Patrick B. Says:
I have a question regarding Jeff’s recent column Why Bitcoin Will Save the Western World—about the dollar decline and possible government peg to bitcoin and gold.
Since it’s been reported over 70% of bitcoin is under a long term buy and hold strategy, will that help the value due to increasing relative scarcity? Or will it hinder the adoption of such a possible government peg?
Global Intelligence Letter Editor Jeff Opdyke Says:
Thanks for the question, Patrick. And it’s a great question because not a lot of people understand the mechanics of bitcoin.
Just like there are 100 cents in every dollar, there are 100 million satoshis in a bitcoin (a satoshi is named for Satoshi Nakamoto, the otherwise anonymous founder of bitcoin).
I point this out because it addresses your question about scarcity.
Yes, a single bitcoin is increasingly rare, since only 21 million will ever exist (and some calculations conclude that 4 million of those are already lost, probably forever, because of forgotten digital wallets and whatnot from the early days of bitcoin).
But that means there are 2.1 quadrillion satoshis. That’s 262,500 satoshis for every person on the planet, plenty enough to see bitcoin become widely adopted.
With 2.1 quadrillion satoshis, we (the world, writ large) likely have enough satoshis to allow bitcoin to back all the sovereign currency, debt, and derivatives in the world today. The question, of course, is “At what price?”
If global governments got together and valued each satoshi at $0.35, that’s $741 trillion or so—basically the cumulative sum of all the world’s sovereign currency, sovereign debt, and the high-end estimate on the value of global derivatives.
In short, the world theoretically could set a price for bitcoin and use it to back all the major financial risk in the world today.
Of course, that would imply a bitcoin valuation of about $35 million per coin. I don’t think that’s likely. But I do think it’s possible bitcoin ultimately sees six and potentially seven figure valuations… as Western governments ultimately turn to the granddaddy of crypto to shore up increasingly fractured sovereign currencies that are overburdened by too much debt.
That’s why I urge risk-tolerant investors to hold some quantity of bitcoin in their portfolio. Bitcoin’s previous high approaching $70,000 is going to look quaint when the crypto fulfills its role as the salve to Western prolificacy.
For those who missed it, you can read my original article here.
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