Nice article. I'm always interested in the maxi perspective.
I wanted to give you my coin-skeptic perspective—I speculate on crypto in the short term, but do not believe in the long-term narrative or economics of BTC as a real currency.
Consider that I am taking a broad view of the market here; in the short term, I do believe that the market has BTC priced right.
My primary thesis on BTC is that in its current form, the market treats it as a call option on risk behavior. We can see that in how BTC's price tends to react to changes in both liquidity velocity and junk credit spreads. I trade it and related firms (namely DATs) to that end, but I do not believe that BTC will ever truly be taken seriously as a currency.
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On Scarcity and ‘Market Cap’
I think this works against BTC as a currency but for BTC as an equity-like asset. A commodity with a capped supply—or, in the case of my examples, inelastic supply—invites whales to become inordinately and permanently tyrannical within said commodity market. See Rockefeller with the oil market, the Hunt Brothers with the silver market, etc.
My argument against BTC to this end is that I don't believe a market with liquidity gatekeepers like Michael Saylor will be one that can garner and maintain the levels of trust needed to invite central banks and other serious players in currency markets, the thing that makes currencies actually viable as currencies. Without an expanding supply, early accumulators and those with enough fiat currency necessary to buy their way in (e.g., corporations), there is no way to compete. BTC is already a lost game with people like Saylor permanently in control.
On Decentralization
I think this threat is undersold here. BTC can become illegal to own, as it is for so many in the world already. Sure, one can try to skirt the law, but it always seems a futile endeavor to me to outsmart the U.S. government. If Uncle Sam decides to come for your BTC, your cold wallet won't be the ace in your sleeve that you believe it is.
And this doesn't necessarily just mean seizure a la the 1933 act for gold, but perhaps a left-leaning government in the future puts a tax on holdings of commodities or foreign currencies held by Americans (BTC is not domestic, per se; at best it's Japanese, at worst it's stateless) and demands a cut. Your asset sovereignty is only as good as your physical jurisdiction's. I can easily see a world where our government imposes digital asset taxes, and could even go as far as to tax their unrealized capital gains. "Bitcoin multi-millionaires" is a fine target for a left-populist politician in the U.S.
On Transparent yet Secure
So long as forks and rollbacks are possible, this is not as closed a book as it appears. Just because we haven't seen a fork or a rollback in some time doesn't mean it's not possible. Consider the 2010 and 2013 incidents where transactions were completely nullified.
Any entity that controls 51% of supply can create soft forks and alter the ledger at will. I believe that this is the core reason that large financial institutions have been clamoring to hoard physical Bitcoin and not paper, like they do with metals. They understand that having physical custody of the coins translates directly to power on the chain.
To this end, corporate entities already control nearly 20% of the total possible supply. I fear that once it crosses 51%, we will see a corporate coalition (think MSTR, COIN, BLK, Fidelity, various miners, and DATS, etc.) to ensure that voting on the chain is a right held by U.S. corporations and subsequently the government.
They are not going to stop accumulating supply until they have enough power. The Bitcoin total market cap is trivial to BlackRock at the end of the day; they are modulating their pace to control for risk, not because the end goal has changed.
On The Network Effect
I'm going to push back on the charge that adoption is happening in any serious capacity. The only adoption that is seriously catching on is with speculators; there are more speculators than ever.
Your example of Overstock.com is interesting here because it's been a terrible investment. Down 75% from the highs it reached in its merger and renaming to Beyond. It is currently below its 2002 IPO price. Being crypto-forward from the get-go did not help them. The tape is brutal to this co.
On Utility
My core argument against Bitcoin's utility as a currency is because it is too good at being a speculative vehicle. The maximalist mantra online has long been to get rid of as little BTC as possible, and experience with crypto maxis in my real life echoes this. Nobody wants to seriously get rid of their BTC; they'd rather lose their cash.
You make a great point for why people are happy to get rid of cash over assets (inflation). This is the argument against BTC as money. Nobody will want to get rid of their stash, as it stands to increasingly become more valuable as time goes on and more people cram into the capped supply.
Currently, ~70% of GDP is driven by consumption. A replacement of the dollar with a currency like Bitcoin at any scale stands to disrupt this tremendously. I very much doubt people will treat BTC the same way they do a fiat currency. We should very much prefer a world where they are separate so that we can transact in dollars and speculate on Bitcoin, not transact on Bitcoin and speculate on… I suppose I don't know what comes next if BTC ascends to currency-hood.
Of course, we also prefer low inflation, and your point is well-taken by the chart of the dollar's purchasing power decline. One thing to note is that the context for that spike in 1929-33, leading to the confiscation act, is the chart showing deflation.
Deflation is evidently a bad thing, and one none of us should hope for. Deflating prices, such as it was in the Great Depression, applied to wage labor. As labor supply increased due to the failing businesses caught up in the credit bubble, the price of labor fell. The stabilization of the dollar was necessary for the recovery from the Great Depression.
Imagine this BTC future: your job can afford to pay you fewer satoshis than they did last year, so your offer comes with a lower nominal pay. It may have actually increased in purchasing power terms, and you can buy more stuff, but you paid less in total currency units.
This is a reality that would make many unhappy.
On Quantum Risk
You didn't bring this up, but I thought I would since it's one of the pro-Bitcoin beliefs I hold.
I am not a believer that quantum computers will unexpectedly break AES-256. We will likely see it coming, and the chain can vote to move BTC's cryptographic hash to something quantum-resistant, which already exists in today's world. That vote is becoming easier and easier as time goes on, given the trends of rising corporate ownership who employ analysts to study this very topic.
---
Thanks for the time and discussion. Curious to hear what you think. Cheers!
I love your perspective, and I don’t necessarily disagree with (all of) it. Bitcoin is still developing as it becomes more adopted, and it’s hard to tell the exact direction it will ‘end up’ in a sense. But I love the idea, and I’m bullish on the future! Here’s my response:
Scarcity and ‘Market Cap’
I see your concern over the ‘market power’ people like Saylor may have, and from a distance, it can make Bitcoin look like a “lost game with people like Saylor permanently in control”. However, this ‘market power’ can’t control the most powerful aspects that people like Rockefeller could. For example, a Bitcoin whale can’t: change supply, censor transactions, or force protocol changes to BTC. Saylor has just as much price exposure, voting rights, debasing ability, and ability to mint Bitcoin as I do (compare this to a central bank!). If a whale buying/selling any asset resulted in a price change that was deemed tyranny, every asset is illegitimate. Yet real estate, gold, and art are still relevant investments today.
Decentralization
Assuming there was a future ban on Bitcoin, I believe it would transfer from a retail asset to a geopolitical one. You are completely right: the government can tax the crap out of you and your Bitcoin, and they can ban it (even though I think they never will). But did gold cease to exist whenever the possession of it was banned? Of course not. It will be the same illegal situation in this hypothetical. I’m not condoning this, but I just want to add the fact that a criminalized asset still has value. To your point on taxation and the taxation of unrealized gains of Bitcoin, I completely agree, and that is an issue. However, if this is put into place, I don’t think Bitcoin will be the only asset that is targeted. Furthermore, this brings up a much more problematic situation than just the taxation of Bitcoin.
Transparent yet Secure
As far as my Bitcoin knowledge extends, control over Bitcoin does not derive from controlling supply; it derives from social consensus enforced by nodes. Even the majority hashrate cannot rewrite balances, change monetary policy, or force protocol upgrades. Forks are opt-in by users, not decreed by holders.
The early rollbacks were when Bitcoin was a baby. The cost of violating immutability is huge and not smart.
IF corporate entities were to buy up 51% of Bitcoin, coordinating changes would be almost impossible, as it would be across all corporate firms to come to the same conclusion. If the stars aligned and this happened, I 100% would abandon Bitcoin, and I think many others would as well. I agree with this point of power hungry corporate not stopping until they control it all; I just think it’s highly unlikely for both corporations to buy it all up and still have Bitcoin whales being dragged along for the ride. At least, I hope Bitcoin holders will know better than to keep holding lol.
Network Effect
Yes, the majority of adoption is catching on due to speculation. I don’t necessarily think this is a bad thing. Innovating future technology all starts with the first step of “what if…”.
My overstock and Namecheap examples were mainly to show the almost immediate adoption by companies that need to be wary of who they partner with. You can disagree with this by arguing that Overstock is a terrible stock purchase. However, my point was trying to communicate that even companies with strict criteria on who they get in bed with were still early adopters of Bitcoin, which earns my respect for Bitcoin. Overstock’s stock performance says more about retail and capital markets than about Bitcoin’s monetary properties.
Utility
I agree that there is a concern that Bitcoin is too good to spend. But, Bitcoin mandates monetary predictability, not wage deflation. And I believe, from the people I’ve met in this situation, people are happy to spend their appreciating asset when it’s not their only asset, they value their time and the opportunity more than the potential appreciation. Inflation isn’t the only thing that moves money; people still want to spend!
Quant-nerd stuff
I honestly am not educated enough to have a detailed discussion over the quantum part of the quantum risk (I had to Google what AES-256 was). However, from what I saw researching, if the system can coordinate upgrades, it’s neither frozen by the “authorities” nor the whales. It seems to operate off the social consensus. I am not confident in this answer; it’s simply what I got from skimming a few articles.
Hey Nate,
Nice article. I'm always interested in the maxi perspective.
I wanted to give you my coin-skeptic perspective—I speculate on crypto in the short term, but do not believe in the long-term narrative or economics of BTC as a real currency.
Consider that I am taking a broad view of the market here; in the short term, I do believe that the market has BTC priced right.
My primary thesis on BTC is that in its current form, the market treats it as a call option on risk behavior. We can see that in how BTC's price tends to react to changes in both liquidity velocity and junk credit spreads. I trade it and related firms (namely DATs) to that end, but I do not believe that BTC will ever truly be taken seriously as a currency.
---
On Scarcity and ‘Market Cap’
I think this works against BTC as a currency but for BTC as an equity-like asset. A commodity with a capped supply—or, in the case of my examples, inelastic supply—invites whales to become inordinately and permanently tyrannical within said commodity market. See Rockefeller with the oil market, the Hunt Brothers with the silver market, etc.
My argument against BTC to this end is that I don't believe a market with liquidity gatekeepers like Michael Saylor will be one that can garner and maintain the levels of trust needed to invite central banks and other serious players in currency markets, the thing that makes currencies actually viable as currencies. Without an expanding supply, early accumulators and those with enough fiat currency necessary to buy their way in (e.g., corporations), there is no way to compete. BTC is already a lost game with people like Saylor permanently in control.
On Decentralization
I think this threat is undersold here. BTC can become illegal to own, as it is for so many in the world already. Sure, one can try to skirt the law, but it always seems a futile endeavor to me to outsmart the U.S. government. If Uncle Sam decides to come for your BTC, your cold wallet won't be the ace in your sleeve that you believe it is.
And this doesn't necessarily just mean seizure a la the 1933 act for gold, but perhaps a left-leaning government in the future puts a tax on holdings of commodities or foreign currencies held by Americans (BTC is not domestic, per se; at best it's Japanese, at worst it's stateless) and demands a cut. Your asset sovereignty is only as good as your physical jurisdiction's. I can easily see a world where our government imposes digital asset taxes, and could even go as far as to tax their unrealized capital gains. "Bitcoin multi-millionaires" is a fine target for a left-populist politician in the U.S.
On Transparent yet Secure
So long as forks and rollbacks are possible, this is not as closed a book as it appears. Just because we haven't seen a fork or a rollback in some time doesn't mean it's not possible. Consider the 2010 and 2013 incidents where transactions were completely nullified.
Any entity that controls 51% of supply can create soft forks and alter the ledger at will. I believe that this is the core reason that large financial institutions have been clamoring to hoard physical Bitcoin and not paper, like they do with metals. They understand that having physical custody of the coins translates directly to power on the chain.
To this end, corporate entities already control nearly 20% of the total possible supply. I fear that once it crosses 51%, we will see a corporate coalition (think MSTR, COIN, BLK, Fidelity, various miners, and DATS, etc.) to ensure that voting on the chain is a right held by U.S. corporations and subsequently the government.
They are not going to stop accumulating supply until they have enough power. The Bitcoin total market cap is trivial to BlackRock at the end of the day; they are modulating their pace to control for risk, not because the end goal has changed.
On The Network Effect
I'm going to push back on the charge that adoption is happening in any serious capacity. The only adoption that is seriously catching on is with speculators; there are more speculators than ever.
Your example of Overstock.com is interesting here because it's been a terrible investment. Down 75% from the highs it reached in its merger and renaming to Beyond. It is currently below its 2002 IPO price. Being crypto-forward from the get-go did not help them. The tape is brutal to this co.
On Utility
My core argument against Bitcoin's utility as a currency is because it is too good at being a speculative vehicle. The maximalist mantra online has long been to get rid of as little BTC as possible, and experience with crypto maxis in my real life echoes this. Nobody wants to seriously get rid of their BTC; they'd rather lose their cash.
You make a great point for why people are happy to get rid of cash over assets (inflation). This is the argument against BTC as money. Nobody will want to get rid of their stash, as it stands to increasingly become more valuable as time goes on and more people cram into the capped supply.
Currently, ~70% of GDP is driven by consumption. A replacement of the dollar with a currency like Bitcoin at any scale stands to disrupt this tremendously. I very much doubt people will treat BTC the same way they do a fiat currency. We should very much prefer a world where they are separate so that we can transact in dollars and speculate on Bitcoin, not transact on Bitcoin and speculate on… I suppose I don't know what comes next if BTC ascends to currency-hood.
Of course, we also prefer low inflation, and your point is well-taken by the chart of the dollar's purchasing power decline. One thing to note is that the context for that spike in 1929-33, leading to the confiscation act, is the chart showing deflation.
Deflation is evidently a bad thing, and one none of us should hope for. Deflating prices, such as it was in the Great Depression, applied to wage labor. As labor supply increased due to the failing businesses caught up in the credit bubble, the price of labor fell. The stabilization of the dollar was necessary for the recovery from the Great Depression.
Imagine this BTC future: your job can afford to pay you fewer satoshis than they did last year, so your offer comes with a lower nominal pay. It may have actually increased in purchasing power terms, and you can buy more stuff, but you paid less in total currency units.
This is a reality that would make many unhappy.
On Quantum Risk
You didn't bring this up, but I thought I would since it's one of the pro-Bitcoin beliefs I hold.
I am not a believer that quantum computers will unexpectedly break AES-256. We will likely see it coming, and the chain can vote to move BTC's cryptographic hash to something quantum-resistant, which already exists in today's world. That vote is becoming easier and easier as time goes on, given the trends of rising corporate ownership who employ analysts to study this very topic.
---
Thanks for the time and discussion. Curious to hear what you think. Cheers!
Hey Jack! Glad you enjoyed the article.
I love your perspective, and I don’t necessarily disagree with (all of) it. Bitcoin is still developing as it becomes more adopted, and it’s hard to tell the exact direction it will ‘end up’ in a sense. But I love the idea, and I’m bullish on the future! Here’s my response:
Scarcity and ‘Market Cap’
I see your concern over the ‘market power’ people like Saylor may have, and from a distance, it can make Bitcoin look like a “lost game with people like Saylor permanently in control”. However, this ‘market power’ can’t control the most powerful aspects that people like Rockefeller could. For example, a Bitcoin whale can’t: change supply, censor transactions, or force protocol changes to BTC. Saylor has just as much price exposure, voting rights, debasing ability, and ability to mint Bitcoin as I do (compare this to a central bank!). If a whale buying/selling any asset resulted in a price change that was deemed tyranny, every asset is illegitimate. Yet real estate, gold, and art are still relevant investments today.
Decentralization
Assuming there was a future ban on Bitcoin, I believe it would transfer from a retail asset to a geopolitical one. You are completely right: the government can tax the crap out of you and your Bitcoin, and they can ban it (even though I think they never will). But did gold cease to exist whenever the possession of it was banned? Of course not. It will be the same illegal situation in this hypothetical. I’m not condoning this, but I just want to add the fact that a criminalized asset still has value. To your point on taxation and the taxation of unrealized gains of Bitcoin, I completely agree, and that is an issue. However, if this is put into place, I don’t think Bitcoin will be the only asset that is targeted. Furthermore, this brings up a much more problematic situation than just the taxation of Bitcoin.
Transparent yet Secure
As far as my Bitcoin knowledge extends, control over Bitcoin does not derive from controlling supply; it derives from social consensus enforced by nodes. Even the majority hashrate cannot rewrite balances, change monetary policy, or force protocol upgrades. Forks are opt-in by users, not decreed by holders.
The early rollbacks were when Bitcoin was a baby. The cost of violating immutability is huge and not smart.
IF corporate entities were to buy up 51% of Bitcoin, coordinating changes would be almost impossible, as it would be across all corporate firms to come to the same conclusion. If the stars aligned and this happened, I 100% would abandon Bitcoin, and I think many others would as well. I agree with this point of power hungry corporate not stopping until they control it all; I just think it’s highly unlikely for both corporations to buy it all up and still have Bitcoin whales being dragged along for the ride. At least, I hope Bitcoin holders will know better than to keep holding lol.
Network Effect
Yes, the majority of adoption is catching on due to speculation. I don’t necessarily think this is a bad thing. Innovating future technology all starts with the first step of “what if…”.
My overstock and Namecheap examples were mainly to show the almost immediate adoption by companies that need to be wary of who they partner with. You can disagree with this by arguing that Overstock is a terrible stock purchase. However, my point was trying to communicate that even companies with strict criteria on who they get in bed with were still early adopters of Bitcoin, which earns my respect for Bitcoin. Overstock’s stock performance says more about retail and capital markets than about Bitcoin’s monetary properties.
Utility
I agree that there is a concern that Bitcoin is too good to spend. But, Bitcoin mandates monetary predictability, not wage deflation. And I believe, from the people I’ve met in this situation, people are happy to spend their appreciating asset when it’s not their only asset, they value their time and the opportunity more than the potential appreciation. Inflation isn’t the only thing that moves money; people still want to spend!
Quant-nerd stuff
I honestly am not educated enough to have a detailed discussion over the quantum part of the quantum risk (I had to Google what AES-256 was). However, from what I saw researching, if the system can coordinate upgrades, it’s neither frozen by the “authorities” nor the whales. It seems to operate off the social consensus. I am not confident in this answer; it’s simply what I got from skimming a few articles.
Thanks for the quick reply. Lots to think about.
Good luck out there!