With this current bull cycle all but assured, all discerning eyes are already looking forward to the next Halving Cycle which - according to the way I view bitcoin's adoption and appreciation schedule (one that bookends a given 4-year cycle by cycle lows, not highs) - should begin after Bitcoin completes its final bear market capitulation in 2024 or late 2023, at which point the crypto market will in all likelihood inch upward into 2025 when it will take off yet again and perhaps for the last "foreseeable" time.
At some point, Bitcoin's predictable appreciation model must break, or at least frustrate our attempts to accurately forecast when and where it might go - shouldn't it? Surely it must. Otherwise, Bitcoin will eat the entire financial world with all its many instruments and investible vehicles in a few decades. I find this unlikely. I do, however, see Bitcoin taking a yet-inconceivable share of the world of investible value, for we are not only witnessing the birth of a whole new asset class but a complete phase change of money.
Money, or monetary-like transactions, first began as credit (not bartering). In small, settled communities with a relatively homogenous population where each member knew one another or was loose blood relative, a simple system of credit was established. I lend you a tool, loan you grain, help with a project, what have you. Maybe I keep a record of it, but probably not unless it was significant. You extend some sort of credit toward me or someone else. At the end of the year, the community comes together to settle accounts. This persisted for untold centuries but as communities grew and became more foreign, complex, and less intimate, trust and personal accountability were undermined and the ancient credit system became untenable. Civilized humanity needed an immediately identifiable, incorruptible, scarce, and unreproducible medium of exchange desired by all. After countless experimentation and innumerable iteration, civilization settled on gold as this medium of exchange, and later, because gold was expensive, rare, and impractical for small transactions, silver which, though not as scarce, nevertheless maintained many of the same properties as gold. Even later, because gold and silver transportation was burdensome, dangerous, and could be easily stolen or lost, paper certificates were created by burgeoning European nation-state powers and the earliest banks. One could say that modern nation-states became "modern nation-states" when they began printing and enforcing paper certificate use among their populations. These certificates could in most cases be redeemed for the gold or silver they denominated. The first retail banks in Western Europe, established in the pre-Renaissance Italian cities of Florence, Siena, and Genoa, in addition to storing their clients' gold and issuing loans, served this gold/silver redemptive function, one that persisted in various forms in the West until 1971 when President Nixon closed "the gold window" - making it impossible for US citizens (and by extension, the rest of the globe that abided by the Bretton Woods System established after WWII) to convert their paper certificates - i. e. paper dollars - into actual gold or silver, a move that changed the US dollar into a "fiat" - or "by decree" - currency, no longer money. But because no sound or rational people will accept so-called "money" that is backed only by faith or decree, US officials designed a plan to force the world to use the US dollar by "backing" it will crude oil, humanity's most vital energy source. In 1973, the US covertly pressured Saudi Arabia - then and now the world's largest oil producer - to instigate an oil embargo onto the developed world so as to raise the price floor of crude oil to a level that could feasibly absorb the US Dollar market. America guaranteed Saudi Arabia's military protection and the House of Saud's position of power in exchange for the promise that the Saudis - and OPEC - would only accept USD for oil. On the surface, the oil embargo was aimed at nations who supported the Jewish state of Israel - virtually all developed nations at the time - and it had the effect of raising oil prices 300% over the course of the 1970s from which it never really recovered to prior levels. So serious was the US about the preeminence of the so-called "petro-dollar" system that they invaded Iraq twice because of Saddam Hussain's continual threats to circumvent OPEC so as to trade Iraqi oil to whatever country and in whatever currency those countries were willing. Saddam did this, of course, to recoup the immense debt his nation incurred during their decade-long war with Iran in the 1980s. It should be noted that the US supported Saddam and the Baathist regime against the Islamic State of Iran in this fight, all of which is a separate but not unrelated issue.
All to be said, the US dollar has, since 1971, been solely a debt instrument "backed" by nominally by crude oil but in principle by the world's trust in the US government, faith in the US economy, and, most importantly, fear of the US military - all of which, especially after the botched withdrawal from Afghanistan and the near-immediate takeover by the Taliban after 20 years of fruitless "nation-building", is rapidly eroding, probably never to be regained again. When the world finally comes to grips with the reality that America is a collapsing empire, the dollar will likewise collapse, this can little be disputed. It is obvious to the world that the US can no longer control the oil market through intimidation and war that had previously sustained the petro-dollar system. Our fighting men and women are certainly capable of winning any battle that might come their way, but we, as a nation, lack both the political will and unity of purpose to fight any protracted conflict, in the Middle East or otherwise. On top of that, our generals in the Pentagon are more concerned with gender, sexual, and race issues than actual war-fighting and defense of this nation. Indeed, the fiat-dominated era that we've known since 1971 is quickly coming to end, before our very eyes, in real-time no less. Money will be forced to adapt just as quickly or society is at serious risk of failing, or at least faltering. Thankfully, that adaptation is already here in the form of cryptocurrency, in particular, bitcoin.
Bitcoin will eventually win because, in addition to its peerless qualities as an economically, thermodynamically, and technologically sound form of digital scarcity, history is on its side. Civilization and the power structures by which it expresses and extends control over the human population tend to vacillate between epochs of centralization and decentralization. Centralization, initially a welcomed relief to the instability and chaos that characterizes epochs of decentralization, eventually grabs for too much power in its quest for more draconian levels of self-serving control and in the process ignores - and incentivizes its people to ignore or outright reject - the mores, values, traditions, beliefs, actions, and customs that laid the foundation for the centralized entity to derive its power in the first place. A people without a unified purpose, a strong ethnic and cultural identity, a shared history, and a common system of values will fail. how could it not? It can hardly be considered a people at all. Nations do not become great by appealing to the lowest common denominator in their "populations" but by calling forth their collective greatness in a way that makes individuals want to imitate and aspire to such a lofty standard. Obviously, we can see no such unity or collective purpose among Americans and, while the wounded and dying centralized dragon represented by the US government undoubtedly still has teeth to devour its children, I firmly believe the days of strong central powers - be it a government, or a central bank, or a social media platform, or an internet search engine, or a particular currency, ideology, or single ruler - are numbered. In the distant past, the transition from centralized control and authority was exceedingly violent, irrational, and highly uncertain. But - lo, though the pessimist that I am - I do not believe that our own civilizational transition will be as violent and chaotic, or at least it doesn't have to be. "Oh, Lord, what - because of your magic internet money?" Well, in short, yes.
It is fascinating that Bitcoin appeared when it did: in January 2009 at the height of the last financial crisis and it now stands as a possible answer to the deteriorating financial conditions that were first signaled in and by that crisis, which is to say, the consequences of decades-long mismanagement of funds, reckless money-printing, misguided "nation-building", needless wars, moral and spiritual decay, societal decadence, and a demographic implosion among developed - and many developing - nations, the latter which is an undeniable reality that renders moot any attempt to resuscitate the failing system in the long run. Bitcoin had to fight for its life for years in the wilderness against attack, neglect, doubt, demonization, and demoralization and now it is on the financial center stage, discussed by the best thinkers of our generation as it holds up bills in the US congress, all the while proving itself stronger, more resilient, distributed, secure, robust, and decentralized than ever. It also must be stressed: Bitcoin is not relegated to the US - it is a global phenomenon. Thus, when the current centralized world power(s) fail, at least humanity has a possible solution it might choose among the ashes.
I believe the world will make this choice, not from a position of rational, reasonable, utilitarian prudence but because Bitcoin, as digital money that is scarce, secure, predictable, and reliable, simply works in a digital world, as evidenced by its compounded rate of return and its growing adoption around the world. As such, it will be the main, and quite possibly, "only" winner in the cryptocurrency race in the long term. Ethereum, Bitcoin's only legitimate competitor is, at best, a beta version for future projects that will eventually migrate to and be built upon bitcoin. As reported a few weeks ago, Jack Dorsey, the CEO of Twitter and Square, announced that his companies are currently building decentralized finance on the bitcoin blockchain. First Defi and then NFTs, if the market deems NFTs worth the effort - which I believe it will. The Lightning Network - i.e. bitcoin's near zero-cost, immediate, borderless transaction network - is rapidly facilitating Bitcoin's transition to a medium of exchange, particularly among developing nations. This is laying the groundwork for bitcoin's use as the internet's native payment system and native currency. Again, and here is the definitive statement on the issue: altcoins, and especially Ethereum, are at best Bitcoin "test nets" which, if a particular idea proves itself more than a passing fad, will inevitably be built on the bitcoin blockchain, the only blockchain that is truly decentralized, distributed, secure, and battle-tested. It's also the only blockchain that disincentives dubious activity like exit scams and Ponzi schemes, among much else. No, if you want to build on Bitcoin, because you cannot willy-nilly create some shitcoin and mint a billion of them from an open-script smart contract and later dump them on an ignorant and unsuspecting market, you must create an actual company that must pay its taxes, abide by state and local laws, and, most importantly if you do offer some sort of company derivative in the form of a token, is SEC-compliant. But first and foremost it must add tangible value and utility to the Bitcoin network. This forces you to source your own investment capital which also requires you to have a strong business model, and the market must deem your contribution to the bitcoin network to have significantly enhanced bitcoin which of course will be reflected in the price and increased adoption. If it doesn't, you won't succeed. Come 2024, after bitcoin definitively supplants gold as the world's best and most liquid store of value, bitcoin's narrative will shift from "store of value" to "digital real estate", the digital domain upon which the new financial system, among much else, will be built, When looking at PlanB's Stock-to-Flow Cross Asset Model, which compares bitcoin's scarcity against the scarcity of other asset classes, we can see that bitcoin's stock-to-flow ratio is almost equal to gold's. We can therefore expect Bitcoin's market cap to eventually catch up to Gold's market cap in time. Stock-to-flow measures how many years it will take (flow) to produce the current existing supply (stock) of an asset. For instance, Gold's stock-to-flow is currently 59. It will take roughly 59 years of gold mining and production to equal the current amount of above-ground gold. After the 2020 Halving, bitcoin's stock-to-flow became 56, meaning it will take 56 years of mining bitcoin to equal the current circulating supply of bitcoin. However, because bitcoin's supply schedule gets cut in half every 4 years, in addition to its hard cap of 21 million coins, bitcoin will never produce the number of coins that are currently in circulation. As has been discussed in the past, bitcoin's halving schedule is the market mechanism that precipitates its bull market mania phases. The stock-to-flow calculation assumes that if demand remains constant, then the price will respond if for no other reason than the decreasing supply issuance. But of course, when bitcoin's price goes up because of the supply/demand squeeze, FOMO grips the market, demand increases, and a mania phase ensues. This is followed closely by a "crash" or "redistribution phase" when bitcoin flows from short-term speculators to long-term holders leading into the next halving. Wash, rinse, repeat. Because the market does not immediately respond to the bitcoin halvings, one should not expect bitcoin, in the near term, to reach the proper market cap that its stock-to-flow warrants, which in this current halving cycle should be roughly equal to gold - 11 trillion, roughly $500,000 to $600,000 a coin. But one can expect it to get there eventually. And when it does, as alluded above, one should also expect the "store of value" narrative, having been fulfilled, to shift to "digital real estate [development]". The total US Real Estate's stock-to-flow is 110 or thereabouts (i.e. it'll take over 110 years of building homes and offices to equal the current amount of total amount of US real estate). By the summer of 2024, Bitcoin's stock-to-flow will be 112. Of note, the total market cap of US real estate, though somewhat difficult to measure, is between 50-80 trillion, with an upper estimate of $100 trillion. When bitcoin reaches the stock to flow of US real estate after the next halving and the market cap eventually catches up, a single bitcoin can be expected to be worth $5 million, give or take a couple hundred thousand. At this point in the future, however, I do not believe we will be dominating bitcoin in terms of USD. In fact, the world will probably look drastically different than the one we live in presently. Whether it will be better or worse will likely depend on one's geographical location, one's financial situation, community of friends, neighbors, and family, and one's hard assets. I personally don't think it must look bad, but it will undoubtedly look different.
2024/2025 will witness definitive institutional adoption of cryptocurrency because as pointed out in my previous newsletter, we aren't necessarily witnessing it now. The next bull market will also see nation-states, particularly in developing or underdeveloped parts of the world, go "all-in" on BTC by making it legal tender as they attempt to escape the deteriorating US Federal Reserve petro-dollar system. All of this will propel bitcoin to over $1 million if not substantially more. Though irresponsibly premature at the moment, I believe bitcoin could touch $3 million a coin in 2025 or early 2026, if present trends continue. Such is why I am looking more toward 2024/2025 than the next 6 months. Even if the culmination of this bull run enables you to live debt-free on the passive income that might be acquired through your crypto investments, I would not recommend anyone quitting their jobs just yet. Regulatory uncertainty looms and the crypto landscape will look far different in 2025 than it does now. After the next cycle, "quitting your day job" might be more reasonable but until then, it is best to remain focused, have a systematic plan with certain prices targets, generalized date ranges when these targets might occur, and contingencies to implement if they do not, as well as ways to mitigate a potential black swam, the only damaging one that I can envision begin extraneous taxes or an outright crypto ban. This is becoming increasingly unlikely with each passing day. But even if your country of residence does somehow "ban" bitcoin, hopefully, this world will still have the freedom of movement to allow you to relocate to an area that aligns with your values, but only time will tell of course.
Good luck to you all.
NSV