The Greatest Wealth Transfer in History | The Future of Money P9
A look at how Bitcoin is a global black hole that sucks in much of the world's capital.
Welcome back to my series The Future of Money. It’s meant to be consumed in linear order, but each article should stand sufficiently on its own. Begin your journey here.
Bitcoin’s Adoption Cycle
Bitcoin is a technology, and history teaches us that all technologies follow a predictable adoption curve.1
Findings show there are 42 million bitcoin wallets, however because most people have multiple wallets the number of holders is far less.2 The going assumption is there are some 25 million users. With 7.8 billion people on earth, it means that roughly 0.03% of the population uses bitcoin. It’s unequivocal we’re at the early stages of bitcoin’s adoption cycle.
The question is, how long will this adoption cycle take?
People love to mention Bitcoins slow adoption when in reality it has been unbelievably fast for the magnitude of what’s at stake. Bitcoin disrupts money itself, the largest store of value in the world.
People collectively realizing Bitcoin possess the most superior monetary properties has led to it being the greatest performing asset of the past decade, transferring wealth to those whom hold it. This process will continue as game theory pulls people toward the most efficient form of money, ultimately converging the world on a unified store of value.
We live in an interconnected world with an unprecedented rate of change, largely thanks to internet which allows information to spread instantly and ubiquitously. While gold took centuries to reach global consensus, some experts believe it will happen much sooner with Bitcoin (a process known as hyperbitcoinization).3 Personally, I believe the truth lies somewhere in between, or as the Romans used to say ‘In medio stat virtus’, virtue stands in the middle.
Bitcoin Volatility: Feature or Bug?
Critics have lambasted Bitcoin for being volatile, but they fail to understand the magnitude of what is transpiring. For the first time in thousands of years the world is on the brink of a new money. The belief that billions of people will immediately converge on this idea is ludicrous.
Volatility is what happens as adoption grows and is a healthy part of the process. The price action represents independent actors in an unmanipulated global market that trades 24/7/365 evaluating the viability of Bitcoin as a store of wealth. As more people converge on Bitcoin and adoption increases, its price will stabilize.
This progression will continue to happen in waves resulting in intermittent bubbles. Undoubtedly skeptics will continue to claim it’s a pyramid scheme or a scam yet with each mined block, Bitcoin grows stronger, more antifragile, censorship resistant and decentralized.
While there will be plenty of speculators with little fundamental understanding of what Bitcoin is and the problems it solves looking to get rich quick, each cycle will end with more people whom are educated about Bitcoin, the problems with fiat, and are ultimately converted to long term holders (referred to as ‘HODLers’). This will both stabilize and increase the price over time.
Like all assets, as the cycles come to a peak, a mania will ensue, the last of which we saw in early 2018 and more recently in spring of 2021. Inevitably some genius will max out his credit card at the top of the market, only to be forced to sell when bitcoin pulls back 50%.
He’ll make headline news and people will remain convinced it’s a scam, all the while never asking themselves a simple, yet profound question: what is money? Which then leads them to ask, why does it have value? Why have various types of money failed repeatedly throughout history?
Where are we currently at now in the long-term economic cycle and how is that likely to impact monetary policy and what is likely to transpire? Naturally, very few will ask these questions, while simultaneously holding absolute conviction that bitcoin could never work.
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That’s fine. Such is life. Only this time really is different. The punishments for not upgrading one’s technology are usually insignificant, such as Bob who doesn’t use Facebook. This time however, the stakes are much higher. If Bitcoin becomes the world’s chosen money it will lead to the greatest wealth transfer in the history of the world, with the early adopters being disproportionately rewarded as wealth floods from fiat to Bitcoin.
Looking back, it will appear that Bitcoin adoption happened gradually, then suddenly. The suddenly is largely contingent on the failure of fiat to preserve value due to hyperinflation, at which point people will scramble to store their wealth elsewhere.
They will increasingly choose Bitcoin, the scarcest investable asset on earth. This will happen country by country on an individual basis, starting with those whose currencies are the weakest, and likely ending with the U.S. dollar whom holds the superpower of being the world’s reserve currency.4  (A phenomenon known as 'The Dollar Milkshake Theory).
We are currently at the beginning stages of this domino cascade of fiat, and citizens of countries like Venezuela, Turkey and Argentina are transferring the wealth to Bitcoin at unprecedented levels.5 6
After individuals will come corporations who decide to hold their wealth in Bitcoin instead of fiat. We’re seeing this beginning to unfold, the most famous example of which is the publicly traded company MicroStrategy, whose CEO Michael Saylor convinced the board to invest hundreds of millions of its treasury into Bitcoin.
It won’t stop there. Soon governments will come on board as game theory pulls them to converge on the hardest money the world has ever known. As their paper fiat fails, they’ll adopt bitcoin to restore trust in their currency, even mine it by setting up huge computing power stations. One by one, they’ll come. Once they do, they’ll never leave.
In short, the great wealth transfer (GWT) will happen relatively fast given the magnitude of what’s at stake, and in retrospect, like all great things, most will report how obvious it seemed while lamenting they didn’t realize it sooner.
Gold Has Already Failed
Gold bugs, whom are largely skeptics of bitcoin, have argued that we will return to a gold standard. Intuitively this makes little sense as technology moves forward not backwards.
Furthermore, it’s ironic that gold bugs dismiss bitcoin as both parties fundamentally agree on underlying principles (answers to the poised questions above), yet ironically draw different conclusions about bitcoin.
Many theories exist as to why this is the case, most notably (at least from Bitcoiners) that gold bugs are a product of their generation and didn’t grow up with technology and that they didn’t go far enough down the rabbit hole to properly understand bitcoin.
I see the argument for both sides and am personally bullish on gold, silver and bitcoin. I like bitcoin the most because of the massive asymmetry (one can only lose 1x, but the potential returns are 100x or more) that doesn’t exist with gold.
In short, both prosper off the same thesis, but bitcoin gives one leverage on gold. Furthermore, while I believe gold will always have value as it’s a legacy commodity and status symbol, it seems to represent the past whereas bitcoin is the future.
To simplify, the advent of Bitcoin will demonetize gold over time. How does the process play out?
As I’ve been saying for years, the boomers will own gold and not bitcoin. The millennials will own gold and bitcoin. Gen Z will own bitcoin and not gold. Gold’s millennia long reign as money will be disrupted in the span of a few generations, and the greatest wealth transfer in the history of mankind will be complete.
The Unfolding of the Great Wealth Transfer
Studies predict that 68 trillion will be transferred the boomers is going to be to the millennials by 2030, representing one of the greatest wealth transfers of all time.7 What will they do with it all?
Even if a mere 3% of that money moves into bitcoin, that is some 2 trillion increase in the market cap of bitcoin over the next decade. For reference, bitcoin’s current market cap is just over 400 billion, meaning it’s potentially poised to increase 5x in size based on demographics alone. What will that do to its price?
More practically the reason a gold standard won’t work is gold already proven it doesn’t work. Gold has failed due to the ability for its supply to be centralized by institutions and governments.
This ultimately results in a society shift from a gold standard to a fiat standard, at which point the system fails. If, as Einstein observes, the definition of insanity is doing the same over and expecting a different result, why on earth would we switch back to a gold standard when it has led to a fiat system ‘printing’ its currency into oblivion since the Roman Empire?
Put another way it is precisely because gold is money that we wound up on the dollar system to begin with, a currency which has lost nearly all of its purchasing power in the past 100 years.
Bitcoin fixes the shortcomings of gold. To literally take a piece from Parker Lewis: (emphasis mine).
‘Bitcoin shares the monetary properties that caused gold to emerge as a monetary medium, but it also improves upon gold’s flaws. While gold is relatively scarce, bitcoin is finitely scarce, and both are extremely durable. While gold is fungible, it is difficult to assay; bitcoin is fungible and easy to assay.
Gold is difficult to transfer and highly centralized. Bitcoin is easy to transfer and highly decentralized. Essentially, bitcoin possesses all of the desirable traits of both physical gold and the digital dollar combined in one, but without the critical flaws of either.
When evaluating monetary mediums, first principles are fundamental. Ignore the conclusion or end point, and start by asking yourself: if bitcoin were actually scarce and finite, ignoring that it is digital, could that be an effective measure of value and ultimately a store of value? Is scarcity a sufficiently powerful property that bitcoin could emerge as money, regardless of whether the form of that scarcity is digital?’
Bitcoin, like all money is ultimately not a choice, and, barring external risk, its success is largely inevitable. Ultimately, if one comes to the same conclusions above, they must evaluate the such risk and determine if a bet on bitcoin is profitable.
This is not financial advice and one should seek professional counsel before making any investments. Understand that all investments have risk and one should never make a bet they aren’t prepared to lose.
In the next article in The Future of Money series, we’ll be exploring some of these risks, how likely they are to transpire and how to plan for them. Subscribe to know when it becomes available.
Alec
Alec, maybe you can touch on the regulatory issues with Bitcoin ownership. The concern I have concerning crypto is the box I have to check on my tax return under penalty of perjury stating whether I had any transactions in crypto during that tax year. Suspect that some of those 87,000 IRS agents are going to be looking at people doing business in crypto going forward, and that its status as a private store of value may become a thing of the past. I agree on the fundamentals of bitcoin being a superior type of money, but a hostile government could be troublesome, especially with the IRS enforcement and investigative powers.