The World is Bitcoinizing
When I first learned about Bitcoin in 2012 I thought it was going to zero. My fear was one of two scenarios killing it:
BTC used for illegal activity
BTC taxed at 90% or similarly messed with by governments
Essentially I worried it would get knocked out of the game for either of those reasons.
My position started to evolve as I learned more about:
how fiat money printing burns our purchasing power
the role gold and other assets play as “wealth batteries” to store wealth
how much of the world’s wealth is stored as monetary premium vs utility premium
I learned a lot during my investigations. The world has changed a lot, too.
Bitcoin is now a $2T asset class with a 15-year track record. Adoption is growing on all fronts: sovereign nation states, corporate behemoths, Wall Street asset managers and individual investors are a part of the bitcoin network.
El Salvador became the first country in the world to adopt Bitcoin as legal tender in 2021, sparking global debate and setting a precedent. The Central African Republic followed El Salvador's lead in 2022, further demonstrating the growing interest in Bitcoin adoption at a national level. The number of Bitcoin ATMs worldwide continues to increase, making it easier for people to buy and sell Bitcoin, indicating broader accessibility.
Today there are 200M bitcoin users. That is roughly 2.5% of the global population.
If you look at BTC’s adoption on a $ basis against the $900T of global wealth… we’re much earlier than 2.5%. We are closer to 0.2248% when measured on a capitalization basis.
So this means we are somewhere between .2% and 2% of the way through a monetization process that will see Bitcoin flip gold in market capitalization and eventually flip art/collectibles, too.
If Bitcoin becomes a common asset on company balance sheets and a feature in treasury management, as Michael Saylor the CEO of MicroStrategy intends, it will tap into a large channel of very liquid capital that would be able to transition to the Bitcoin strategy rapidly.
Bitcoin miners, insurance companies, software engineering firms and even restaurants are running “the bitcoin strategy” by holding BTC. We see a rise in bond offerings and other forms of borrowing and/or securitization in order to acquire even more bitcoin. Importantly, the companies running this playbook are outperforming those that aren’t… which indicates even more firms will be adopting the bitcoin strategy in the coming years.
Even if it doesn’t become the primary corporate asset or the medium of exchange for every transaction in the world, it presents a compelling solution to many of the problems that plague traditional finance. Its decentralized nature, transparency, low transaction fees, accessibility, and potential as a hedge against inflation make it an attractive investment opportunity.
For all of these reasons bitcoin has the opportunity to become the premier “wealth battery” for the elite and the everyday person — this is the largest opportunity in the history of the world.
$900T of wealth exists in the world, and nearly all of it is misallocated! This wealth is stored in analog vehicles like real estate, rife with operating costs, entropy and friction that melt our wealth away.
How many years of property taxes and maintenance costs do you have to pay before your capital is eroded?
What about the purchasing power of the dollars your CRE is denominated in, including the rents you collect from your real estate holdings… are they being made less valuable by the second due to endless money printing and broad debasement of the currency?
You can even make the argument Bitcoin is a firewall against purchasing power theft by central banks and global governments.
It's as if the government's are reaching into your bank account and stealing the money that you've been saving your entire life. It’s even worse than that actually. All the wealth energy that your family has worked to create throughout all of time is currently in your hands.That energy is being continuously stolen by so-called elites.
Wealth is transitioning from physical to digital to get away from all this friction and financial entropy.
The unique combination of math and game theory at Bitcoin’s heart is the primary reason bitcoin is capturing this wealth energy as it converts from physical to digital. There’s no doubt any rise in Bitcoin implies a drop in fiat, and the reasons for that drop have been the subject our our analysis before.
The future for Bitcoin is driven by adoption curves across different levels of our economy - at the company-level, nation states and individually. The forecast below was prepared by Michael Saylor for the Bitcoin Nashville 2024 event.
The largest change is of course bitcoin increasing by 280x.
I also think it's interesting to watch the growth rates of real estate move slower than equity. Gold has the worst growth rate of them all in this projection. I think that makes sense because gold's primary role is as a wealth storage device and bitcoin is clearly a technologically superior wealth storage device.
Gold isn’t the only asset class that will get hurt by the rise of bitcoin.
A large percentage of the wealth inside the real estate market is a monetary premium. Investors look for assets to store their wealth in and as a result of some of the dynamics of real estate (tax efficiency, depreciation jedi tricks, cash flow streams) and because of this more money has chased into real estate vs its actual utility value.
This drives up the total asset value, but if that wealth had a better place to go… why wouldn’t it?
Bitcoin is that better place to go. Greater returns year-over-year… zero operating cost. Those taxes, those costs, that friction… it chips away at returns. Bitcoin as a digital asset has an immortal lifespan.
Even priceless art has to be maintained every year. Art collectors have gone broke while being rich on paper. Same thing with real estate investors and everyone else who suffers from being “asset rich and cash poor”.
Much of the world is only asset rich because so many virtual financialized assets were created and inflated in value with infinite central bank money printing and excessive derivative spawning.
Bitcoin's monetary and financial statuses are laying the groundwork for a new economic paradigm. As a digital gold it offers a decentralized, scarce, and portable store of value, increasingly appealing in a world grappling with inflation and geopolitical uncertainty. As a universal reserve currency it is gaining traction as institutions diversify away from Treasuries and USD denominated assets, seeking stability beyond the fiat-driven economy. Bitcoin's efficiency and transparency are positioning it as a primary settlement currency for international transactions, potentially displacing the US dollar as the international reserve currency.
Bitcoin Adoption = Bitcoinization
The rise of Bitcoin has been nothing short of remarkable. From its obscure beginnings as a cypherpunk project to its current status as a globally recognized asset, Bitcoin has steadily gained traction, leading many to believe that the world is undergoing a process of "Bitcoinization." This implies a gradual shift towards increased adoption and integration of Bitcoin into the global financial system. While still in its early stages, several compelling factors point towards this ongoing trend.
One of the most significant drivers of Bitcoin adoption is the changing macroeconomic and geopolitical landscape. As traditional fiat currencies face increasing inflationary pressures, Bitcoin, with its fixed supply of 21 million coins, has emerged as an attractive hedge against inflation. This is particularly evident in countries experiencing economic turmoil or hyperinflation, such as Venezuela, Argentina, and Turkey, where citizens have turned to Bitcoin to preserve their wealth. In countries with strict capital controls or limited access to traditional banking systems, Bitcoin offers a way to move money freely and participate in the global economy. Its decentralized nature bypasses traditional financial intermediaries, empowering individuals and businesses to transact without restrictions.
Political instability and uncertainty can also drive Bitcoin adoption. During times of social unrest or conflict, Bitcoin can provide a safe haven for individuals seeking to protect their assets from government seizure or instability. Its digital nature allows for easy storage and transfer, making it an ideal tool for preserving wealth in uncertain times.
Technological advancements have also played a crucial role in increasing Bitcoin's usability and accessibility. The development of the Lightning Network, a layer-2 solution built on top of Bitcoin, has significantly improved transaction speeds and reduced costs. This has made Bitcoin more suitable for everyday use, facilitating micropayments and enabling faster cross-border transactions. Additionally, the Taproot upgrade, implemented in 2021, enhanced Bitcoin's privacy, efficiency, and smart contract capabilities, making it more versatile and user-friendly.
The growing institutional adoption of Bitcoin further strengthens the argument for Bitcoinization. Major companies like MicroStrategy and Tesla adding Bitcoin to their balance sheets has legitimized it as an institutional-grade asset. This has sparked a wave of interest from other corporations and institutional investors, contributing to increased demand and market capitalization. The introduction of Bitcoin ETFs and other financial products has made it easier for traditional investors to gain exposure to Bitcoin, further integrating it into the mainstream financial system.
Beyond the financial realm, social and cultural factors also contribute to Bitcoin's growing adoption. Its decentralized nature resonates with those seeking financial sovereignty and freedom from centralized control. The growing awareness and understanding of Bitcoin's potential benefits, fueled by increased media coverage and public discourse, have also played a role. The emergence of a vibrant Bitcoin community and the network effects associated with its growing user base further reinforce its adoption and acceptance.
In the developing world, Bitcoin has the potential to revolutionize financial inclusion. It offers a cheaper and faster way to send remittances across borders, particularly beneficial for migrant workers sending money home. Moreover, Bitcoin can provide access to financial services for the unbanked population in developing countries, empowering them to participate in the global economy and improve their livelihoods.
The recent approval of Bitcoin ETFs in the US has been a game-changer.
These ETFs must buy Bitcoin to back the shares investors purchase. Some estimates suggest these ETFs alone are buying multiples of the daily mined Bitcoin. This creates constant, predictable demand.
The fact that ETFs and corporations are buying multiples of the daily Bitcoin issuance is a significant development with potentially far-reaching consequences. It highlights the growing demand for Bitcoin as a scarce, digital asset and suggests that we may be entering a period of increased scarcity and potentially higher prices. This dynamic underscores the importance of closely monitoring these trends and understanding their potential impact on the future of Bitcoin.
While the journey towards widespread Bitcoin adoption is still ongoing, the confluence of these factors suggests a clear trend towards Bitcoinization. Macroeconomic instability, technological advancements, institutional investment, social and cultural shifts, and the promise of financial inclusion all contribute to Bitcoin's growing prominence in the global financial landscape.
The central banking fiat system will eventually surrender entirely to Bitcoin.
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