Bitcoin Bubble Myth – Excerpts

Ladies and gentlemen, bubbles have three characteristics. They tend to be a single cycle boom then bust, relatively short in duration, and crash back down to the baseline, which is either zero, or the inflationadjusted place of where they were before the boom. The Dutch tulip mania was like this. So was the housing bubble. So was the dot bubble. And so was pretty much every other bubble ever. So what about Bitcoin? Well, Bitcoin, it’s actually hard to see the price cycles because it’s increased such radically in value over time. So, we’re going to use a logarithmic scale to look at what it looks like on a price cycle where you go from zero to a dollar, then to $10, 100. It’s called the logarithmic scale, which is often used for assets with this level of upside. So, in the first price cycle, Bitcoin went from about five cents up to $32, back to $2. Now, if we were having this debate in 2011, you could be forgiven for believing it met two of the three criteria of a bubble, except that it landed at a price that was 40 times as high as the 5 cents that it started at. What happened next? It didn’t go to zero. It went up to $1,200, came back to 92, meeting now none of the criteria of a bubble. Then what did it do? Well, it zoomed up to $19,000 down to 3,200, meeting once again none of the criteria of a bubble, 35 times the previous low price. Then it zoomed up to $69,000 down to $15,000. Once again, meeting none of the criteria of any historical bubble we have ever seen. Bubbles look like the bottom left of this chart. They do not look like the orange line. So, what does look like that orange line? Well, it turns out every high-V value asset that has ever become a trillion dollar industry or asset looks just like that on a logarithmic chart. Apple, Amazon, Netflix, even gold, when you zoom out, goes through the same pattern. And all of these assets do it for the same reason. The marketplace is trying to figure out how big of a deal is this asset, how big of a deal is this industry, and what role will this commodity, technology, or company impact in the global world. Bitcoin’s doing the same thing for the very same reason, which is the opposite of how any bubble in human history has ever behaved. So why is it valuable? Well, for the first time in human history, we have a borderless, predictable, and scarce monetary asset. So what do I mean? Borderless because Bitcoin is decentralized. It’s not controlled by any country, company, or anybody. And that means Bitcoin is not like fiat currencies which is nothing but a bunch of thieftdoms all over the world and borderless because you don’t have to have the government’s permission to cross a border with more than $10,000. Bitcoin is a decentralized and borderless currency that is valuable because the world has never had a universal worldwide currency that worked like Bitcoin. Bitcoin is also predictable. absolutely completely unlike the Federal Reserve where even the experts get it wrong every time. And having a money that is absolutely predictable is a very valuable characteristic. Also, Bitcoin is scarce, truly scarce. There will never be more than 21 million Bitcoin ever, as opposed to fiat, which is as infinite as a politician’s promises. So, Bitcoin is the first truly scarce currency the world has ever had. And that is incredibly valuable. So when you sum that up, we have a borderless, predictable, and scarce monetary asset unlike anything the world has ever seen before. And it’s doing exactly what you would expect it to do on its way to more than a trillion dollars, which is where it is today, north of a trillion dollars, solving the real world problems of the need for a borderless, predictable, and scarce monetary asset. So is Bitcoin a bubble? That is the question. And Bitcoin meets none of the criteria of any historical bubble we’ve ever seen in history. Or is it an ideal monetary asset that just so happens to check every single box for everything you would want for a new monetary system for the world? The answer to that question, is Bitcoin a bubble? Is obvious. Many new technologies throughout the ages have been grossly misunderstood. At first, humans are not very good at managing change and we tend to mock things that we do not understand. Let’s look at two historical examples. Electricity and the internet. 1879, Thomas Edison invents the modern electric light bulb. In the decades thereafter, electricity was ridiculed in the public. Here we have a cartoon from the late 1800s. Newspaper opeds of the day called electricity the devil in the wall. Today, nobody would question the utility of electricity for lighting, refrigeration, air conditioning to power robots, computers, machines, and more. The internet was gifted to us publicly in 1983. 15 years later, in 1998, Paul Krugman famously said, “The internet’s impact on the economy will be no greater than that of the fax machine.” This Yahoo won a Nobel Prize in economics. You know what also happens to be 15 years old right now? Bitcoin. All seinal technologies throughout human history are only understood properly by the general population in hindsight. Bitcoin is one of the most important technologies ever invented for humanity. On par with fire and the wheel and the printing press and yes, electricity and the internet in terms of its import to humanity. >> 20 years from now, this will be obvious to everybody. But today, let me give you a fundamental framework to help you understand why I know this with certainty. Bitcoin is both an asset and a network simultaneously. If you go to your computer, you can duplicate many things, a favorite photo, a file, a document. You cannot duplicate Bitcoin, the asset. It is a digital bearer instrument, much the same that dollar bills are physical bearer instruments. So with both Bitcoin and dollars, if I give them to you or you take them from me or I misplace them, they are gone. That is Bitcoin the asset. But at the same time, Bitcoin is also a network. This is what is difficult for people to get their heads around. We have billions of dollars of Bitcoin miners. In other words, worldclass data centers powering the most powerful bit or computer network ever seen by history. And they are voluntarily running at great expense the Bitcoin protocol software. Before we get to that, why are they doing this? Let’s talk about Henry Ford, one of the great American businessmen of all time. 1921, New York Trabune, top of the fold, 103 years ago. Henry Ford says, “If you want to stop all wars, you would have a currency based upon kilowatt hours.” Well, you know what, folks? That’s exactly what we have today with Bitcoin. Bitcoin miners running the Bitcoin protocol convert electricity into monetary value. What is this Bitcoin protocol that I speak of? It is free and open- source software. So, it’s very different than software that you would get from say Microsoft or Apple that you both have to pay for and is a black box. You have no idea how the code works. The Bitcoin protocol software, by contrast, is free for any human being to view, audit, and use. And part of what’s written into the code is a hard cap on supply. No more than 21 million Bitcoin can ever be issued. Absolute scarcity. What does this all mean? Bitcoin is the most beautiful form of sound money ever invented. It is unseasable. If you want to be, you can truly be your own bank. It is uncensorable. Nobody can stop a Bitcoin transaction unlike Visa or Venmo or your bank who can censor any transaction they want. And it cannot be inflated away like politicians do with fiat currency because they can never resist the order of the central bank printing press. Why is this important? 250 years ago, our country was founded in part on this notion that we could separate church from the state. With Bitcoin, for the first time in human history, we have the possibility of separating money from the state. And this has profound implications. Bitcoin is 15 years old, was intentionally launched at the height of the great financial crisis. And during the past 15 years with Bitcoin, we have been seeing the birth of an entirely new financial system with the Bitcoin protocol as the base layer. Last time I checked, birth in nature is both volatile and violent. It is not a smooth process. And so with Bitcoin, we see the birthing of this new system expressed in the metric of the old system, dollar price. It’s gone down 70% or more four times over. It’s going up and to the right forever on a logarithmic scale because it is one of the most important technologies ever invented for human freedom. Bitcoin is not a bubble. With Bitcoin, we are seeing the birth of a new system that is critical for human freedom. >> All right. So, how do you value Bitcoin? We know it’s an ideal monetary system. We know it’s not a bubble according to the data. But how do we value it? Well, Arc Invest and the Chartered Financial Analyst Institute are the two best resources to get exactly what is the right price, how do you model it and all of that. They put forward four models. We have time to look at two. Network effects and market size. So, Metcaf’s law is how you value something that has network effects. Whether it’s a telegraph, telephone, the internet, anything that becomes more valuable when people connect to it. And it says the value of a network is proportional to the square of the number of users. So as the users go up linearly, the value of being on that network with everyone else that’s on there goes exponentially. So, if Bitcoin has less than 100,000 users in 2011, which it did, and the price was $1 a coin, and the number of users increases to more than 27 million today, which it is far in excess of that, you would expect when there’s a 270x increase in the users, for there to be a 74,000x increase in the value of being part of that network, which is roughly where we are with regard to Bitcoin. So you again you can square that 270x you get 73,000x or you can look at 27 million users squared as compared to 100,000 users squared. So if you don’t like that approach you can also go to archinvest their 2023 big ideas report page 65 and they will lay down in very specific detail exactly how you value Bitcoin exactly where they get those numbers exactly how they come to a price of somewhere between 258,000 and 1.48 48 million in the year 2030. They will answer all of that for you in exactly the detail you want to see. It’s all there. There are plenty of models online. And as far as what makes Bitcoin valuable, for the last years, everything I buy is with Bitcoin, with the Coinbased debit card. Everything. And while everybody who’s using US dollars, their money is losing value in the long term over time. I am using money that is increasing in value over time. That is valuable. >> It is an asset. It is a network and it is a protocol. all at the same time. Bitcoin is a public database. Every transaction is out in the open. Here’s an analogy for you. If I go back to my hotel room and I create an email address, yada yada@gmail, and I send you a nasty email from that Gmail address, you’re not going to have any idea who came who it came from. The FBI can figure out in 28 seconds who sent that email if they want to, that I was the generator. Same thing with Bitcoin. It’s a public ledger. It’s the last thing that people will use for nefarious activities. That’s what they use dollars for. You hear that? that Bitcoin is not scalable. Again, this is a complete misunderstanding of the technology. Look at our our banking system. We have this thing called the Federal Reserve, and dollars get settled at Fedwire. Nobody in this room has access to Fed Wire. Most of you probably don’t even know what Fed Wire is, but post World War II, we built our banking system in layers. We have commercial banks, and then we have things like a Swift and wire transfers and ATM networks and credit cards and peer-to-peer systems like Venmo and PayPal, right? The internet was built in layers. In 1983, if you had the top internet technologists in the world and put them in a room and said, “Show them what the internet today,” most of them would say not feasible. But we bastardized TCPIP. I say that in a positive fashion in a way where we built layers on it to do things that people never could imagine. Bitcoin, the base layer, is fast, not slow. You need to compare Bitcoin to Fed Wire, right? Fedwire transactions clear in days. I can send a billion dollars around the world in 10 minutes, right? Bitcoin is insanely fast compared to dollars, not slow. And we’re going to build layers on top of Bitcoin, just like we built layers in the commercial banking system for this brave new world. And you want Bitcoin because it’s decentralized and not controlled by the government as we enter a relatively dystopian future. Thank you. >> Would Bitcoin be easier to use for buying and selling if there was no capital gains tax on Bitcoin on transactions? Yes, absolutely. A lot of people are worried about that. Coinbase with the Coinbase debit card makes it super easy for you because it does it all for you in the background. It calculates all of that. But yes, a lot of people are concerned about that. Like if I buy something with Bitcoin that’s appreciated, do I have to pay taxes on that? The answer is yes. But somewhere like Coinbase does all the work for you and makes it simple. But yes, and in El Salvador where it is legal tender, you don’t have to worry about that. Or in Prosper where it’s legal tender, you don’t have to worry about that. >> Darpanet, the precursor to the internet was created in the late 1960s. The public internet was given to us in 1983. 1998, 15 years into the internet. Everybody thought it was a toy. Paul Krugman, Nobel Prizewinning economist, says it’s going to have no utility, more so than the fax machine, right? They were all wrong. Give it some time. It’s going to evolve. And that gets back to the final chart that I showed you. Bitcoin is emerging. It is going to emerge. This is what people can’t get their head around, into a store of value. Over time, it will further emerge over the decades ahead into a global money. >> The breakthrough of Bitcoin is digital scarcity. We’ve never before had something that was digital that you couldn’t copy paste and make an unlimited amount of. The fact that we need a monetary system that is digital because things like gold don’t move across space and time and borders fast enough and efficiently enough to be a monetary system for the world. And we found that from the past which is why gold got taken away for example. So the breakthrough of blockchain technology which is specific to Bitcoin is digital scarcity. the ability to have a digital money that you can send anywhere in the world at any time with no ability for anybody to block it or censor it. That is a massive breakthrough that people have been working on for decades and nobody figured it out until the invention of Bitcoin. As far as spending Bitcoin directly, again, use a coinbased debit card. The value is using a currency that the government doesn’t print more of and therefore is not in a constant state of losing value. Like how insane is it that we have a currency that is supposed to lose 2% of its value every year and generally loses 3 4 5 6 7 8 9%. They print 6 to 7% more money every single year. Like it’s insane that we’re expected to use that as money. That’s insane. Bitcoin fixes that.