Please, if you haven't watched this video about the power of compounding or exponential growth (yes, the two concepts are not the same but similar), please do so now.
The salient point it seeks to highlight is "the greatest shortcoming of the human race is the inability to understand the exponential function."
Indeed.
In my first newsletter in March, I raised the question, "am I too late [to begin investing in cryptocurrency]?" Like many in this industry, I assumed I knew the answer, that being an unequivocal, "no, we're still really early." Although that is the overwhelming sentiment shared by most market participants (in particular crypto thought leaders) - especially given bitcoin's clunky user experience, its limited fiat on-ramps, unclear regulatory framework, modest market cap, lack of widespread adoption among institutions, and the level of innovation that still remains to be developed - everyone who has invested more than $5 dollars in bitcoin feels late to the party. I felt late when I began dabbling in 2016 and felt way too late when I went "all-in" during the 2017 bull run. I know people who felt late when they invested in 2013, a mere 3 years after bitcoin's genesis block. It cannot be disputed that, in terms of global bitcoin adoption, 2013 was indeed very early, as was the beginning of 2017. Even in 2017, it was virtually impossible to find reliable sources of unbiased information about bitcoin - to say nothing of altcoins. Youtube was an endless cesspit of scammers and schemers who - if they had a few hundred thousand followers - could actually move the market if they shilled a certain coin to their audience. Even worse were Reddit and 4chan. The Bitcoin Standard wouldn't be published until 2018, there was no PlanB stock-to-flow ratio, and you basically had to go to Andreas Antonopoulos if you wanted to actually educate yourself about the asset aside from toying around yourself, which was risky. The overall user experience was horrible and needlessly difficult for the uninitiated. No one talked about predictable market cycles, there were no charts, no indicators, no serious money managers, no pro-bitcoin politicians, no billionaire investors, no maximalists, and certainly no serious talk of ever being able to feasibly live off your bitcoin investments. In 2017, the cryptosphere was confident prices would never come down. It was blue skies and only blue skies, heaven barely the limit.
While scammers and shitcoiners still abound - in perhaps greater numbers than in the past - the narrative "infrastructure" of this space has grown by incredible leaps and bounds. Solid, helpful, grounded, and well-researched information is everywhere. Naysayers are few and far between, dwindling by the week. What's more, we all assume we know where the ecosystem is going and when. So much so that the talking heads of this space are all but assured that we will witness a blow-off top probably within the next five months followed by a years-long bear market until the next halving, which should occur in the middle of 2024. I also believe this and have written about it extensively in this newsletter. The trouble, however, with the charts, on-chain analysis, indicators, market cycles, regression lines, time series models, and the myriad predictions is that virtually every market participant is now actively looking at these things and trying to choose which indicator they like best, one that might enable them to "pick the top" so as to cash out with the maximum amount of fiat profits. A chart or indicator too widely distributed and closely observed will witness a reduction in its predictive efficacy, shouldn't it? I mean, we can't all be right at the same time and at the same price utilizing the same chart, can we?
Of course not. And here is where I diverge from the predominant bitcoin narrative. Considering the human inability to accurately conceive in an exponential fashion as demonstrated in the video above, combined with the maturity of the crypto ecosystem from, if nothing else, a media, marketing, and information perspective - further amplified by the fact that this bull run is, in my opinion, "fully aware of itself", meaning, its anticipated trajectory and eventual price action, though slightly differing from investor to investor, is more or less the same among all market participants and has been fully out in the open - I am now of the opinion that we are indeed quite late in bitcoin's global adoption cycle. We perhaps have only a "modest" 100x long-term increase from here before market saturation. Though we do indeed have a way to go in terms of user experience and onboarding, regulation, innovation, and widespread use of bitcoin as a medium of exchange, the most explosive gains have most certainly been made.
Let us consider the global rate of bitcoin adoption. It is estimated that there are 3.8 billion smartphone users in the world with reliable internet connectivity. Because inexpensive smartphones and ubiquitous internet access have basically penetrated the majority of the world's population centers, this number will not change in a significant way moving forward. Thus, we'll use it to calculate the bitcoin adoption rate because if you don't have a smartphone, which requires reliable internet connectivity, it's "nearly" impossible to use bitcoin. (I emphasize the word "nearly" - it's not completely impossible). Now, current global adoption by active crypto users, though difficult to measure, is between 200 and 300 million people, or 5 to 7.8% of the world's smartphone-using population. I've seen quotes as low as 2.5%, but that figure takes into consideration every living human, including children, the (extreme) elderly, and those without internet access, all of whom should not be counted. What's more, this adoption rate, conservatively speaking, is doubling every year. Bitcoin bull markets see an adoption explosion, while bear markets witness a drastic decline of interest, so let's conservatively say bitcoin adoption doubles annually. What's more, "crypto" adoption does not in every case mean bitcoin adoption, though it usually does. So, let's just be extremely conservative and say that global bitcoin adoption by individuals with a smartphone and internet access is currently 4%. If we continue doubling, next year we'll be at 8%, in 2023 16%. By 2024, 32% or roughly 1/3 of the world's internet population will be using or actively investing in bitcoin in some capacity. Conceivably, without a global black swan event that might curtail this rate of adoption, we could possibly see full bitcoin and/or "crypto" saturation of the entire smartphone-owning world by 2026 or thereabout. Interestingly, this coincides with the next post-halving bitcoin bull run which could push the price up to $1 million a coin. This saturation includes institutions, corporations, money managers, pension funds, hedge funds, sovereign wealth funds, and the rest. Bitcoin saturation is, therefore, not far away. Truly, in terms of adoption as opposed to crypto infrastructure, we are in the later innings of the game. If you're still sitting on the sidelines, you're definitely late, especially given that I often say it takes a minimum of 4 years to actually become a "mature" bitcoin investor.
With any technological, institutional, informational, or scientific endeavor built completely from scratch, the vast majority of the work is to move from 0 to 1. Once you reach 1% completion of anything, given a compounded or exponential rate of return, the job is almost complete. In the least, the hardest part of the work has passed. From 1%, a doubled rate of return means completion in only 7 years. With Bitcoin, we're at 4%.
If global bitcoin adoption was a war, let's call it a "Civil War" between bitcoin and nation-states (or central banks) with a new monetary system on the line, Pickett's Charge would have been China's foolhardy crackdown on bitcoin mining in May/June of this year, a move that - presumably enforced to eliminate the main threat to China's successful rollout of its digital Yuan - in one fell swoop helped to further decentralize the bitcoin mining network and by so doing obliterated the biggest objection to bitcoin's global dominance as the premier digital monetary instrument. As explained in previous articles, bitcoin mining's unhealthy concentration within communist China's authoritarian borders - in large part due to China's generous coal subsidies which gave Chinese miners an unfair advantage in terms of electricity costs - was a glaring hazard to bitcoin's network decentralization. Since the crackdown, those miners have either gone out of business or migrated around the world, with many having set up shop in North America and in particular, the barren, high desert plains of West Texas. Though defeat was clear to General Lee and his field commanders at the Battle of Gettysburg after Pickett's division was annihilated, what was not so clear was that the ill-fated charge also denoted the high-water mark of the South's northward advance, the war more or less unwinnable for the South from that point forward. We are at a similar moment in the Monetary War, though not a single nation-state (aside from maybe China) understands this. Most don't even know they are at war with Bitcoin in the first place, or that Bitcoin is at war with them. Considering the strength and resiliency of the Bitcoin network, its innovations, narrative power, and the ideological determination of a great swath of its market participants, compounded by Bitcoin's inalterable global adoption rate which stems, at least partly, from the unstoppable digitization of human life, the Monetary War is now completely unwinnable for nation-states. They might temporarily "defeat" bitcoin within its own jurisdiction, but such will only crush the positive benefits that crypto innovation currently offers to those economies willing to foster its development. When nations finally wake up to the reality that they're at war, it will be far too late to do anything "constructive" about it. Indeed, as pointed out by Saifedean Ammous in The Bitcoin Standard, the most effective way to attack the Bitcoin network would be the implementation of sound monetary policy, meaning, a "hardening" of the US dollar, an increase in interest rates, a cessation of quantitative easing, and an elimination of crony capitalism and corruption, all of which are now utterly impossible for any central bank to even suggest for it would completely destroy the economies of every modern nation-state whose debt levels, in the case of the US for instance, are 125% the national GDP. Crypto moves at the speed of light, do we possibly think that some dumb-dumb institutionalized, special interest-beholden bureaucrat will be able to propose - let alone pass - any law at this point that might demonstrably slow crypto development and yet not also sabotage the nation they have been elected to protect and defend? Hardly. If you think so, then I'm afraid your mindset is too far fouled by the old, crumbling fiat world to be rectified at this point, An outright bitcoin ban - which is virtually impossible because it would require a clear definition of what bitcoin "is", where it is "stored", how it is "accessed", what it "does", and finally, what constitutes actual bitcoin "ownership" in the first place - would be disastrous for the US economy, a notable portion of which is already invested in the digital asset. Further, such a move would be unenforceable, and it would cement the US Dollar's unavoidable demise quicker than nature might otherwise dictate. The law, politicians, banking system, and their big government meetings, councils, federations, lobbyists, and action committees are likewise impotent to stop it. They can't even slow it, for the moment one major nation attempts to ban bitcoin, that nation will be signaling to the world that bitcoin is a legitimate threat to fiat currencies. If this happens, money will flow to bitcoin at an even greater rate as people realize the days of fiat are numbered. If the US was to follow such foolishness, it would, like Pickett's Charge, sacrifice any hope for its economic, political, and military dominance in the 21st century.
Worse for the vast majority of Americans and those currently living in the West or the rest of the developed world is the trust that first-world citizens place in their institutions, notably the banking and political system. While we Americans might complain about bank overreach, political corruption, voting scandals, as well as the slowness and ineptitude of the analog banking and political system which now finds itself having to exist in a digital world, we still generally "trust" that these institutions will not outright fail and will continue to trundle on in the same way they have for the last 500 plus years. Most, in fact, don't think about the banking system at all. Not so in the developing world where the banking system benefits a diminishingly small number of citizens, usually the wealthy. Bitcoin adoption gives third-world citizens shut out of the banking system access to a global payment and settlement network independent of central bank largess and nation-state corruption. As in the case of El Salvador, which is officially adopting Bitcoin as legal tender as I write this, the developing world, as well as those "rogue nations" who have been denied access to the SWIFT system by the United States, will be the first of many benefactors of the world's migration to a bitcoin standard. When people in the West awaken to their need for an alternative, uncensorable, borderless, leaderless, decentralized, digital store of value, it will in all likelihood be far too late. As outlined above, we're getting late now. Three years hence, it will be far too late: the potential for life-changing price appreciation will have completely been missed and even the maintenance of one's current standard of living will be in severe jeopardy. For this reason, I believe we're about to witness not the "Fear of Missing Out", but the "Fear of Missing the Boat Completely", which is to say, people will not seek Bitcoin for the gains it might provide in US Dollar terms but to keep their wealth from depreciating off a cliff entirely. This, again worsened by the fact that it takes, in my opinion, roughly 4 years to become a savvy crypto investor (one not swayed to the left and right by scams, schemes, and high time preference thinking) combined with the Federal Reserve's inalterable need to continually expand the monetary base, means that the hour is passing for most people to get ahead of these trends. Again, the vast majority of Americans and Europeans will be left behind completely.
All of this is not to say we'll necessarily enter a bitcoin "supercycle" from which prices will not come down. Far from it, I believe the world still conceptually exists within a fiat psychological framework, thus if and when this market experiences a "blow-off top" mania phase, many will take profits in fiat. Not even I am ready to make the financial leap to a bitcoin-only standard. The financial infrastructure simply does not yet exist to make this a livable reality. Perhaps in a few years' time, but not within the next 6 months. Crypto will come down, violently. This market is still incredibly volatile - and irrational - as evidenced by the recent market crash on September 7th. People will have an opportunity to enter a position during the ensuing bear market in 2022 and 2023, but if the bull market excitement fails to entice one to crypto, they will not do so in the uncertainty of a bear market. Most will probably just turn off and tune out. Only crypto veterans are eagerly looking forward to a bitcoin collapse from which I plan to make some serious life- and generation-changing financial moves. (Though of course, it would be nice to take a trip to the moon before that happens.)
If these things do not ring true to you, please ignore them. Bitcoin investing, in a bull market, should be an internal conviction, not an emotional whimsy. I am in no way suggesting that anyone should invest any amount that they are not prepared to "lose", which is to say, to never access in fiat form again. In fact, I'm not even recommending that anyone invest at all right now, whether based on my sensational predictions or otherwise. Depending on how high the market tops out, I believe the bear market lows will approach these current levels. Months ago, I predicted the 2022/2023 bear market would bottom out around $55000 to $60000. With the amount of time we've spent in the mid to upper 40K range, I now believe that when we break $55k, the market will capitulate to $45k or perhaps a little lower. If you blink, however, you'll miss it. And given that most will have turned off in 2023, virtually everyone will miss it. That being said, if one has a long time horizon in mind, any investment under $55k is a good entry position. Any purchase above $60k should be entered with the longest time frame possible - otherwise, when the bear market capitulates and you see what was a positive portfolio turn negative, you'll be induced to panic-sell. Bear in mind if you sell at those levels, you'll be selling to people like me who have my particular mindset and share my general line of thinking about the US Dollar, the US economy, the government, and our general standing in the world, give or take a hyperbolic statement or two.
In closing, given the current geopolitical environment, America's collapsing reputation, and the dollar's unavoidable demise (among much), the hour is getting very late for fiat currencies. This is very hard to deny. Expect near-complete crypto saturation among smartphone users within the next eight years, or two bitcoin halving cycles. Fiat might be completely finished by that point, who knows? In the meantime, expect innumerable impotent and ineffectual attempts by the dying fiat-states to attempt to control their populations by the most asinine and draconian means at their disposal, all of which, monetarily speaking, will be ten steps too late. Expect psychological, legal, and economic warfare against those who try to flee the failing system and beware of putting your trust in any other digital asset besides bitcoin over the long term. As detailed in my last newsletter, feel free to play in the altcoin forest, but if a bitcoin foundation is not first established in each individual investor, your wealth - even if priced in terms of Eth, or Cardano, XRP, Solana, or whatever - will evaporate along with fiat. This, I can promise.
I am here to help. If any of this resonates - not out of groundless fear but quiet conviction - I am here to help.
Good luck to you all.
NSV