Blogs & Articles: Bitcoin for Beginners đ 3 years ago
- Category: Blogs & Articles | Aleksandar Svetski on Medium
- Author(s): Aleksandar Svetski
- Published: 8th March 2021 20:56
A crash course on money, prices and basic economics.
The same mainstream media said it was âoverâ in January 2018.
And less than 4mths since I first wrote this article, $50k USD has become the temporary resting place for Bitcoin before the next leg up. One might call the article prophetic but I assure you itâs not. It was merely a logical conclusion to set of first principles about Money and human action.
It was originally published on the Amber Blog, but Iâm now publishing it on Medium, in a slightly varied order &Â format.
Why Now is the Best Time to Get Involved in Bitcoin, Intelligently - Amber
Why is Bitcoin rising so fast today?
Well, there is a simple and a more complex answer to this question.
Simply speaking, the demand for holding Bitcoin is outstripping the total available supply.
Bitcoin is a âfixed supplyâ asset, meaning that there is a known and unchangeable total number of Bitcoin that will ever be in existence.
That number is 21 million, and if divided to its basic denomination (Satoshis are the Bitcoin equivalent to the cents in dollars), there are 2,100,000,000,000,000 units in total.
As demand increases, and the supply stays constant, the only parameters that can budge are what the buyer is willing to pay for it, and conversely, what the seller is willing to sell it for, in other words; the price.
So the simple answer really can be summed up with the following equation:
And this has been the story of Bitcoin since the beginning.
Every cycle, it grows by an order of magnitude (see figure 2Â below).
Up over 100,000,000 % since inception, with a compounded ROI of more than 500% per annum, itâs showing no sign of slowing down, particularly when we find that barely a few percent of the world population actually hold any meaningful amount of Bitcoin.
So why is this happening? Well letâs look at the more in-depth answer to the question of âwhy is BItcoin rising in price so fast?â
Firstly, weâll need to define a few concepts. Once we do, we can better answer the core question;
Why is the demand for Bitcoin outstripping its supply?
Because thatâs really the question weâre asking when we think about âwhy the price is rising so fastâ?.
As noted earlier, the point where buyer meets seller is known as the âpriceâ. This applies to anything from apples, to shoes to cars, houses and of course to Bitcoin.
Bitcoin is an organically priced instrument, meaning nobody âdictatesâ what the price should be. Itâs converged upon as buyers meet sellers in marketplaces around the world agreeing to trade todayâs dollars for Bitcoin, and vice-versa.
This price has fluctuated since day one, which is perfectly natural for anything we buy & sell, and more-so for a new phenomenon like Bitcoin because nobody really knows how to accurately value a form of money thatâs immune to confiscation, censorship and inflation.
Which is also perfectly fine because in free markets, we all individually and subjectively discover value for ourselves, and in time we converge on a more broadly accepted values, which fluctuates less because whatever weâre all buying or selling has a larger total econimic mass.
Gold is a great example. It took roughly 5000 years to perform this process âemergence as moneyâ and to this day, despite its use over millennia, is and will remain subjectively valued.
And so it is with Bitcoin.
The first time it was âvaluedâ in the marketplace was when Martti Malmi traded 5000 bitcoin for $5, giving it a value of $0.001c.
The next time was when Laszlo Hanyecz swapped 10,000 bitcoin for 2 Pizzaâs. An 800% increase in price to $0.008c.
Since then weâve seen Bitcoin grow in waves, from $0 to $1, then to $13, only to come back to the low single digits.
It took some time for initial markets to emerge and for Bitcoinâs raison dâĂȘtre to be noticed by more people (a trend that continues today).
We saw this growing adoption of a new âglobal money of the internetâ drive the price to approximately $130, in what some would claim was the first âBitcoin bubbleâ, only to once again correct and retrace to the lower double digits.
The next âcycleâ saw it grow to over $1300 per Bitcoin, only to have buyers panic & sellers take profit, sending the price back to the mid $200âs.
Again, everyone who didnât take the time to understand bitcoin, nor monetary history, claimed that âBitcon is deadâ:
Barely 4yrs after what many called âthe end of Bitcoin (again)â, we saw buyers and sellers subjectively but collectively drive the price to almost $20,000 USD; the highest a bitcoin has been worth, to date.
This was 2017, and is the first time, although certainly not the last, that Bitcoin really entered the âmainstreamâ.
Of course, this cycle saw the so-called âBitcoin bubbleâ pop once again, and like clockwork, the naysayers came out to hurl abuse at something they continually fail to understand.
So why did the âbitcoin bubbleâ pop?
Letâs apply some logic alongside what weâve learned above.
All markets are cyclical, and nothing in the world moves in a straight line. Remember that price is simply a representation of the point at which a buyer and seller are willing to meet & trade a good.
There were droves of people in 2017 who took no time to understand why they were buying Bitcoin, except that their cousinâs cousinâs friendâs mum said itâs a good idea.
This is not the best advice from which to make any form of financial decision.
Of course, it was these people âFOMOâd inâ on the way up as and it was these same people who then continued to freak out when the price pulled back and they sold on the way down at a loss.
Despite how crazy it may seem from the outside, this is perfectly normal herd behaviour and is exacerbated in the Bitcoin market because itâs so young (it was barely a decade old at that point).
And moreover, this is all a part of bitcoinâs natural evolution. It has to come into being somehow, and that will not happen by some âexecutive orderâ, but through natural emergence in the market.
Volatility is natural
Volatility is a discovery mechanism, and growth naturally comes with a healthy dose of volatility, but therein lies the opportunity.
Stability will certainly come as Bitcoinâs total market capitalization increases, but the trade-off is the opportunity cost of acquiring some now (cheaply) before the rest of the world catches up and demands to hold their share of the most powerful money & store of value that exists.
Think of it like discovering Gold while the rest of the world was still using shells, rocks & salt as money.
You wouldâve likely been seen as a crazy person to begin with, but if you were able to somehow live a few thousand years and watch the world converge on Gold as a way to best represent the product of their labour, you wouldâve been rewarded for your early find.
This is where we are now with Bitcoin, but in a digital, interconnected age where millennia of historic change occurs in decades.
And this is the crux of why Bitcoin is rising so fast today.
In very simple terms:
1. Money
Money is the cornerstone of all civilization. Itâs how we subjectively measure our individual inputs into society, or in other words, the âproduct of our labourâ.
Itâs the fabric that binds us. It enables us to cooperate both at scale and in greater degrees of complexity.
Money always exists, the only thing that changes is what we use as money; and thatâs evolved over time.
2. Bitcoin
Bitcoin is superior to all other forms of money because it perfectly embodies every attribute, and itâs open source, always on, fixed supply, digital nature mean that it performs the functions of money flawlessly.
3. Necessity
More people are realising that the product of their labour (ie; their wealth, their savings & their money) are all constantly eroding and diminishing in value. More people, from all around the world, whether rich or poor are going to seek to store their wealth in something that cannot be diluted. This is a powerful movement and one thatâs not going to reverse. In the same way you would not work all your life and have your life savings in salt, future generations will look back on us today and wonder how in the name sanity did we believe that measuring our wealth in a currency or money that devalued over time ever made sense.
Read more about Bitcoin through the lens of necessity here:
As more people come to understand what money is, how it works, what it represents and what the primary attributes of money are, they want to ensure they are holding their wealth in a form of money that has the best possible attributes as a store of value, a unit of account and as a medium of exchange.
It just so happens Bitcoin scores highest for all of these functions and across all of the necessary âattributes of moneyâ.
If youâd like to learn more about the basics of money, how it evolved over time and why Bitcoin represents the apex money, the following articles discusses it in more depth:
In closing
Bitcoin is a fundamental step change in how money works. To quote Peter Thiel; itâs a Zero to One innovation.
The demand to hold a this kind of money will only continue to grow, whilst the supply stays strictly fixed.
The current price of Bitcoin is almost $17,000 USD again, which is just shy of $24,000 Australian dollars.
Barely 3yrs since the peak of the last cycle, here we are again, about to cross the prior high as the herd begin to drive Bitcoin to a new high.
What will Bitcoin be worth by 2025?
Itâs anybodyâs guess.
I personally believe it will be far in excess of what it is today.
At least 10x todayâs price, and most likely gearing up for the next cycle and on itâs way to the big $1m USD per Bitcoin milestone, which would price each satoshi at 1c.
We are still so early. The right time to bitcoin is always today, and the only time it was more right was yesterday.
When people ask me: âis it too late to buy bitcoin in 2021â, all I can say is; was it too late for you to get an email address or buy a web domain in the early 1990âs?
If youâre living in Australia and want to know how to buy Bitcoin in Australia, weâve got you covered in our learning & resources centre. Be sure to review the free âGuide to Investing in Bitcoinâ. Despite being a 2019 edition, itâs as relevant now as it was thenâââand probably moreso.
If youâre ready to get started and want to know where to buy Bitcoin, we truly believe that weâve built the best Bitcoin accumulation product in the world, and if youâre in Australia, that means youâre one of the lucky ones who can use it.
Whether youâre looking for the lowest fees, intelligent automations, the quickest & simplest set up, the smoothest experience, multiple funding options, credit card, direct debit, PayID, Apple Pay, Google Pay or EFT, Amber has it all.
Itâs designed for you to set & forget, whilst you accumulate the fastest growing asset and scarcest money in the world.
Aleks Svetski
CEO & Co-Founder @ Amber Labs
You can also follow me on, Twitter, LinkedIn & here on Medium.
Amber
Bitcoin for Beginners was originally published in Amber on Medium, where people are continuing the conversation by highlighting and responding to this story.
