Rachael (woodpijn) wrote,
Rachael
woodpijn

Bitcoin

Bitcoin is having a moment. It's appreciated from $30k to $57k just this year so far (I predict $60k by the end of February). Tesla made more money by investing in Bitcoin in the last month than by selling cars in the last year.

I bought some in 2018, but only a tiny amount: not enough to be worth it as a hedge against losing savings to inflation or even as a dectuple-your-money-in-three-years strategy (although in hindsight I should have invested enough to do those things), but more as a very long-term hedge against Bitcoin eating most or all of the whole world economy and the haves and have-nots being defined by whether you own any Bitcoin at all. That sounds ludicrous and far-fetched, and I admit it's only a remote possibility, but it seemed plausible enough to invest a trivial amount to put myself on the right side of that binary divide.

(I don't think Bitcoin will ever become the default currency for everyday buying and selling of goods, because of the transaction costs, although possibly some other currency built on top of or backed by Bitcoin might. But I do think it will become more and more attractive as a long-term store of value. Maybe in the future your savings will be denominated in Bitcoin and you'll convert some into another currency about as often as you withdraw from an ISA or a pension fund.)

The market capitalisation of an asset (I only learned this recently) is the total value of all of that asset, calculated by multiplying the total amount that exists by the current market value. The current market capitalisation of bitcoin is... (drum roll) just over $1 trillion. (Sanity check: $50k * 21 million ~= 1 trillion, and 21 million is the hard upper limit on how many bitcoins can ever exist. It's this hard limit that makes Bitcoin attractive as an inflation-proof store of value.)
(I know market cap is kind of an abstract theoretical concept, in that if everyone holding bitcoins tried to sell all at once that would tank the price and they wouldn't actually make $1 trillion between them. But this doesn't make Bitcoin "not real", because the same is true of gold, or shares in a company, or probably most foreign currencies.)

Total world wealth is apparently 360 trillion. That means Bitcoin already accounts for 1/360 of world wealth, which is actually a lot closer to "eating the whole world economy" than I had thought. It also means that Bitcoin can only grow by another 360 times at most (not counting real-terms growth in world wealth, which will probably be only low sigle-digit percentages per year, which is relatively negligible).
Tags: bitcoin
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