. Let me explain.
Have you ever watched a film and recognized a minor actor in it from another film, and not been able to remember what that other film was? Eventually you give up and forget about it, but then maybe half an hour later it just falls into your head when you aren’t even trying to remember it. It’s like your brain carries on trying even when you’ve told it to stop.
That is my approach to ordinals now: I’m just trusting Bitcoin to do its thing. I’m trusting it to be anti-fragile. I’m trusting in the process. The fire of Bitcoin has already been lit, just as you prompted your brain to think of a film. Like your brain, Bitcoin will steam ahead – even if you tell it to stop.
There is a common mantra in Bitcoin of “Don’t trust, verify”. In practice you do need a fair amount of trust, though. For example, unless you know code, you need to trust that the Bitcoin source code, and the source code in hardware wallets, works.
You also need to trust in human nature, but not in the sense of hoping that your fellow humans will be idealistic or altruistic. Rather, you just need to trust your fellow humans to do what they have done since the dawn of time: to be selfish and act in their best interests. Bitcoin creates what has been described as a “vortex of inescapable incentives”. Bitcoin gives us escape velocity from the perpetually bad incentives of the fiat system.
Everything is good for Bitcoin. To give just one example: if a government bails out a failed bank, that requires enormous money-printing (in one shape or another). This devalues fiat even more, and people will head to bitcoin. But if a government lets a bank fail, people will seek out a harder form of money that is immune from failure. Again, they will head for bitcoin.
With such wondrous incentives, what we can say with certainty is that, at the very least, Bitcoin has a bright future.
Fig. 4: Satoshi’s mobile phone business was not as successful as his decentralized, open-source, peer-to-peer money protocol
We haven’t taken off yet. And there’s plenty of runway left
When you’re consuming Bitcoin content what feels like 24-7 and you’re watching podcasts featuring people with hundreds, thousands or even tens of thousands of bitcoin, you forget just how few people actually own any bitcoin at all, let alone a material amount.
If you were to walk outside of your house right now and ask one hundred people in the street if they owned any bitcoin, how many would say yes? One? None?
I have come across various estimates that the number of people owning bitcoin is about 0.5% to 1.5%.
Let’s take 1%. That 1% have created an asset that has a current market capitalization of around $580 billion. At bitcoin’s all-time high in November 2021 its market capitalization stood at roughly $1.28 trillion.
Now, think what is yet to come. Mass retail adoption. Private companies and public companies putting bitcoin on their balance sheet. Nation states acquiring and mining bitcoin. Huge financial institutions such as Blackrock offering bitcoin ETFs and other financial products to other huge financial institutions. Regulatory clarity arising out of the Binance and Coinbase lawsuits by way of a thick black line separating bitcoin from crypto. Another global financial crisis. The likely and probably inevitable collapse of the dollar. All in the context of a game-theoretic scramble to buy a dwindling number of provably finite, censorship-resistant monetary units.
The increase in price won’t be linear as adoption increases. Networks increase exponentially with every new entrant to the network. This is expressed by Metcalfe’s law which states that the financial value or impact of a network is proportional to the square of the number of connected users of the system.
Put simply, if you assume a current bitcoin adoption of 1%, there is much, much further to go than just another 100x.
We are not just replacing analogue money with digital money
I have watched many videos about bitcoin price predictions. I like a good hit of hopium as much as the next guy.
A common approach is to total up the world’s financial assets and divide that entire sum, or a percentage of that sum, by 21 million, to arrive at a price per individual bitcoin.
For example, I have seen Greg Foss use a total global asset figure of $900 trillion and then earmark a conservative 5% of that ($45 billion) to be eaten by bitcoin. That gives a price per bitcoin of 45 billion divided by 21 million, or just over $2m per bitcoin.
In doing that exercise, though, it’s easy to forget just how different bitcoin is to fiat. This is not simply another financial asset. No matter how many times we refer to bitcoin’s finite number of units we take for granted just how radical a concept finite scarcity is. I like the way Parker Lewis hammers home this point over and over again.
Jack Mallers expressed this well in a conversation with Matt Odell and Adam Back at Bitcoin 2023. He said (at 13 min 10 sec),“I don’t think the world knows how to price something that’s definitively scarce, that’s engineered to have a finite supply”. Hearing that stops you in your tracks. Bitcoin is weird like that. You need to hear something a number of times, or in this case just expressed in a different way, for it to really sink in. The world doesn’t know. What happens when it finds out?
It reminds you that the world has truly never experienced an asset like bitcoin. It’s not unreasonable to assume that the certainty provided by bitcoin’s provably finite scarcity puts an additional premium on whatever mechanical calculation you choose to do.
Perhaps it really is infinity divided by 21 million, as Knut Svanholm says.
Fig. 5: fair value accounting for bitcoin
In the same vein, it’s not unreasonable to put an additional premium on a mechanical calculation to factor in bitcoin’s other radical difference to fiat: if you hold your private keys, your bitcoin cannot be seized or frozen. We have never had anything like this before. Like your fiat money, all your models really are broken.
Bitcoin is not merely the swap-out of an existing analogue technology with a digital one. Bitcoin ushers in the dawn of whole new use cases, such as instant, virtually free micropayments. This radically alters existing business models and creates new ones, be they in the field of advertising, value-for-value, or others. Bitcoin will birth entire new ecosystems which our dumb ape minds cannot yet envisage.
Bitcoin hasn’t just given us freedom money. It has given us freedom minds. It has liberated our minds and given us a new way of thinking. Previously, when we saw, say, the censorship and corruption shortcomings of an existing dominant network such as YouTube, we would put our hopes into finding another (centralized) network and hope it would somehow overcome YouTube’s network effects, and then also resist the shortcomings that befell the dominant network. Or we would be tempted to put our hopes in an individual, such as Elon Musk.
Bitcoin has taught us that incentives are key to everything, and that centralization is doomed. It has taught us that a new network under an old paradigm, even if it overcomes challenging network effects, will inevitably go the same way as its predecessor.
Bitcoin has given us a new mental model: the model of decentralization where no person, corporation or state is in charge. We can apply that new model to things other than money, such as social media. Hence the rise of protocols like Nostr.
What price do you put on expanded human thought?
Send in the bulls
I have no idea what the next bull-run will do for bitcoin’s price but my gut feeling is that it will be crazier than past ones. Think of all the recent disasters – FTX, Celsius, Luna, crypto bank failures, etc. These don’t really have anything to do with bitcoin, but they are often perceived as being synonymous with bitcoin. In that context, and with the wider macro environment, for bitcoin to be roughly 55% off its November 2021 all-time high ($30,000 now vs $69,000 then) is some achievement. Not bad for a bear market. And we are still at miniscule retail, corporate and nation state adoption.
If the previous bull markets have been crazy, how crazy might the next one be now that the supply of bitcoin is even more illiquid? As the bitcoin proposition is understood more and more by those already owning bitcoin, they are even more likely to hodl. All while the remaining amount of bitcoin to be mined is shrinking every ten minutes, as it always does, and the block reward is poised to be cut from 6.25 to 3.125 around April 2024.
Instead of every bull-run becoming less pronounced than the previous one, what if every bull-run is more bullish than the previous one (or at least until we have crossed some kind of hyperbitcoinization threshold)?
At the current price, owning a whole bitcoin is still just about within the grasp of many normal, middle-class people. My guess is that the next bull-run will place wholecoiner status beyond their reach.
There is no particular significance to achieving wholecoiner status other than, well, status. But humans are strange things. We get obsessed by arbitrary metrics. It’s possible that a lot of people who might become interested in bitcoin during the next bull-run will conclude that they will never own an entire bitcoin, and they might well be right. They might throw their arms in the air and think: what’s the point of buying any of this thing if I can’t even have a whole one to myself?
But that will be a huge mistake. They will need to swallow their pride and accept that wholecoiner status is just an arbitrary threshold. Like everyone else, be they whale or shrimp, they will just need to start DCA-ing into bitcoin and not stop. They will need to learn the value of humility and sat-stacking, as every Bitcoiner does.
Alternatively, ordinary people might realize that this is their final chance to become a wholecoiner and they will sell the shirt off their back to reach that milestone, even in a bull-run.
Never before has humanity had such a clear escape route from fiat’s perpetual slavery. Seeking solutions to the inevitable problems inherent in the fiat system, by deploying ever-more inventive permutations of the same fixed number of fiat levers, is like continual inbreeding: there are only so many times you can fold and re-fold that genetic dough before it completely seizes up and you create something horrific.
If you want to give yourself the strongest possible protection from whatever Frankenstein monster the fiat machine transforms into in its final death throes, you need bitcoin. How much? As Jeff Booth says, you really need to get off zero.
The good news is that you’re most probably not too late to the party, though.
Most probably, none of us understands just how early we are.
You can follow me on Twitter @OnlyBitcoiner.