“I don’t know which is worse.”
Charlie Munger said when asked about bitcoin’s price and Tesla’s market cap.
I truly believe that someday a bitcoin will sell for a Million dollar or more. Why not? And, yes, I am not talking about Zimbabwean dollar. I mean a Million US Dollar.
Allow me to explain it why.
First, let’s outline the very important underlying nature of Bitcoins and Humans.
- The amount of Bitcoin is finite. There can only be 21 million Bitcoins in the world.
- The world population is growing. Currently, there are around 7.8 billion people.
Second, here is what the above two points resonates in terms of human emotion.
- The finite amount of the Bitcoin installs a deep sense of scarcity in every human.
- The growing population and the scarcity of the Bitcoin exaggerates the fear of missing out.
So, the combined force of scarcity and fear of missing out creates a new force so powerful that it will propel the Bitcoin to a Million Dollar and more.
Henceforward, in the marketplace, if there are more buyers than sellers, the prices will go up. That is exactly what is happening right now.
The cheap money, human greed, the option to be able to buy fraction of Bitcoin are other supporting details that will act like a lever along the way.
The Nature and Value of Bitcoin Transactions
Let’s imagine it is year 2050, where everyone has Bitcoin and every stores accept Bitcoin. Let’s say I feel like having a coffee and I go to a coffee shop. It is 8 AM and the value of a Bitcoin is one million dollars and a large cup of coffee cost $10.
I purchased a coffee for $10 and paid it in Bitcoin. I have to transfer .000010 Bitcoin. Keep in mind that there is transaction fee that you have to pay, so that your Bitcoin transaction is recorded in the Blockchain. In another word, the transaction fees that the credit card companies collect goes to a new entity. It is not a free transaction.
In the afternoon, Tesla Inc decided to purchase another 100,000 bitcoins from the marketplace and the price skyrocket to $1.5 millions per Bitcoin. Now, the same cup of coffee costs 0.000007 Bitcoins, a 33% less than in the morning. And in the morning, Tesla realized that they need the money to build a new manufacturing plant in Mars and sold 100,000 Bitcoins, which pushed the Bitcoin price to $500,000. Now, the same cup of coffee costs 0.000020, which is 100% more than yesterday.
There is no stability. This is a nightmare situation for all the parties involved in that transaction.
|Year 2050 01/01||Year 2050 01/01||Year 2050 01/02|
|8:00 AM||8:00 PM||8:00 AM|
|Price of Bitcoin||$1,000,000||$1,500,000||$500,000|
|Price of a cup of Coffee||$10||$10||$10|
|# of Bitcoin needed to by a cup of coffee||0.000010||0.000007||0.000020|
In the above process, all we did is avoided the central government. Now comes the fun part. You don’t want the transactions to be centrally recorded and controlled and perhaps don’t want to pay taxes. But, at the same time, you expect the government to protect you and your store. And you expect the government to build and maintain the road that leads to your store so that customers can walk in with their Bitcoin wallet to purchase items from you? Really?
What if you transferred 1 Bitcoin instead of 0.00001 Bitcoin. And the store owner refused to return it back to you. In fact, he is now ready to close his shop and go for a vacation for 6 months. Good luck getting that money back. There is no customer support that you can register your complain, because you didn’t want it in the first place!
By and large, there is no value in using Bitcoin as opposed to using cash or Credit card.
“Too Volatile’ to Be Global Medium of Exchange” – Charlie Munger.
|Credit Card Transactions||Credit Card Transactions|
|(In Billions)||Year 2020||Year 2050|
|10% By bitcoin||36.9||1,843.3|
To handle around 2 billion transactions in a blockchain, we need all of our computers up and humming all year long. That is a separate topic.
How much does a Bitcoin Worth?
The answer is easy. Its $0.
There is nothing to quantify the Bitcoin’s value or worth. The value of Bitcoin is and will only be in one’s head. You must believe in Bitcoin, and you must believe the amount assigned to each Bitcoin. So, if you are a believer, you can convince yourself that a Bitcoin is worth one dollar or one million dollars. It is entirely up to the believer.
You may argue that Bitcoin is based on the new and groundbreaking technology of peer to peer network without a central controlling body. The “New” part is kind a not true. I don’t believe this is a new or even groundbreaking technology. It has been around us ever since human descended from the trees in Africa millions of years ago.
In fact, it is perhaps the oldest method we humans employed for all of our transactions. Even I am old enough to remember that our parents dealt one on one, without central government for most of the transactions. Which, unfortunately, was not efficient with big amount and multiple random people.
To scale up the transactions, we need a central governing body.
We need central government to monitor a lot of our acts. There are some things, like our behavior, that haven’t changed ever since. We act like our great-great ancestors, chimps, when there is no rules and regulations.
This is not much different than poor nations, where the central government is not strong enough to control corruption. In another word, one on one transaction is called corruption.
People in Minnesota, who were shouting de-fund police a year ago, are now begging for central police force. The streets in Minnesota are too scary and violent to even come out without a controlling body.
I may have gone a little too far, but the world with all Bitcoins transactions may worth the Humanity.
The Future of Bitcoin
Bitcoin is here to stay. It is not going away anytime soon or easily.
Bitcoin is like a religion. We all know that there is no God, but we all pray and celebrate religious holidays. Some of us believe in Hell and Heaven.
We know Bitcoin has no value, but we believe that it is perfectly alright to pay $50,000 for it. After all, if you can sell the damn thing for $100,000, why not purchase it for $50,000. That is a no brainier.
We know that Bitcoin has no value and Bitcoin transaction adds no value in any form. But, we also know that the price of Bitcoin goes up. Way up than what it is now. Perhaps $1,000,000 and more.
Out of the 7.8 Billion people, I will be the last one to buy Bitcoin.