Bitcoin is global, energy-based money with property-like attributes.
Why property-like? Because of its set monetary policy, demonstrated scarcity, and dis-inflationary issuance.
Imagine a coastal area, beautiful and pristine, for example near the water with palm trees, beaches, sun...
everyone wants to "live there" and have "property" there. And how much 'time' the owner actually spends there (maybe half the year, maybe less) will vary... however it is scarce and desirable property regardless and so it is valuable to everyone.
And if you don't think property isn't valuable unless people "live there" I have news for you. Visit South Florida in the Summer time (or anywhere coastal and expensive in Florida) and there are tons of residential properties completely empty... no-one is currently living in them. The "owners" are elsewhere at least half the year and the properties remain completely empty... they serve as a Store only Value only a significant portion of the year with significant maintenance and insurance costs to boot. Homelessness be damned... it is what it is and this is the real world.
In any case, if the fiat currency inflates (from fractional-reserve banks, QE, or government deficits) then in government money the property is worth 'more'. But has the 'property' actually changed? Probably not. Instead, the Dollar or government money of issue has simply become less valuable per unit due to an increase in the number of units...
In this way, when government has a monopoly on "money" and money has no real competition from the private sector... people find 'stand-ins' or 'substitutes' to use as Stores of Value to stave off inflation. In this way, inflation isn't so much the increase in prices of everyday goods as much as the devaluation of the currency... for which people have to find scarce and desirable substitutes to use as long-term savings. Fiat money may be "the norm" and it may be "easy to exchange"... but it is a terrible long-term store of value as evidenced by history.
"Hard assets" that cannot be easily inflated (printed out of thin air) become substitutes for money that is technically impossible to save in... and land IE real estate is perhaps the biggest and most well-known substitute in a world where Bitcoin does not exist.
But why real-estate?
Because property and real estate are scarce and proof of work in ways similar to Bitcoin:
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There is only so much land especially in desirable areas. Miami, New York, Boston, London, Paris, Tokyo... are expensive and anywhere near Central London or Central Park (in New York) especially so.
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Developing new land, in addition to building "the buildings" requires very real energy expenditure and the use of equipment. Making "something for nothing" is impossible. To the contrary, building a structure or "developing land" just like mining Blockspace is extremely energy-intensive and there is no way to cheat this Proof-of-Work. Do the work (expend the energy) or there is no chance of unlocking the Blockspace or developing the property. Bitcoin is property in this regard... and it is only "unlocked" through immense energy expenditure just like in the real world.
But let's take this idea one step further:
- Without Bitcoin people use their own homes as a Proof-of-Work substitute (usually through a mortgage) allowing them to "buy the Bitcoin they live in" over many years with interest paid to the Bank. People take comfort believing that regardless of monetary inflation or what happens to the economy their home is constructed on scarce land that's valuable and energy is required to construct their home providing a physics-based foundation
In other words... people's homes become their long-term savings account in a world with depreciating currencies: the "scarcity of Land" combined with the Proof-of-Work (energy required) to construct the home becomes the savings vehicle.
Ask yourself... when people have extra cash what do they do with it?
- They pay off a greater share of their mortgage (buying a bigger "chunk" of their home) effectively saving in land and the proof-of-work...
- Or they renovate a part of the kitchen or basement. The fiat currency could hyperinflation the next day but "oh don't worry the kitchen is done" and "everyone wants nicer countertops you know!"
This is an absurd system and Bitcoin was designed to improve upon it.
- To quote Hayek: I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can't stop.
In the beginning I said that Bitcoin has property-like attributes but I don't think that Bitcoin is property specifically...
Instead it is property-like in that the best Stores of Value outside of Bitcoin are usually property. Assets that store value well... are property-like because fiat is so bad at storing value (even the Dollar). Imagining Bitcoin as better property simplifies the thought process -
With Bitcoin:
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one's home, one's beach house property (that stores value) is in cyberspace.
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It can be taken anywhere, sent anywhere in fractions of a second - it's global, digital, immortal, and practically-speaking lasts many Human lifetimes.
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The keys to this 'beach-house' can be custodied only by memorizing 12 words... then taken anywhere... with many Human Rights and immigration implications world-wide on the side of Liberty and a check on government coercion.
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There is a cryptographic guarantee that no more land will be developed... only 21 million "acres" of this land will ever exist.
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And 95% of this land that will ever be developed has already been, with a substantial percentage of this locked away never to be sold or transferred.
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The land 'locked away' is the permanent Bitcoin reserve owned by the protocol and inaccessible to any and all Humans forever. It exists forever... just cannot be sold. It is the permanent reserve - pristine and forever off-the-market.
Now.. what would people reasonably pay for such a property?
- Well add up all desirable (ie popular) property in Tokyo, Berlin, Miami, Boston, New York, Geneva, Paris, Istanbul, Copenhagen, Zurich and so on...
- Digitize it
- Make it Immortal
- Make it available anywhere and everywhere accessible by only a smartphone...
AND
- make it un-confiscatable by any government.
- With practically zero maintenance fees.
- Native to the internet, guarded by 800 billion billion hashes a second of computational power...
- With the most global, liquid, 24/7 market of any asset to back it up...
THEN make it available to anyone on Earth with an internet connection.
And divide it by 21 million.
What would people pay THEN for such a Property???
And what do they pay now? In other words what does the 90,000$ Bitcoin exchange-rage buy you today:
- where people want to invest
- where there is a high concentration of capital
- where people believe there is "money to be made" and
- where people want to keep their money long term? Where they want to keep their "nice things"? (And there are nice things out there...)
Because in my experience, at 90,000$ of legacy property you will probably sleep:
- with the Crabs in Miami.
- Or maybe under the baguettes in Paris.
- Or underneath a train in Zurich.
- Or underneath a bridge in Boston (like the Blues Brothers)
- Or maybe above a noodle-house in Tokyo... with 2 roommates and your room is the size of a coffin.
- And in LA it will be down-right fucking scary
Let's be honest - 90,000$ doesn't buy you Jack Shit in the real world where people want to be and save and the question is, in my opinion, what would Bitcoin the savings asset realistically cost as digital property with a relatively small number of units available worldwide relative to 8 billion people and a thousand Human cities?
What does Bitcoin realistically cost when people actually figure out what it is? In other words, how much stuff does Bitcoin as property and a Store of Value demonetize and why? What should the cost of a Bitcoin really be today and is there a way to compute this?
The best and most interesting answer I've found to this question comes from Rapha Zagury, the CIO of Swan Bitcoin. (Yes I know: A Bitcoin-Sales company selling Bitcoin's appreciation... it still deserves to be taken seriously and evaluated ON ITS MERITS ALONE).
First of all, a video link:
https://youtu.be/C77v2SFkEL4?si=jYiBzt-otE4XwrnO
Here Rapha and Peter discuss the concept of demonetization.
And secondly... an important link to the Nakamoto Portfolio tool.
This is a computational tool of sorts - an analytical program that takes inputs from:
- time to monetization
- probability of monetization and
- percent extent of monetization using
your inputs over various time scenarios and probabilities.
The demonetization, or shift from legacy Stores of Value to Bitcoin includes everything in addition to real estate... but in my opinion it's a great place to start when comparing Bitcoin to legacy assets. Property competes with everything else today... so digital property will do the same.
The Nakamoto Portfolio computes scenarios where if Bitcoin were to demonetize this much stuff with this much probability over this time period... what should the price of Bitcoin be today ON A RISK-ADJUSTED BASIS. AGAIN RISK ADJUSTED - BECAUSE NO FUTURE CAN BE 100% CERTAIN.
And just like before, 90,000$ isn't even in the ballpark IT ISN'T EVEN CLOSE you would be SLEEPING WITH THE CRABS at 90,000$ per Bitcoin and it's not a fair price or VALUE for property of this type AT ALL.
- Conservative inputs, taking into account Bitcoin's inherent qualities, suggest a fair value today of 400-600 THOUSAND DOLLARS per Bitcoin.
- Use the tool yourself and try many different combinations for inputs... approximating 10 - 20 years of appreciation and demonetization of various assets (being very conservative too).
- Today's suggested fair value of Bitcoin will surprise you... it is MUCH higher than current and THAT VALUE SHOULD GROW WITH TIME AS DEMONETIZATION accelerates.
- The Nakamoto tool is specifically designed to calculate a risk-adjusted value for Bitcoin today, based on what Bitcoin could be worth in 10-20 years after probabilistic demonetization... you specifically select the probabilities and it calculates value in the future using legacy-finance formulas.
- The future value of Bitcoin, looking forward 10 to 20 years is easily in the Millions of Dollars per Bitcoin under a various range of (conservative) scenarios.
- Nothing fundamentally has changed in Bitcoin the last few years protocol-wise - it makes sense that education and ease of exposure have been the primary drivers of exchange-rate growth. Why wouldn't these trends continue?
A few takeaways:
My personal takeaway from this thought-experiment is that Bitcoin, logically speaking is trading significantly under its fair market value based on its inherent qualities, scarcity, role as digital property, and growth potential. Look at any vacant real estate used as a Store of Value and Bitcoin should be significantly more expensive today.
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I wouldn't get anything for 90,000$ in terms of investment-grade property with relatively few units available worldwide... and Bitcoin should realistically cost far, far more today with 100 years of future mining and a rapidly diminishing inflation-rate.
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In the past when Bitcoin was significantly "less expensive" (or even last year when it was 25-30,000$) Bitcoin was undervalued. So what changed in the past 18 months? Well nothing fundamentally in the protocol or network. It makes sense then that the education and ease-of-exposure to the asset has been the primary driver of exchange-rate growth... and people eventually will learn what Bitcoin is. And when they do... it logically eviscerates any other and all stores of value risk-adjusted.
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Any serious investment-grade property, whether it was occupied or not, in any major city would be 500,000$ minimum and that barely gets you in the door where people want to live and things are expensive. New York, London, Paris, Hong Kong, it's all the same. Bitcoin is apparently trading at a tremendous discount.
If education and ease of access are the primary elements holding back Bitcoin's price appreciation... as those things fade away the PRICE WILL ACCELERATE RAPIDLY. Bitcoin could eventually rise to mirror the Nakamoto Portfolio suggestions as the informational arbitrage shrinks over time... exploding Bitcoin to a many-trillion asset and with prices 500,000$ and greater.
Once again: Bitcoin logically eviscerates any other and all stores of value risk-adjusted.
To quote a famous Bitcoin-evangelist (who has been proven right):
- What can you buy that everyone needs
- that no-one understands and
- no-one can stop?
I'll let you answer that question. Eventually the world will figure it out.