Bitcoin Goes Much Higher

A common oppositional thought to bitcoin is that it has already gone up so much in value that a person looking to invest has missed the boat.

To put it bluntly, this idea could not be further from the truth. I believe debunking this idea is one of the most critical pieces of bitcoin education so that the retail investor can learn and then opt into a portfolio that features bitcoin.

The saying, “The best time to plant a tree was 30 years ago. The second best time is today,” is a saying that appropriately applies to deciding to move from no bitcoin in your portfolio to having a percentage allocation to it.

It’s important to first understand human psychology, and then I will break down the true market fit. By the end of this, you will have a better sense of how and why bitcoin has the ability to go so much higher in the future.

The term relating to the price of bitcoin that anchors on human psychology is called “unit bias.” Unit bias is the idea that people tend to want a complete unit of something, a whole, and “1” tends to be that whole number. Unit bias relates to bitcoin because people view 1 bitcoin as the base unit. With bitcoin above $110,000, many people see that price and immediately think, “I cannot afford that, I must go someplace else with my funds.” In reality, bitcoin is divisible by eight decimal points, and you can buy any dollar amount if you wanted to. But people fall trap to unit bias.

You could buy $0.10 a day, $1 a day, $100—whatever amount you want you can. There is no requirement to view bitcoin as whole units. You can purchase small pieces of the pie of a single bitcoin and you will still own some bitcoin.

Unit bias finds itself in the equity market all the time. This psychology is a reason that stocks split. A stock that is $1,000 comes off much more attractive to an investor if it is split 10:1 and repriced to $100. Someone with 1 share before the split now has 10 shares, but the monetary total value has not changed. The only thing that has changed is the supply of the equity has increased tenfold and actually inflated the outstanding supply.

With bitcoin, this is not possible because there can only ever be 21 million bitcoin in circulation ever. Therefore, as more capital flows into bitcoin, the price naturally goes up. There are no games that can be played to make it seem more attractive to an investor by doing something like a stock split.

The human psychology portion is now explained. Don’t let unit bias harm your thoughts about bitcoin.

There are two key market reasons why bitcoin has the ability to go so much higher than it already is. The first is that bitcoin is better than gold in nearly every way, and gold has a market cap ~10 times higher than bitcoin. The second is that bitcoin has a much larger total addressable market than stocks, bonds, and commodities.

In comparison to gold, bitcoin is cheap and near instant to transfer internationally. Whereas gold is slow and expensive. If a merchant in the United States wants to settle a trade with London via gold, they have to load their gold on a ship, pay to insure and protect it, wait the time it takes to cross the Atlantic, then in London the receiver needs to melt the gold down and verify its purity. With bitcoin, the merchant just needs the receiver’s bitcoin wallet address, and a trade can be done in minutes for pennies on the dollar. Additionally, the bitcoin ledger is verified by the network approximately every 10 minutes for anyone to see. Meanwhile, my whole life and much longer than that, we have just trusted that the United States government holds gold in Fort Knox, in reality we have no idea and it is not possible for any ordinary citizen to verify government ownership. Bitcoin also already has a higher stock to flow than gold, and will only continue to decrease its supply issuance, and that supply issuance is also capped at 21 million coins. Gold increases supply roughly 2 to 3% a year, which means in roughly 30 years the total supply of gold doubles. 

That is hefty inflation when your timeframe is generations.

I summarize the gold vs bitcoin thesis in one sentence: In an ever-increasingly digital and global world, bitcoin is the clear choice as a digital store of value and international settlement compared to gold.

Now, looking at the equities, bond, and commodities markets compared to bitcoin, using Apple as an example provides a good visual of the limits these products offer compared to bitcoin. Apple is a technology company and primarily sells products to the total addressable market of roughly 8 billion people in the world.

When the iPhone first came out, countless people scoffed at the idea that people would pay a premium for a smartphone. Those people were wrong and Apple stock appreciated greatly in value since that time. However, the outlook today is maybe Apple could increase 5x or 10x, but it is inherently hard for a multi-trillion-dollar company to do that when its business model relies on people purchasing expensive items.

Think of Apple and the products they have released in the last handful of years, there is a strong argument that AirPods, bluetooth headphones, are their most important product. Additionally, their current business model is largely subscription or repair-based in nature, where people are purchasing new iPhones to replace old or purchasing replacement AirPods after losing their original pair.

I will go one step further and say Apple has built a walled garden technology product monopoly that makes it extremely sticky for users to stay within their ecosystem and not branch out. I type this on my MacBook while listening to music on my AirPods, playing from my iPhone. Case in point. However, walled garden technology product monopolies do not last a millennium. A new technology monopoly will emerge and beat out Apple, and even if history doesn’t repeat itself, it shouldn’t be hard to see that the total addressable market (TAM) Apple serves is far smaller than that of bitcoin.

Bitcoin’s TAM is anyone who uses money and wants to save for the future. This is largely anyone and everybody in the world. From the poorest of the poor to the richest of the rich. They all spend money and all look to save money in some capacity for the future.

Total up all the possible TAM that bitcoin can pull from, and it equates to between $200 to $300 trillion. This market is 100 times larger than the current size of bitcoin. In the case of Apple above, a blue-chip Magnificent 7 stock, mind you, it is hard to accept a 5 to 10x return in the future. How does the same projection work if you use real estate, any other equity, or a bond? I am not saying other assets won’t appreciate in the future, nor am I saying there aren’t other assets that are “winners.” There clearly are and will continue to be.

My belief is that you will not find a better long-term bet than that of bitcoin. With bitcoin, you have a 10x return when it passes gold and a potential 100x return as capital flows from other markets into the bitcoin network.

Every other asset has a TAM limit.

The TAM limit of bitcoin is the world.

Stack SATs.

The views and opinions expressed here are for entertainment purposes only and should, in no way, be interpreted as financial or investment advice. Always conduct your own research when making an investment or trading decision, as each such move involves risk. Nothing contained in this e-mail/article constitutes, or shall be construed as, an offering of financial instruments, investment advice, or recommendations of an investment strategy.