The SpaceX Starship lifts off from Starbase. Photo by SERGIO FLORES/AFP via Getty Images.
AFP via Getty Images
Bitcoin reached another historic milestone as its exchange rate with the dollar rose just shy of the psychologically important $100,000 threshold.
A few years ago, predicting such a meteoric rise was the pastime of a tiny contingent of “bitcoin maximalists” – people who believe that the broad adoption of bitcoin was inevitable.
Now that bitcoin is on its way to 100K, they must be recognized for having been right about a lot of what they predicted. As Steve Jobs said, “Here’s to the crazy ones. The misfits. The rebels. The troublemakers.”
Why Does Bitcoin’s Price Keep Going Up?
Bitcoin is a digital asset that is used by hundreds of millions of people, yet remains absolutely scarce. That means that the more widely it is adopted, the more purchasing power is carried by any fraction of the total.
The number of units of bitcoin that can ever exist is hard-limited. You can know with mathematical certainty that bitcoin’s supply cannot be printed, inflated, or counterfeited.
No matter how much the human population grows and adds productive economic participants, no matter how much AI, robotics, and other breakthrough technologies grow the economy, and no matter how far humanity reaches into the solar system and beyond – there will be a maximum of 21 million bitcoins for all of us to share.
Each new person that uses bitcoin to store the fruit of their labor slices off smaller and smaller pieces of the overall pie. We will never run out of bitcoin because it is digital, so it can theoretically be divided into infinitely small pieces. Even if we had a single bitcoin to share across the entire global economy, we could use it just as well as if there were billions of bitcoins.
The specific number of bitcoins that can ever exist – 21 million – is arbitrary. More important is that the quantity of units is fixed to any number, because it means that the more it is adopted by people and institutions, the more that purchasing power rises for any tiny piece of the total supply.
Why Is Bitcoin Going Up Now?
Bitcoin has been around for 15 years. Why has it just now approached a price of $100,000 per coin?
Reason 1: Bitcoin has strong monetary qualities
Predictability, scarcity, and immunity from state capture are just some of the qualities that make bitcoin powerful. Below is a comparison of bitcoin to other forms of money. Bitcoin’s price rises because millions of people who are free to make the decision to use bitcoin have chosen to do so. These people apparently see bitcoin as valuable insofar as it has strong monetary qualities.
Comparing the monetary qualities of different monetary media. Courtesy of Coinbits.
Coinbits
That is to say – at its core, bitcoin has value because people choose to use it, and that choice can logically be attributed to the qualities that allow it to serve as sound money.
When bitcoin’s exchange rate with the dollar goes up and down, its fundamentals do not change. In this sense, the rising price can be viewed as an exercise in price discovery. Perhaps it was always worth $100,000 (or more), it’s just that not enough people understood it.
Reason 2: Bitcoin is now accessible by millions of more people – and billions of dollars worth of capital
Although newer platforms make it easy to purchase and store physical bitcoin, its learning curve has been preventing some investors from opting in. Now, with bitcoin spot ETFs available to money managers, traders, and individual investors from all walks of life, bitcoin is suddenly available in retirement accounts, family offices, and pension funds.
Reason 3: A paradigm shift at multiple levels in U.S. government
This newfound availability is amplified by the prospect of a new leadership in the federal government of the United States. The incoming presidential administration and key congressional leaders have stated in no uncertain terms that they intend to foster financial innovation in the United States by advancing bitcoin-friendly policies.
The announcement by Gary Gensler that he will resign from the SEC has caused the entire financial industry to sigh with relief. Many large financial firms will now have millions more dollars per month to reinvest in their businesses – money that they had been spending on defending themselves from capricious enforcement actions by a regulatory body gone completely off the rails. With strong, competent leadership replacing Gary Gensler at the SEC, consumers will be more protected from fiascos like FTX while also benefitting from powerful new financial products and services based on bitcoin.
Meanwhile, state governments are also making moves. Pennsylvania’s House of Representatives passed a law dubbed the Bitcoin Rights Bill and has proposed a state-run bitcoin reserve. How many more states will follow is anyone’s guess, but it’s a safe bet that the number will be greater than zero – and that the dynamics of FOMO are likely to take hold.
Bitcoin nears $100,000. How high will bitcoin go?
The question on the minds of many who have watched bitcoin rise over 162% in the past year is, how high can it possibly go?
Nobody can predict the price of bitcoin on any given date. But one thing is for sure – there is technically no limit to bitcoin’s price in government-issued money.
The reason is simple. While the supply of bitcoin is fixed, the supply of fiat currency is unlimited. As Max Keiser has said, “bitcoin has no top because fiat has no bottom.” Here’s an illustration of the idea.
Bitcoin is fixed, while fiat is debased.
Photo credit: @BitBuyer313
In truth, we are not seeing the value of bitcoin rise. Its value as a fast, inexpensive, permissionless monetary network has remained consistent for many years. Instead, we are seeing the price of bitcoin rise in terms of dollars that are being scattered into the economy like confetti.
If the purchasing power of the dollar were to remain the same, but bitcoin were used as a unit of account to measure all of the wealth in the world, then one bitcoin would be priced in the range of $10 to $20 million.
By that time – perhaps only a decade from now, perhaps longer – the dollar may have been debased so badly that one bitcoin might be priced at $1 trillion or more. Incredible new technologies like AI and generation IV nuclear reactors might expand the economy so dramatically as to multiply that number even higher. The price doesn’t matter. What matters is the value – and the value of bitcoin is as a tool for regular people to safeguard their natural right to private property.
People who have been in the bitcoin scene for a long time remember when the idea of bitcoin reaching $100 was amazing and $1000 was insane. Only the most wild eyed prognosticators back then would have confidently declared that one single bitcoin would cost nearly $100,000 in just a few years. Some of those same people are now reminding us that $1,000,000 bitcoin sounds as crazy today as $1000 sounded not so long ago. Buckle up for a wild ride.