18: Bitcoin Adoption
Angle 1
As I previously outlined in “6: What is money,” the three use cases of money are:
Store of Value
Unit of Exchange
Medium of Account
Bitcoin is the first money that fulfills all three. Right now, I would argue that in developed countries, bitcoin is predominately used as a store of value, and in developing countries, bitcoin is predominately used as a unit of exchange. However, I think right now, and my view could change, that it’s bitcoin’s use as a medium of account that will lead to mass adoption.
Greg Foss has done the math that as of July 21, 2021 (the 21s in this date is not lost on me), the total global financial assets (all equities, debt, currency, fine art, gold, real estate globally) total $900+ trillion.
Furthermore, Foss believes that “bitcoin has a chance of becoming the global reserve asset of the world because within the next 10 years, oil and natural gas will become priced in bitcoin, digital energy, instead of fiat currency, which is programmed to debase.”
Foss then continues to speculate that energy, bitcoin, captures a conservative 5% of total global financial assets (900T USD), which is 45T.
45T / 21MM = 2,142,857~ MM per bitcoin.
Not many people want to buy bitcoin at 30k~, but at 2MM, more people will.
Historically, we have seen that after WWII, according to the Bretton Woods Agreement and System, which established the IMF in 1945, countries “agreed to keep their exchange rates (the value of their currencies in terms of the U.S. dollar and, in the case of the United States, the value of the dollar in terms of gold)” pegged at rates that could be adjusted only to correct a “fundamental disequilibrium” in the balance of payments, and only with the IMF’s agreement” (source). However, after “the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold,” moving off the gold standard on August 15, 1971 (source), disorder ensued until 1974 when the petrodollar grew more established (source). With a tangible asset once again backing the dollar, trust was restored in the dollar’s strength.
Historically, we can see that we invest in what we agree to be “strong.” The dollar is weakening. Bitcoin is strengthening and it will be for infinity.
We tend to back our world reserve currencies in a commodity. Ex: The Gold Standard (Gold) & The Petrodollar (Oil). Hopefully a light bulb just went off in your head to the Commodity vs Security classification/argument I outlined in “12: Commodity vs Security.”
Angle 2
Below is a link to an article I wrote for a school assignment with direct ties to bitcoin adoption and game theory.
