The argument for Bitcoin

Why Bitcoin is likely to be the best risk return adjusted asset for the next decade.

Summary

Bitcoin is a fundamental innovation on par with the invention of the Internet, or Electricity. It’s the first implementation of digital property: a scarce, verifiable and easily transferable asset that is truly decentralized and cannot be stopped. Bitcoin has been compared to “digital gold”, but it will likely far exceed the market cap of gold, currently standing at 11 Trillion. While other crypto assets may appreciate more in percentage terms, Bitcoin is the “risk off” asset, and will continue to maintain a dominant share of the crypto-currency market cap for the foreseeable future.

Bitcoin versus forks of Bitcoin

For those who don’t own Bitcoin, the first stumbling block to buying it is the argument that it will be displaced by another “better” cryptocurrency. This idea has been around since the early days of Bitcoin, as the Bitcoin code is completely open source and can be easily “improved”.

BItcoin Cash versus Bitcoin

Bitcoin versus other, different cryptocurrencies

While the empirical evidence of the last 10 years strongly suggests Bitcoin can’t be beat by a mere derivation of Bitcoin, there are now plenty of other blockchains that are faster, cheaper, and more feature rich than Bitcoin. Could Bitcoin be the “Myspace” to a future “Facebook”? Possibly, but not likely.

The sheer size of the Bitcoin network

Comparing Bitcoin to any other cryptocurrency should not only consider the market cap, but also the sheer size of the mining power and energy deployed to maintain the network.

Beyond the reach of governments

No government has a spare energy supply of 10 Nuclear reactors and 1 million mining machines. That would be the requirement to get 1/2 the current mining power of Bitcoin. Even a radical move like China banning Bitcoin mining 2 months ago had minimal effect on the Bitcoin network. The hash rate, which bottomed at 80 has already climbed back to 110 in a month.

Wrapped Bitcoin and Lightning for small transactions

An often repeated critique of Bitcoin is that is far too slow and costly for small transactions. Let’s dive in deeper here and see how this argument holds up.

Bitcoin Versus Gold

Gold, with its 11 Trillion market cap is probably the single best benchmark as to where Bitcoin will probably go. At 11 Trillion cap, with 21 Million coins, you get a price of roughly $500,000 per Bitcoin — about 10 times the current valuation.

The Plan B analysis

How far and how fast can Bitcoin go? Plan B, a Bitcoin analyst group, has produced a compelling report that compares Bitcoin, Gold and Silver as a function of the remaining ultimate scarcity. Essentially, every 4 years Bitcoin becomes twice as hard to mine, meaning that the “flow” of new Bitcoin decreases by a factor of 2 versus the “stock” of existing Bitcoin. This 2x increase in stock / flow tends to produce a 10x increase for each 4 year period, and maps extremely well to the Gold and Silver data. This analysis would suggest 100 Trillion as the ultimate end point for Bitcoin — or roughly 5 Million per coin.

Plan B Clustering

The effect of Fed money printing

Note that none of the previous discussion of Bitcoin relied on any argument of massive inflation due to Fed or other central bank money printing. Simply put, Bitcoin as a better form of scarce digital gold has historically been the best asset class of the last decade, and may very well continue in the next decade. But if you add on to this the extraordinary, absolutely unprecedented increase in M1, you now have the perfect storm for Bitcoin

M1 Growth. Source Fed.

Planetary Implications

Bitcoin has gone from 0 to 1 Trillion in 10 years. You don’t do that without tremendous volatility. And if we are correct, we are still 10–20 years or so from getting close to peak Bitcoin. But in the process, the growing adoption of this new digital gold as a reserve asset by individuals, companies and countries will replace the dollar and Euro.

Conclusion

Bitcoin is not just another crypto. It is the clear dominant store of digital property on the planet, and it could have planetary consequences in a few decades once it reaches its full potential. There are clearly other blockchains, which may present excellent investment opportunities and great technological breakthroughs, but Bitcoin is the coin that will truly change the world.

bitcoin, lightning, wrapped bitcoin and wallets