The Course of Empire- Painting 4, Destruction by Thomas Cole, 1836
Buying bitcoin in the first world is like buying a boat ticket in Pompeii when Vesuvius started smoking.
In Part 1, the focus was on the value Bitcoin brings to the billions of the unbanked, which are oppressed in the third world.
In the not so distant future, Bitcoin will also be a critical store of value for people in first world economies.
The first world has different economic problems compared to the third world, but the pitfalls can be just as deadly to a person’s wealth.
Bitcoin provides a way for people to sidestep these pitfalls, when Rudyard Kipling’s, Gods of the Copybook Headings return once again to humble first world economies.
The new Federal Reserve Chairman, Mr. Powell, says that is our future.
In the first 1:37 minutes of this video, he calmly states:
“We’ve been on an unsustainable fiscal path for a long time.”
Think about what that means.
The US has half the world’s capital in their markets, US$30 trillion out of the US$60 trillion in all world markets, is the sole world superpower, and is the world reserve currency.
Why is Chairman Powell so calm when he says: “yes, the road we’re on leads only to destruction”?
Because as the US goes, so follow all the first world economies.
That is the not so distant future that awaits us all.
Strategies for the future should be multi-faceted, to allow pivoting and adaptation, so the opportunities presented as the future unfolds, can be exploited to always be more wealthy than the year prior.
This is whar collecting the tax on human behavior means.
Most people in the first world are unaccustomed to the daily hard realities which third world countries are intimately familiar like weekly food inflation, bank and social services closures, and fuel shortages.
When they encounter this reality for the first time in the future, most will not become reflective on why their beliefs did not match the real world around them, adapt to reality, and win.
Instead, they will most likely strike out in anger and fear because something they believed to be theirs, is being taken away.
It is just basic human nature which will continue to fuel politicians. Politicians will tell whoever votes for them whatever they want to hear.
In the future, a combination of chaining younger generations deeper in debt through increased deficitary spending, together with keeping unsustainable peograms from the past 50+ years while raising taxes, will cause businesses and people to leave the country.
This is a story as old as Rome, and thanks to human nature being the one constant in the ecuation, it makes it a cycle that is boringly predictable in our society.
In this not so distant future, Bitcoin will be a hedge against this cycle which leads to increased inflation of reserve currency, suppressed to zero interest rates, and eventually the confiscation of assets by governments which will follow when the first two no longer work.
When we reach the end of this unsustainable path, having Bitcoin in a cold wallet, which a person can carry in their pocket is going to feel like taking the last boat out of Pompeii, all while hearing Mount Vesuvius just turned off the lights behind you.
Sad for the destruction and thankful for the escape, all at once.
Nakamoto put a reference to this page and the bailouts in the first block of Bitcoin on 03 Jan 2009
Nakamoto’s US$6 Billion Sacrifice
Knowing how Bitcoin became a store of value, shapes why it will continue to have value to the world in the future.
At first, Bitcoin was a peer to peer digital currency.
As the years passed, and the world collectively realized what Bitcoin truly was capable of, it became much more valuable — the first new store of value seen on the earth since Egyptians were painting liquid gold onto sarcophaguses 4,000 years ago.
That is the magnitude of what bitcoin has achieved in 10 years.
Nakamoto’s sacrifice of giving up his 980,000 Bitcoin, now valued at US$6 billion, and disappearing gave the first world their best chance at a new, secure, and portable store of value.
Think about it, human nature never changes. There is more than one way for a blockchain to be centralized.
What good is an electronically decentralized blockchain as a store of value if it has centralized pressure points (person, group, company) for governments and special interests to target and exert influence?
To be clear, a business or project being centralized is completely different than a store of value.
Nakamoto intentionally left himself out of the future of Bitcoin — denying every first world government the ability to exert influence on bitcoin in the future which is coming.
His sacrifice ensured Bitcoin would be leaderless, mathematically absolute, transparent, and fair.
For the first time in human history, anyone, anywhere in the world, has the same access and ability to store value which cannot be influenced by governments, geography, nationality, society, culture, religion, or politics.
Nakamoto’s sacrifice made that possible, and without it, the world wouldn’t have the store of value it desperately needs for the not so distant future.
21 Million Gold Bars
There are now 17 million Bitcoin in existence. It will take another 122 years to mine the next 4 million coins to reach total supply at 21 million bitcoin.
Estimates differ on how many Bitcoin are permanently out of circulation including Nakamoto’s 980,000, computers crashing, and private keys being lost in the early days of mining.
There could be 3 to 4 million Bitcoin lost forever, meaning there are only 13 million in circulation currently.
Only 13 million gold bars up for grabs by 7 billion people on earth.
To put the incredible odds of owning one entire Bitcoin right now into further perspective, there are 36 million millionaires in the world.
If every millionaire in the world wanted to just buy one Bitcoin, 64% of millionaires in the world wouldn’t be able to buy one whole Bitcoin.
There just aren’t enough in existence.
Financial institutions and governments understand this scarcity model even if most millionaires apparently do not.
Since they have been unsuccessful at destroying Bitcoin, the only thing left is to control the new store of value, using Bitcoin’s scarcity for their own benefit as the world continues on this unsustainable fiscal path into the future.
For example, doubt it is coincidence the SEC set the requirement “to protect retail investors” of a minimum purchase for one share of VanEck ETF to equal 25 BTC.
Driving the price high enough prevents future private ownership of entire bitcoins.
How?
The higher the prices go, the less people will want to be solely responsible for that much money on their own.
This helps ensures future retail participation is in the form of shares of funds held through retail custody solutions which institutions are currently working on now.
Most people are creatures of habit and comfort.
They’d be scared to death of having $400,000 in Bitcoin on a cold wallet in their sock drawer.
The Deadly Love Affair with the Idea of Freedom
People like their online brokerage or retirement account interface. They like being able to email or call someone when they forget their account password.
So they will prefer to use that solution for cryptocurrency and blockchain exposure as well.
Most people will never open an actual cryptocurrency exchange account, let alone have their own cold wallet, taking responsibility for their retirement savings and investments.
They just don’t have the stomach for that kind of freedom.
Just like most didn’t volunteer and go fight in Afghanistan, but love shooting fireworks and barbecuing on the 4th of July while they celebrate freedom.
Its the same thing.
Why?
Because for most people, loving the idea of freedom and the actual steps it takes to make freedom happen are interchangeable.
When in reality, nothing is further from the truth.
The idea of freedom is comfortable for everyone while the steps to real freedom are difficult and taken only by a few.
Mainstream blockchain and cryptocurrency adoption will be no different in the future.
Everyone will love the idea of the freedom it offers, but most will want it only if they can still have the comfort of a 1–800 number to call when they forget their password, and will definitely never want to handle their own private keys — that much freedom will just outright terrify them.
Most will wrongly think owning shares of a bitcoin ETF through their brokerage account will be the same as buying actual cryptocurrencies and blockchain projects themselves and keeping their investment on a cold wallet.
But it won’t be the same, and those who have physical ownership of their Bitcoin, will be owning an asset rarer than millionaires on the planet, cobtributing to the scarcity of the asset by having direct ownership of it.
From the outstanding infographic showing how the evil Cyprus bail-in worked — source
Remember the Golden Rule — “He who has the gold, makes the rules.”
Institutions were bailed out by governments in the last financial crisis of 2008.
Governments could do this because they could create additional fiat currency.
Bitcoin is different. No more can be created. Ever.
History doesn’t repeat, but it rhymes.
Cyprus was the first time a bail-in was done in a western democracy and the world did not flinch.
Most, probably can’t even remember the year it started. That is how successful it was.
This infographic does an excellent job showing how the confiscation from people’s savings to backstop their bad policy worked.
The scope of what the institutions accomplished with the confiscation, while ensuring the elite and Oligarchs were able to withdraw billions first, is terrifying, and should serve as a warning for any assets kept through an institution into the future.
When an institution has custody of Bitcoin, then they control it, can withhold access, and even confiscate it like the Cyprus example.
This is where people mistaking the idea of freedom for actual freedom can be deadly.
As the not so distant future unfolds, the world will see what happens as first world economies unwind the experiment their central banks conducted for the last decade of artificially low interest rates and exploding sovereign deficits.
At the very least, Bitcoin offers a hedge in the event the unwinding of this global experiment does not go smoothly.
But only if a person controls their Bitcoin directly and does not use a future institutional custody solution.
A store of value is only something which a person controls, and the only thing a person controls is what they physically own.
If it is not in a cold wallet, which is in a person’s possession, they don’t own Bitcoin — the bank and the government does when they decide they need it in the future.
No cold wallet, no boat ticket out of Pompeii.
Perhaps the first world can avoid the fate of previous civilizations which marched along this treacherous fiscal path.
But just in case the first world cannot avoid the fate of previous civilizations, what is the harm with using the newest store of value since King Tut was sealed away in the Valley of Kings, happens to be rarer than millionaires on the planet, and isn’t controlled by financial institutions and governments yet as a hedge against this potential danger?
While I sip a doppio espresso in the piazza, looking up at Vesuvius smoking and wonder if there is any danger at all, and if so is it near or far, it’s nice to at least have a boat ticket in my pocket.
None of this is financial advice. Just sharing what has shaped the decisions I’ve made with my own money.
Bitcoin Part 3 is next. See you there. — Radigan