Digital Capital: The Trillion Dollar Bitcoin Influence
The Bitcoin Revolution is gaining unprecedented media and financial attention, with proponents arguing it is the premier investment asset and fiat alternative, in contrast to the outdated and slow systems of 20th-century global markets, which highlights the need for innovative 21st-century solutions.
The so-called Bitcoin Revolution is at an all-time high, both regarding media coverage and financial gain (Bitcoin is currently in a bull market and achieved a new all-time high price). Bitcoin maximalists are pushing the narrative that Bitcoin is the best global investment asset, that is also simultaneously the best cash (fiat) currency alternative.
Before we can understand this position and the Bitcoin solution, we need to understand the current global climate and economies.
The world as we know it is based on 20th century ideas and 20th century technology. Stocks and the stock market trade on average between 9am and 4pm, unless there's a bank holiday or any other public holiday, or over the weekend. Commodity trading is similar, property trading is spread out across the full seven days but has a slower time horizon from step 1 through to closure of a deal (acquisition/sale of an asset).
24-hour forex currency trading is the current quickest trading option; however it is reliant on global banking networks and clearing houses (which all operate on the 9am to 5pm, Monday to Friday, timeframe). While a trade can be locked in at any time on these markets, the back of house option is still slow; the façade is quick, the reality of it isn’t.
Everything is slow everything, everything is expensive; if we want to prosper in the 21st century we need new ideas, and they need to be based on new technology.
Global Wealth: Overview
$900 trillion is the approximate value of current global wealth, spread across physical assets and financial assets. These assets are primarily 20thcentury ideas, 20th century technology. Only a tiny blip of this amount is referenced in Bitcoin; Bitcoin is approximately, at the time of publication of this article, around $1 trillion in total market capitalisation value.
A trillion it seems like a lot if you started with zero but when you look at it against the greater scheme of things in the world it's around 0.1%. For reference, gold is around $16 trillion.
When a house is purchased, generally, people want to live there or rent it out for investment purposes. When bonds are purchased, it is a store of value, mostly because, perhaps, the average investor doesn’t know what else to do with their excess capital for investment and so the popular choice, outside of physical property and land, is financial assets, such as bonds, promissory notes, managed funds.
Zooming out, the total global wealth pool can be viewed as a long-term capital pool, made up of various asset classes. Around $450 trillion or more is simply in capital storage, such as bonds. This large portion of global wealth can be considered as parked stored capital, which is the very fuel used to shift at any point in time, into new investment options. New investments (‘capital’) may include new financial (or other) assets. Hypothetically, if all or a portion of this $450 trillion is shifted from one financial parked asset into another, it would firstly not be difficult to do, and secondly, would be quick.
This is verified when we look at current global economic struggles, such as natural resource shortages, sanctions, etc. These struggles arise because we are reliant upon imperfect systems managing imperfect assets to store this capital. The $450 trillion is a crippling risk and raises the question: how do we engineer a better system for capital preservation?
The Challenge: Part 1 – Moving Wealth Through Time and Space
Before this question can be answered, it would be prudent to consider some philosophical starting points. Forward thinking Nikola Tesla had a quote: “if you want to understand the universe think in terms of energy, frequency and vibration”.
This can be translated into what we can call the physics of money-energy. Energy is money and can be called capital or wealth, used interchangeably. The frequency and vibration are the duration and lifespan of how long it will take (whether it is a minute, hour, year or a century) and how we move that through time and space.
We frequent money every time we transfer one asset to another, or transform a property into another type of asset, trade, gift, buy, move. First and foremost, we must consider the useful life of an asset. Useful life is equal to the value of an asset divided by the cost to maintain that asset, giving us the usefulness (useful life).
When looking at financial assets the goal is to identify the useful life of money within an asset. The first question here, then, is to ask how much does it actually cost (i.e. each year) to maintain that asset in perfect condition? What is required to be spent to avoid deprecation or decay? Ultimately, this is extraordinarily close to something known within financial markets as the stock to flow, if measured in frequency (time, i.e. measured in years).
The Challenge: Part 2 – Current Financial Options
Many individuals and most corporations use financial assets to preserve capital. This results in the source of the underlying challenge: transferring wealth through time and space.
To maintain wealth (money) for a long period of time, for example $1 billion dollars, we have many options.
We could invest in fiat currency (i.e. the Peso or Turkish Lyra), however if we did, money value would decay in just a few years. Every currency in history has either collapsed or is on the way to collapse, with an ultimate inflation rate of 100%, with most global currencies sitting at or coming in close to 98%, thus stripping the investment of economic energy and capital. The US dollar under traditional monetary inflation for the past century might last another 14 years of gradual decline, before it is overtaken by another global currency, but it is unlikely anyone holds onto significant cash-only investment for 14 years or more. If you did in the US dollar, the value would be reduced over the 14 years steadily.
If the money was placed in a hedge fund, the annual cost could be around 2% in management fees, 20% allocated to the upside, after everything, including taxes, a 4% a year net if you’re investing in normal assets, meaning this is a 25-year asset. Better than pure holdings in cash, but not great.
Treasuries, you’re likely to get a yield, but the approximate 3.5% after tax yield, at least in the USA, goes against averaged 7% monetary inflation. It is a conservative option and perhaps your money lasts 30 years here.
A mutual fund, where you pay a 1% fee per year (averaged), that’s about the best option currently available for most investors with diversified portfolios of financial assets (via a diversified portfolio at, on average, runs at 10 basis points). The counterparty risk is going to drive around 1% extra costs. These are the primary financial assets currently running the world in the 20th century; a set of ideas that only really can last, a maximum, of 30 years, if you are lucky, returning you little overall upside.
Inflation, after all, dilutes the value of financial assets – that is obvious. What is often overlooked, and just as imperative, are the dilution influences through tariffs, torts and tolls, transfer taxes, fees, capital gains and levies. Each time money is moved it is diluted. If your assets are lucky to escape the bulk of these, they must still weather through obsolescence, politics, natural catastrophes, regime changes, war, and similar. Of course, the obvious inflation is unavoidable, too.
The maintenance of economic energy is a frustrating endeavour without an obvious win; the longer your time horizon, the less chance of any win whatsoever.
The Challenge: Part 3 – Physical Property
Those that identify the risks to financial assets move to physical assets to maintain their wealth over a longer time horizon.
The uneducated place capital wealth in weak physical assets. If you buy a car, it is unlikely to be a good investment. You have insurance, deprecation, maintenance, storage costs, taxes. Boats, yachts, planes are worse, still. Even if you spent just 10% of your money operating any of these things, you cannot outrun the forward rolling losses they accumulate.
On the extremely rare case where a particular collectible car, for example, holds or appreciates in value, it likely costs significant upfront investment (i.e. into the millions of dollars) and the upkeep, maintenance and insurance, significantly more, too. With something like this, it is cyclical; if the global markets are down, the value will likely fall, too. Additionally, it is only worth what someone else is willing to pay at any one time. The risks are extraordinary.
If we turn to houses or land, we tend to fare better. If an investor were to purchase a home in Malibu, it may cost around $10 million USD. However, across a period of say 17 years, the cost to maintain the house could well be $10 million USD, including inflation. The realised cost of shifting money through time in property can at least be doubled, just to maintain it; in some areas more, in some, a little less.
If we look at silver, we approximate 22 years. A warehouse, 40 years, maybe 50 years, site dependant. Gold bars, 62 years. A painting, 72 years (however, this is a collectable asset, and has other negative influences to contend with). Vacant land, the average property tax in the United States is 1.1%, meaning that money is going to last 91 years unless the government reassesses the value of the property, then it may last less than 91 years.
If we look at real world examples, we note that the oldest family ranch in the United States is King Ranch, held for 173 years. Within this period, every other family holding significant property failed to maintain it (keep it, hold it, store it). That is a 99.99% failure rate, and still, eventually, the one family who managed to keep theirs, lost or gave it up, after 173 years.
Globally, the longest held property portfolio is within the United Kingdom, the Royal Family in fact, held since 1066. However, it passed from the Plantagenets, to the Stewards, through the Lancasters and then the Yorks, eventually finding its way to the current families. Therefore, it was actually held by several different families, split in a way that none of them got to take it with them.
We acknowledge the wide view that physical assets may last a thousand years, but the average direct transfer of them is between 50 and 75 years. Entropy is deluding the value of physical assets, reducing their energy, and value.
The solution is not dissimilar to the three laws of thermodynamics; you can’t win, you can’t breakeven, you can’t get out of the game. Further, the question evolves naturally to, ‘what if you can get out of the game, breakeven, and have a chance of winning?’. That is the Bitcoin Revolution, or at least, what it promises.
How Does Bitcoin Fit In?
Bitcoin is digital capital, deflationary (key: not inflationary), designed to be immutable and it is immaterial. It's got an infinite lifespan, it's not being attacked by the forces of weather and entropy and inflation, it is immaterial in the sense that it's not in the physical world. Bitcoin is not suffering from all the things that affect traditional financial and physical assets. The internet itself, which is used to transfer Bitcoin, is not actually required to keep the network and coins alive at all, either.
With these initial confirmations in mind, it is not difficult to understand the viewpoints of maximalists, being that Bitcoin is the solution to our economic dilemmas. As it appears, the transformation of our capital from financial and physical assets to digital assets may solve the problem that is currently being faced.
So, how long lived is Bitcoin? Well, if we take Bitcoin and place it at scale with a custodian – an institutional grade custodian where you’d pay 10 basis points – by the law of money, you may last a thousand years. However, the custodian may not last a thousand years, but that doesn’t matter because you can move the Bitcoin every second, or every year, or every decade. You can stay one step ahead of the custodians failing you. You yourself could be that custodian (the longstanding position of Bitcoin maximalists is to be your own bank, be your own custodian of your own wealth).
Conversely, you cannot teleport a building, a managed fund, the King Ranch. So, Bitcoin is that is that thing that you can move freely; you have total custody that cannot be manipulated; it is immutable. Now you've got a 1,000-year asset.
The Money of Artificial Intelligence and Computers
Further down the track, say in a decade or two, when artificial intelligence (AI) eventually does become part of daily life (add a decade or two, we now have to contend with sentient AI), what would happen if you gave Bitcoin to an AI?
Well, the AI or a computer program can maintain those private keys for the cost of electricity powering your laptop, at a maximum. No real compute power is needed to maintain Bitcoin, if any at all. In fact, cold storage (i.e. keeping Bitcoin on a digital wallet) is cost neutral. Now you've got a 10,000-year asset.
If you gave an AI – say, a sentient AI in this case, or at least aware enough to function with input – the choice between owning the Bitcoin and owning The Ranch in Texas or owning a bar of gold or owning the Argentine Peso, it would be obvious to as what the AI would prefer. As a starting point, to hold, play with, trade with, want to store, protect, or transact with, experiment with, an AI would be using a digital asset. AIs are digital, whether based on current technologies (i.e. silicon) or on future expected technologies (something entirely different). They deal with and will continue to deal with digital assets.
When likened to other asset classes in respect to capital preservation, there is no real comparison. The best of the best regarding physical assets are unable to last more than 91 years, but with Bitcoin it will last 1,000 years and more, presuming someone is around to access the wallet. That is a breakthrough in asset preservation. In respect to economics, it is a revolution.
If you wish to be rich, trade wisely. That means trading up. Trade ice cream for a Peso, the Peso for a Dollar, the Dollar for land, the land for Bitcoin. Trade something fragile for something resilient. Trade something local for something global. Trade something physical for something digital. Security and longevity are the real goals for ultimate long term generational wealth.
Historically Great Trades
The Dutch have historically well-understood naval power; they understood ships and they had thousands of them. At the turn of the new world, the Dutch purchased the best port in new world United States for a couple hundred dollars in plastic and textile trinkets (a trade); that acquisition would be valued at $2.5 trillion dollars today. That is an investment that has returned 6% for the past 398 years straight. That is a 10.5 billion-X return. The immediate question becomes ‘why would someone trade such an important port asset for textiles and plastic and glass’? The answer is painfully simply: the original owners of the port did not understand naval power and the need for naval assets through extended time.
This teaches us that without appreciation for the true reason, understanding the value of an asset is impossible.
Another example: If we take Napoleon, we note he wanted to gallivant across the old world, whereas Jefferson wanted to expand into the new world. So, France sells Louisiana to the United States for $15 million in 1803. The $15 million probably lasted a few months fuelling the French army. It’s now gone. Jefferson got 27% of the United States; that is an 800,000-X return worth $12 trillion or more today. Jefferson had vision.
Take the $450 trillion mentioned earlier within this article, referring to global capital storage, and multiply by the 3% that's your entropy cost or your inflation cost. The answer details a $13.5 billion per annum cost to the global economy, accounting for some general global movement – inflation, taxes, levies, catastrophes, wars, politics, more. If you put a 20 PTE on this, as you would typically when valuing a company or long duration bond, that is worth $270 trillion. So, digital capital is worth $270 trillion, that is around $15 trillion a year.
If we take a wider macro viewpoint, we note that digital capital in Bitcoin has returned about 55% in the past four years. Crucially, due to the set nature of the currency itself (i.e. no money printing or inflation), the value holds or grows only. So, comparing this to financial capital at 5% (which is the average triple-A rated bond in today’s market), we see a strong net number, being 55%. 55% less 5% gives us a 50% capitalisation figure to work with.
A neutral case for Bitcoin, at the 55% AR, which may go to 50%, 45%, 40%, 30%, 20%, gradually decelerating due to maturity and growth, will continue until it bottoms; that growth is twice as fast as the S&P index. At that rate, Bitcoin would hit $13 million USD per coin by 2044. An extreme bullish case would be $49 million per coin. Even at $49 million per coin, estimated by the 2044 year, would account for around 7% of the world’s assets only at that time. Rhetorically, at that time, with inflation on fiat currencies, what would be the value of the United States Dollar? What of the rest of the world’s assets?
Whilst impossible to predict perfectly, an educated summation can be made that AI and technology will continue to revolutionise the daily world, and that multiple companies in these spaces will routinely achieve into the tens of trillions in total company valuations, and these companies will have 100,000 Ais but no employees, and they will do the heavy lifting of all global companies that used to have 100,000 human employees.
It is not outlandish to consider that future mega corporations run entirely digitally, operated entirely by computers and AI and robotics, will develop, ship, maintain physical products – self-driving cars, equipment, and tools. Human value will need to be consolidated into assets that are immutable and deflationary.
Naturally, we can come back to both gold and land. The future of gold is increasingly looking to be demonetised. Land will be less monetised, but more selective in desire and value. Remote work, for example is right now devaluing previously expensive land (property) near city hubs, as people can now choose to live elsewhere (and they are).
The future by 2044 isn’t exactly foreign; it looks like today, just that Bitcoin, and other digital assets, are commonplace and visible. These assets will form the basis for investment, and no longer be fringe.
What to do with Bitcoin?
Bitcoin maximalists strive to make Bitcoin an individual’s primary treasury assert, meaning, convert your existing earnings to Bitcoin. There is also the notion of leveraged investment on Bitcoin, which is essentially using fiat currencies to borrow cheap, then invest in Bitcoin, and (hopefully) outpace the interest rates applicable.
Don’t quit a day job, and do not overinvest or use margin loans, are disclaimers that maximalists admittedly continue to push, despite the narrative.
If we look at these narratives, specifically the loan situation, we can extrapolate some answers. A typical 30-year loan has an interest rate (global average) of 3%, backed by the government, over a piece of property or land. Overnight, that is 10X leverage.
Bitcoin itself is an asset, designed for payments, however its scarcity and security, immutability, is increasingly lending itself towards a store of value proposition. Holding just 10% of an asset portfolio in Bitcoin ensures that the portfolio is more likely than not fully hedged against inflation, natural disasters, economic shifts and changes.
Calculating Bitcoin Dominance (In Portfolios)
To determine the percentage by which holding Bitcoin since 2012 and 2018 would have outperformed the global market, we need to compare the historical performance of Bitcoin with that of a global market index over these periods.
Step-by-Step Calculation:
Determine the price of Bitcoin on specific dates:
Bitcoin price on January 1, 2012.
Bitcoin price on January 1, 2018.
Bitcoin price on the current date (let’s use a recent date in 2024).
Determine the value of the global market index (e.g., MSCI World Index) on the same dates:
MSCI World Index value on January 1, 2012.
MSCI World Index value on January 1, 2018.
MSCI World Index value on the current date.
Calculate the returns for Bitcoin and the MSCI World Index:
Calculate the percentage return for Bitcoin and the MSCI World Index over each period.
Compare the returns to find the percentage outperformance of Bitcoin.
For the sake of this article, let us use approximate values for simplicity:
Bitcoin Performance:
2012 to 2024:
Bitcoin price on January 1, 2012: ~$5
Bitcoin price on a recent date in 2024: ~$30,000
2018 to 2024:
Bitcoin price on January 1, 2018: ~$14,000
Bitcoin price on a recent date in 2024: ~$30,000
MSCI World Index Performance:
2012 to 2024:
MSCI World Index value on January 1, 2012: ~1200
MSCI World Index value on a recent date in 2024: ~3000
2018 to 2024:
MSCI World Index value on January 1, 2018: ~2100
MSCI World Index value on a recent date in 2024: ~3000
These calculations are illustrated in the included table herein and demonstrate the massive gains Bitcoin has provided over these periods compared to the global market index. Since 2012, holding Bitcoin would have outperformed the global market by approximately 599,750%. Since 2018, holding Bitcoin would have outperformed the global market by approximately 71.43%. Naturally, the asset would parabolically outperform any other asset in the original years (inception to 2012, onwards), and slow as it matures, stabilises and is more understood. Even when all Bitcoin is mined, the value will steadily increase, and may return to more parabolic upside moves in value, as the realisation of finite notion of the asset settles in.
Bitcoin offers an unparalleled investment proposition. Its supply is permanently capped at 21 million units, ensuring a scarcity that guards against inflation. This digital gold can be held indefinitely, immune to natural disasters, government enforcement, and the encroachment of new developments.
This perfected store of value is engineered to be immutable. It can be transferred at the speed of light and stored securely without the risk of hacking. Bitcoin can be broken into millions of pieces and reassembled without losing its intrinsic value. With it, you can take personal custody of your entire net worth using just a password or a set of private keys, free from the need for physical possession or third-party intervention.
The significance of this is unprecedented. For the first time in human history, you can take your wealth to your grave or pass it on without the risk of loss or devaluation. Unlike physical assets like cash, gold, or real estate, Bitcoin cannot be seized by force. As long as you keep your keys secure, your Bitcoin remains untouchable, effectively eliminating the incentive for violence.
Bitcoin operates like a virus, continuously spreading through millions of nodes worldwide. This decentralised ledger is self-replicating, ensuring that even if part of the network is compromised, the system remains intact and uncorrupted. This robust, swarm-like nature makes Bitcoin incorruptible and resilient.
Traditional software systems have single or few points of failure, making them susceptible to hacking. In contrast, Bitcoin’s decentralised nature ensures it has no such vulnerabilities. It is a self-protecting chain reaction in cyberspace, with its sole purpose being the integrity of its network.
There is no central authority or CEO who can alter or stop Bitcoin. The 21 million cap on its supply is absolute. Even if an entire country or a significant portion of the population were to disappear, the Bitcoin network would persist.
In a world where wealth can be shifted through space and time, Bitcoin stands as the ultimate asset. Its immutability and decentralisation offer the highest probability of retaining or increasing value over any other current form of asset. As we navigate the future of digital finance, Bitcoin’s revolutionary nature positions it as the definitive property of the digital age.
An Opinion on Bitcoin Movement, based on Precedent
Since the 2012 halving, Bitcoin has experienced a staggering increases into the thousands of percentage on the upside, to date, climbing from $12 to nearly $70,000 USD per coin. This dramatic price discovery primarily occurred during three distinct periods that, combined, lasted less than two years. For the remaining approximate decade, Bitcoin’s value either remained flat or declined. Each significant price surge began in the year following a halving event, highlighting a clear pattern in Bitcoin’s growth trajectory.
Despite the intense focus on pinpointing exact local bottoms and tops, such efforts are minor distractions in the grand scheme of Bitcoin’s market trends. Historically, the optimal buying period has been several months post-halving, especially when prices range below the previous cycle’s all-time high. While Bitcoin could briefly dip into the $40,000 to $50,000 range, this should not overshadow the imminent, vigorous upward price movement. The most exciting phase of this currently bull market, based on precedent, alludes to the fact that the best is yet to come. For Bitcoin maximalists, this rings true. For market speculators, it is a cautionary tale albeit supported by fact (precedent). Perhaps for the first time in Bitcoin’s history, though, it’s naysayers have the least amount of evidence to support their claims that Bitcoin - and its underlying technology, Blockchain - are unsubstantiated and pointless.
The information presented in this article is for informational purposes only and should not be construed as financial advice or an endorsement of any investment strategy. The content is based on historical data and market analysis, which can vary over time. Readers are encouraged to conduct their own research and consult with a qualified financial advisor before making any investment decisions. The opinions expressed in this article do not necessarily reflect those of the publisher or its affiliates. Investing in cryptocurrencies and other financial instruments carries risks, including the potential loss of principal.
