It’s frustrating. But also interesting. Over the last few weeks, I’ve heard two-valued investment managers say they don’t believe in the supply limit for bitcoin. If it’s easy for you to scroll through bitcoin, they argue, then there’s really no limit. Most of you, when you read it, draw eyes at this stage. But since it seems to be a firm position of some wise people, we should delve into it.
We consider this to be more than a small study. First of all, let’s see what the two investment managers I’m referring to actually said. This is from investment researcher and former hedge fund manager Jesse Felder in his blog post from a few weeks ago.
He spoke about how Bitcoin believers depend entirely on the idea that bitcoin’s supply is limited. This makes it much more attractive than fiat currencies because of the fact that central banks around the world are printing paper cash in trillions. But bitcoin has already done a lot of hard work, multiplying the number and type of bitcoins in circulation. In fact, if you put together all the hard forks bitcoin has been going through since its inception, the total number of bitcoins has actually grown faster than the number of dollars, he wrote.
At the Markets and investment podcast Endgame this week, investment manager and writer Fred Hickey said that Cryptocurrency number five is Bitcoin Cash! The biggest number 12 is bitcoin SV – these things have no limit. If bitcoin were too expensive, they’d just go to another one. They’re speculators, they pile up everything that’s cryptocurrency.
At the moment, we ignore the hidden conclusion that the bitcoin market is entirely speculative-driven and that speculators do not know how to do research (because these claims are simply too airy to even bother with them). Instead, let us focus on the false idea that new Bitcoin blockchains can be spun whenever we want.
And let’s go deeper into why this misunderstanding persists and what it says about Bitcoin’s role in our socio-economic evolution.
Bitcoin’s role in our socio-economic evolution
Most of you are familiar enough with crypto markets to find out that Bitcoin is unique. But have you thought much about why? It’s only part of the technology. Bitcoin code is open-source and can be copied and customized to create new bitcoin-like assets. But despite what they call themselves, they’re not Bitcoin.
Bitcoin Cash increased the size of the block, allowing for greater permeability at the expense of greater centralization. Bitcoin SV increased the size of the block by a further number of times. Realistically speaking, when we look at the market, we can see that investors prefer the original Bitcoin. So Investing in Bitcoin in 2021 is not a big deal
It’s unlikely that you’ve ever heard an institutional investor talk about how bitcoin’s SegWit scaling solution gives them more certainty about the security of decentralization than bitcoin SV’s huge 128 MB blocks? Well, I’m sure it’s happened, but not often. But with that said, I do not think that scalability is the basic criterion for investing.
Money flowing into BTC is not a Bitcoin-specific property
It’s network effects. I don’t mean the effect of every additional node on Metcalfe’s law. I’m not talking about the benefits of more people being sent bitcoins (although it’s not insignificant). I am thinking of the market infrastructure and services that arise in the largest volume of assets: ramps, complex platforms, professional custody, complex derivatives, and, more importantly, liquidity. Smaller assets, regardless of their impressive block size, are riskier. Investors care about this, and so, no matter how expensive BTC gets, I very much doubt whether they will simply become BCH or BSV.
These market network effects, together with the characteristics and potential of the underlying technology, are behind the focus of the current Institutional investor’s interest in BTC.
Why is it hard for otherwise smart investors to see this?
To understand this, we need to look beyond the lack of research and the lack of interest. They are based on the assumption that traditional investment paradigms are still in place. The main one is not the unfounded belief that the technology is re-acting and that early network effects may not be permanent.
It’s good to remember sometimes that MySpace lost to Facebook, and Google took over Yahoo’s spot as the top search engine. It is difficult for traditional investors to understand that bitcoin is not a business and better marketing of competitors is unlikely to make a significant change.
It is also difficult for traditional investors to think about technology within the same framework as natural elements. After all, the elements “just are it.” Their composition can never change. Moreover, their use can be prevented, but they can never be uprooted.
By contrast, the technology is designed to perform a specific role according to the selected specifications. We can make it do one thing or another, and sometimes it gets used to something completely different than we intended, but it’s a market for you. The technology is almost infinitely shaped by its composition and purpose. It is also permanent, usually subject to the whims of the powerful, and is driven by conflicting urges of control and empowerment.
Until Bitcoin. Bitcoin has been created by someone, but we don’t know who, so there’s no one we can hold responsible. Bitcoin is constantly updated and adapted by a small army of developers. But it cannot be fundamentally changed without a network consensus, which would only be possible if its size were to dwindle to a small part of today. And you can prevent it from being used, but bitcoin can’t be turned off. All of this gives Bitcoin – technology – a wickedly basic status.
Both of the above investors have written a lot about gold and instinctively understand the value of natural immutability and scarcity. Accepting that technology can have similar characteristics that are stretchable for most.
But understanding the difference between bitcoin and other technologies and the similarities between bitcoin and gold is essential to understanding its importance. This is not just about the inflationary hedge offered by bitcoin shortages and decentralization. It has to do with civilization.
The emergence of metallurgy was, by many theories, a trigger for the development of a complex society. The emergence of crypto-technologies may be a catalyst for new societal restructuring. We have heard these outrageous allegations from technology advocates before. But we have never had technology with element-like characteristics that emerged in a technologically rich age that was ripe for catalysts, at a time that was offered by so many other social-changing trends and events.
Acclaimed investor Paul Tudor Jones revealed this week that he gets it when he said that If he really had to guess what crypto’s future is going to be, he thinks it’s a lot like a metal complex – where you have a “valuable crypto” that could be bitcoin, and you and the sovereigns are going to have transaction-cryptocurrencies, and they might be more like industrial metals.
Throughout history, mainstream change is not usually noticed until after the changes have taken place. If traditional investors confuse us with ignorance and little research, we should try to understand why. And more importantly, we should appreciate what it says about the depth and subtlety of new definitions and new paradigms that define value and society in the future confusion.
Anybody else knows what’s going on?
U.S. stocks rose to an all-time high and Treasury interest rates jumped while the dollar fell after covid-19 statistics deteriorated and the unemployment confirmed expectations for a higher federal stimulus. It’s not just the disconnection of markets from the reality of the main street; it is also that the market consensus is generally a sign of a reversal of things. But if there is so much difference for this year, who knows when investors will understand it or even if they care.
Bitcoin also continued its rally, recovering from a slump a week ago to re-publish gains that made equities anemic. The feeling still seems to be that this rise is nothing like the spirited and speculation-driven 2017 rally.
I’m sure there’ll be ups and downs. But this time the market is very different: more mature, more liquid, more diverse, and Bullish to the core.
