Hyperbitcoinization and its potential
To understand how hyperbitcoinization is possible, it is important to understand that throughout history there have been and will be various types of currencies, especially those that we can consider as such.
Fiat money is nothing more than a financial experiment compared to other assets that have been used as a haven of value in the past, such as gold.
Perhaps it is difficult for many to imagine a future in which fiat currencies will cease to be a part of our lives, because they have probably surrounded them all their lives.
But if we move away from this period and focus on the vast history of mankind, we will find that this type of money existed only for a short period of time compared to previous alternatives.
The Superiority of Bitcoin
Now it’s time to talk about the things that make Bitcoin an excellent currency, especially compared to fiat money and gold.
According to Coinmarketrate.com, it is more divisible, verifiable and transportable than gold. It is also the only form of money that can be verified at any time and by anyone, because the blockchain makes it possible and is public.
Perhaps the most important argument in favor of Bitcoin and one of the main reasons why it is such a technologically and financially revolutionary idea is the fact that monetary policy is controlled not by people, but by programming.
The problem with human control is that over time it leads to problems, such as those that we see in history, and even those that we are experiencing now due to rising inflation around the world.
Even if we go back to the Roman era, the government managed to deprive the currency of value, as, for example, when they took a percentage of gold and silver from coins, which eventually led to the collapse of the Roman Empire.
Even in our time, something similar happens when paper money continues to be printed, causing social problems.
History shows us the inevitability that the currency, and the monetary policy of which is controlled by people, will eventually deteriorate and collapse.
Even when we had some form of money that was harder to control, like gold, states found ways to get it out of the way to make room for another, more manipulated form of money. For example, quitting the gold standard.
Bitcoin manages to prevent this in two ways:
- Bitcoin nodes, which work in a decentralized manner on the network and are scattered around the world, make it impossible for a centralized organization to seize control.
- Its protocol cannot be changed. New layers can be created on top of it to provide other services, but the basics of the base layer cannot be changed and have not changed since its inception in 2009.
The maximum number of coins that can exist is a parameter in the code that is very difficult to change. There are only 21 million Bitcoins, and it would take universal consent to try to do that. This makes this asset better than gold, and other currencies, if we consider it from the point of view of inflation.
As the price of gold rises, more and more prospectors are looking for new technologies and other creative ways to find this precious metal due to increased incentives. This leads to the fact that the price of gold is eroded to the one that preceded its bullish rally. Ultimately, a bigger offer is created.
This is where Bitcoin’s fixed limit differs significantly from this form of money.
When the price of BTC soars, new miners join the hunt for new blocks to get the Cue Ball, with the difference that no matter what technology or resources they possess, the amount of reward for each block is always the same, and even halves every 4 years, which is known as halving.
What’s even better, each block appears about once every 10 minutes, so there won’t be a large flow of Bits either.
Currently, each block brings 6.25 BTC to the winning miner – an amount that decreases compared to the 50 that could be obtained when the cryptocurrency first appeared.
In 2012, it dropped to 25, in 2016 – to 12.5, and in 2020 – to the level that we know now. A feature that happens every 210,000 blocks, which is about 4 years, as we have already said.
Thus, if miners want to get more BTC, they have to produce higher hashing power. This generates competition, but does not accelerate the supply of Bitcoins, but makes the network more secure due to more computing power.
And the best part is that this happens every time the price of Bitcoin rises.
This not only makes the network more secure, but also increases its value as this feature becomes increasingly scarce. This is vital for the success of Bitcoin, not only because of the rising cost, but also because it creates a trust effect among users and the market.
Every 4 years we have a halving, and the cost increases without demand, it’s just that it’s harder and harder to create new coins. According to the law of supply and demand, we have a justification for why its value is increasing.
The effect of halving on the price of Bitcoin
On the graph, we see how new investors, hodlers, as well as new miners and an increase in computing power enter the market.
Some speculators also come and push the price even higher, which explains why it eventually falls and then recovers again.
Many criticize the fact that Bitcoin has high volatility, but if we look at the history of money or any other network, we will find a similar situation when new people quickly enter the market.
In this case, volatility is more of a feature than a bug.
Traditionally, you can see that after each cycle there is a loss of 75-80% of the cost, but with each new meteoric rise, new hodlers and miners are added and remain online, so that the price now has new heights.
This idea was discovered by Sayfedan Ammus in the book “The Bitcoin Standard”, but was clearly demonstrated by a German quantum investor under the pseudonym Plan B.
He visualized these 4-year cycles by calculating the price (colored dots) from the stock-to-flow ratio (white line), which he was able to do thanks to limiting the supply of Bitcoin through programming.
These cycles are maxima exceeding the function of the share price to the flow, and the exponential growth of the network effect. The network effect is no different from what we can find on a social network.
These cycles, in which a new supply is halved every 4 years, are very important because they cause a deficit that is not present in other assets.
Theoretically, these network effects and price cycles will continue until they finally break out of this stock-flow model and rush upwards. Bitcoiners call this escape velocity.
There are two reasons why this can happen:
- The dollar is suffering from hyperinflation, which makes BTC even more scarce because it is measured in units in which it will be exponentially smaller.
- Market participants discover a pattern that forces them to stay ahead of it. This will have the effect of a self-fulfilling prophecy for value. This can happen when the market capitalization of Bitcoin exceeds several billion, demonstrating to people the superiority of this asset as money.
Most likely, there will be a combination of both phenomena.
Exponential S-shaped acceptance is not something that has not been seen before in society, the question here is that many have never seen this effect in something that has a monetary value.
It is impossible to know what the final price of Bitcoin will be in dollars or euros, because we do not know how much fiat currency will be printed in the future.
The fact is that, perhaps, at some point the dollar will collapse, and it will no longer be commensurate with BTC. We will have to look for another way to measure its value, for example, in terms of the distribution of wealth.
If we take the number of millionaires in the world, which today is 46,800,000 people, then the reality is that BTC is not enough to give one to all of them.
If we come to a scenario where Bitcoin becomes a global currency, it is likely that a quarter of Bitcoin – 0.25, will be extremely valuable.
This sounds great for those who own Bitcoin, but what about everyone else who has limited stock, or none at all?
In short, the first followers of Bitcoin will benefit the most from this new monetary system. Although governments will be the last to accept it, and therefore we will have a huge transfer of wealth, which may never have happened in history.