Bitcoin’s Substantive & Technical Road to $100K
The objective of this article is to examine the fundamental path to a price $100,000 per bitcoin.
It has been the most thrilling fourteen months I have ever spent, filled with agony, joy, and sleepless nights all behind a keyboard. It took over ten months of obsessive studying to muster up the knowledge to confidently speak in front of an audience, be interviewed by a local news channel, and publicly write on this intriguing subject matter.
Through my study, I have found that our current debt-based society has no endgame in the ability to repay governments’ considerable amount of debt — quantitative easing and fractional reserve banking does not work. Bitcoin’s mysterious origin is thus the direct result of the cypherpunk movement defying corrupt banksters by establishing the most secure and unstoppable, peer-to-peer network for the exchange of value at internet speed. Bitcoin represents a speculative option, uniquely different from any past forms of money with extensive implications in the geopolitical arena. Numerous scenarios were discussed that include a coordinated attack on the Bitcoin network, the short-term bubble bursting, and/or the outright governmental ban of bitcoins. Plenty of people claim that bitcoins are not backed by anything, unaware that the computer protocol is quite literally backed by physical hardware to the tune of ~$3.9 billion. Bitcoin’s technological breakthrough has spawned multiple million-dollar trading platforms and tens of thousands of new jobs at companies like Microsoft, IBM, and JPMorgan Chase.
This article serves as the fifth piece in my series of research and analysis on the Bitcoin, Blockchain, and Cryptocurrency phenomenon.
//OFFSHORE BANK ACCOUNTS & THE FIRST UNSEIZABLE ASSET
The wonders of legitimately possessing your own money could never be more tantalizing than when eleven Saudi Arabian prince royals were arrested and had their bank accounts frozen in a government crackdown, particularly Prince Alwaleed bin Talal whom alone is estimated to be worth $19 billion.
Offshore bank accounts in different jurisdictions is a bona fide way to limit control of the government’s reach. It is also a safe haven to protect against taxation as the scandalous Panama Papers revealed the proven method where the uber rich, high-end government officials, and powerful multinational corporations secretly store their wealth. Prior to the Panama Papers, former chief economists James Henry projected offshore accounts totaling $21 to $32 trillion. The Panama Papers conservatively estimates that 10% of global Gross Domestic Product (GDP) is hidden in these offshore bank accounts. According to World Bank Figures, global GDP amounts to $75.6 trillion, 10% of which equals $7.56 trillion as a very conservative estimate in private offshore banks, woven in a confusing interconnected web of entities owning different entities. Labeled as asset protection, service providers in other legal territories charge hefty fees for their business-as-usual practices.
It is perhaps not the average citizen, but the affluent individuals that can benefit most by storing their wealth in bitcoins. As a decentralized store of value with no one nor one group in absolute control of the network, Bitcoin bestows each person full-autonomy of their funds without any service fees or chance of seizure. Granted these wealthy people are not stupid and/or clumsy with their private keys, simply memorizing a randomly generated 12 or 24-word seed phrase from the English dictionary gives them complete access to their funds with a mobile device via SMS, laptop, or desktop anywhere on Earth, twenty-four hours a day without any limitations or restrictions.
Assuming there are $13.5 trillion hidden in offshore bank accounts, if 2% of this wealth gets reallocated to bitcoins, that would make for a price of $16,038.43 per BTC.
//GOLD MARKET SHARE & DECENTRALIZED STORE OF VALUE
As estimated by the World Gold Council, there are approximately 187,200 tonnes of above-ground gold reserves. There are 35,274 ounces (oz) in one metric ton. Gold is priced by the ounce and today’s spot price equates to $1,348.10 per oz. At the time of typing, there are 16,835,562 BTCs in circulation. If Bitcoin were to do nothing else and only capture 5% of gold’s $8.9 trillion global market cap, we are looking at $26,439.35 per BTC.
Gold has been and may always will be the secure form of storing value as a reserve asset, mainly because of its properties and in part due to mass psychology built up over thousands of years. AU79 in the periodic table is a scarce unalterable element that is exceptionally durable to natural corrosion, generally hard to counterfeit, handily divisible into smaller units while also remaining compact, malleable.
Bitcoin has astonishingly similar properties to gold as constructed by the greatest inventor(s) of the 21st century, Satoshi Nakamoto. Bitcoin can be divided up into the eighth decimal place or 100 million times. Bitcoin is supremely-durable with the 100% most computationally-secure network more so than the Top 500 Supercomputers combined. Bitcoin is also impossible to counterfeit because each individual may download a copy of the ledger, a permanent record of every bitcoin transaction since January 3, 2009. Bitcoin does not have mass psychology yet, but volumes of bitcoin is much more portable than volumes of gold. You can send bitcoins to any location in any amount for the current average of $5.70, a minuscule fee compared to traditional sectors when transporting large chunks of money. Transporting a million dollars’ worth of bitcoins is pleasantly easier and cheaper than transporting a million dollars’ worth of gold. Most importantly, bitcoin thoroughly mimics gold’s scarcity with its predictable and diminishing release of the asset. True economists would say to let the market decide, and currently on the date of publish, the market believes one bitcoin is worth four times more than one ounce of gold. The baby boomers had real estate and have social security, generation X had the internet and stock market boom, millennials have bitcoins and cryptocurrencies. Bitcoin is more efficient, completely transparent, and is the best worldwide processing payment ever invented. Jewelry is one of the few things physical gold can do that digital gold cannot. Bitcoin capturing 5% of the gold market share is a fair assumption in our digital era, in my opinion.
//DEBIT, CREDIT CARDS & THE LIGHTNING NETWORK
Going from cash money to bitcoins is a big leap for traditionalists. Going from credit cards to bitcoins is not as serious of a change, both are merely numbers on a webpage to most people. The top worldwide debit and credit card networks are Visa, MasterCard, UnionPay, Discover, and American Express. These centralized third-party intermediaries processed over 227 billion transactions accounting for $25.718 trillion in debit and credit card payments. You do not pay the merchant directly when utilizing debit or credit cards, the processing fees are charged to the merchants for as little as 1.43% to as much as 3.5%. This is partly the reason why some restaurants require a minimum charge of $10 or $15 if you decide to pay with card.
Scalability and transaction fees have been one of the biggest concern. The slow activation of Segregated Witness (SegWit) was a great demonstration of no one in absolute control of the Bitcoin protocol. SegWit allows for layer-2 solutions to be built on top of the immutable blockchain, one of these second layer advances is the Lightning Network (LN). The Lightning Network has been under heavy development for the past two years with the brightest minds in computer programming and software engineering. LN allows for virtually instantaneous transactions and nearly zero fees of approximately 10 satoshis, less than 100th of a cent. Consumers can open up their own LN payment channel at any time and load bitcoins in small, spendable amounts, leaving a majority in cold storage. Merchants are able to open up a LN hub and only need to do so once to start collecting payments. Unlike the plastic card payment networks, merchants do not pay the transaction fees on the Lightning Network. Indeed it is rare to find a merchant that accepts bitcoin as a form of payment. With substantially lower costs it is economically enticing for small and big businesses alike, especially since merchants can liquidate back to fiat at the point-of-sale. If the Bitcoin protocol can claim 1.55% of the global payment processing market share, not including cash, that would bring us to $23,679.20 per BTC.
Financial third-party intermediaries are threatened by technological innovation for the first time in a very, very long time. With the deployment of the Lightning Network earlier this year and almost simultaneously, major credit card issuers including Bank of America, JPMorgan, and Citigroup banned the purchase of cryptocurrencies. Visa, the debit/credit card network processor accounting for the most volume of all purchase transactions worldwide, dropped cryptocurrency cards and provided a lip service statement as to why. I am not so sure that these financial institutions are acutely concerned with the American people not being able to pay back their debt, with interest potentially accruing at a 17.49% to 24.49% annual percentage rate. In my opinion, we are in the stage of retaliation by the big banks and credit card networks.
The road to $100,000.00 will not be easy.
Competing cryptocurrency camps reason that the LN will create centralization because of merchant hubs, payment channels, or hotspots. This is most certainly not the case because the LN has no control as to the direction or development of the computer program; the LN hubs do not have any power over on-chain coding — Bitcoin’s program development is an open meritocracy if you are talented enough. It is simply a layer-2 solution or application built on top of the decentralized and immutable ledger; LN hubs do not have any technical control over other layer-2 apps. It is important to note that the Lightning Network is entirely voluntary for users, whom can choose to open up multiple payment channels if they wish; bitcoin hodlers do not need to use the LN if they do not inherently want to. Alternative coins also assert that the LN is an IOU system because the transaction is settled off-chain. This is also a misconception because you cannot spend any bitcoins you do not have. The most BTCs you will be able to spend is the max available amount in your LN payment channel. Once the BTCs are transferred to the destination, they remain there until the transaction gets recorded on-chain; there are no fraudulent chargebacks or IOUs. To state as plainly as I possibly can, the Lightning Network allows for off-chain transactions of over millions per second at darn near no-cost to later be recorded on-chain and you cannot spend any BTCs you do not have. Bitcoin is not credit or debt-based.
//GLOBAL REMITTANCES, STOCK MARKETS, UNITED STATES DOLLAR IN CIRCULATION & ROOTSTOCK SMART CONTRACTS
Global remittances are primarily used by migrant workers in the United States to send money home to their families. The total market cap amounts to $574 billion. A majority of these individuals work demanding labor jobs at low wages relative to the average U.S. resident. These families endure a sending/receiving fee of 7.4% on average, globally. We already know of the hyperinflationary situation of a nation-sponsored currency in Venezuela, where their people are surviving on bitcoins instead. Bitcoin, layer-2 solutions and the Lightning Network may be the most useful for these men and women.
The stock market has been on an absolute tear recently, breaking all time highs since the start of the new century. This is partially due to the controversial method of stock option buybacks, whereby companies use funds to buy their own stock share, decreasing selling supply and increasing price. These funds are solely from business revenue and central bank printing of fiat. On average, corporations spend more money buying back their own stocks than they do on research and development. The Price-Earnings Ratio (P/E ratio) is a telling indicator on potentially over-valued stocks according to how much the company is worth in relation to their earnings. The P/E ratio is once again at dangerous levels similar to the dotcom bubble and the Great Depression of 1929. Total stock market cap sits at $66.8 trillion.
International commodities and transactions are typically priced in USD. Cryptocurrency markets are priced in BTC. To be fair, we will not use the $83.6 trillion figure of all M1 & M2 money supply but instead use the circulating supply of USD, estimated at $1.5 trillion. The sum of global remittances, stock market, and USD in circulation totals $67.374 trillion. Dividing this number by the BTC available supply then using 0.8% of the division, we arrive at $32,729.80 per BTC.
The Rootstock smart contract platform (RSK) is coming to the Bitcoin protocol as a side-chain, layer-2 application featuring merge mining from the base-immutable-layer and a two-way peg from BTC to Smart Bitcoins (SBTC). Next to the Lightning Network, RSK is one of the most widely-anticipated upgrades to Bitcoin. Smart contract platforms have been one of the most speculated cryptocurrency assets, displayed by Ethereum (ETH), NEO, and Icon (ICX). Smart contract platforms are promising to further disintermediate the need for third-parties.
I believe it is fair to add $1,113.22 to the grand total because of RSK and SBTC, making it an even $100,000.00 price per BTC.
Bitcoin and the cryptocurrency market is extremely speculative, financially risky, and insanely irrational.
The purpose of this piece is to outline the Bitcoin protocol’s utility in serving as a form of money, among other things. I believe that once there is enough liquidity in BTC of at least $2 trillion, we will start to see less volatility and more stability in price. The fundamental and technical advances in Bitcoin’s software development the past eight months have been outstanding yet the price remains speculative.
At the time of publish, the U.S. Treasury considers Bitcoin and other cryptocurrencies as cash money. The U.S. Commodity Futures Trading Commission (CFTC) defines bitcoins as a commodity. The U.S. Security and Exchange Commission (SEC) is treating cryptocurrencies as a security. Finally, the U.S. Internal Service Revenue (IRS) classifies the new asset class as property, specifically stating that “virtual currency is treated as property”.
Traditional assets frequently fall under the regulatory oversight of one government agency, sometimes two, seldom three, and definitely not four or more.
Tomorrow at 10:00AM Eastern Standard Time, Tuesday, February 6, the SEC and the CFTC will be meeting with the Senate Banking Committee to explicitly discuss virtual currencies. It would not surprise me if the members of the Senate Banking Committee have friends with deep pockets in the corporate sector. With that being said, I am somewhat optimistic that there is a lot of cash sitting on the sidelines waiting for the U.S. government’s green light by providing clarity in an otherwise grey area. This is the United States of America’s chance to get it right and once again be the leader in the next tech boom. Too many regulations will stifle innovation.
The overall market decline from a historical perspective has been accurate for the past four or so years as shown by graphs available throughout the internet. Combined with FUD campaigns, literally fake news from the mainstream media idiotically and/or deliberately misconstruing information to cause fear, uncertainty, and doubt. Perhaps I am a delusional bull, but I believe BTC will reach $100K by February 5, 2023, conservatively speaking. If Bitcoin goes to $0 however, I am going down with the ship.
Thank you for reading.
— — — — — — — — — — —
Part 1 — Introduction to Bitcoin: Money & Our Debt-Based Society
Part 2 — A New Asset Class: Blockchain Technology & Cryptocurrency
Part 3 — Down the Rabbit Hole: Ethereum, Immutability, Consensus-Rule, & Forks
Part 4 — Geopolitics & Cryptoeconomics: 2018 and Beyond
*Disclaimer: This is an educational piece and is not meant to serve as investment advice. I am not a financial adviser. You will probably lose money in this market if you do not know what you are doing. Investing in bitcoins and cryptocurrencies is extremely speculative and financially risky. I am not a financial adviser. This is not investment advice.
Math check & edits: