Is it the end of Bitcoin?

the end of bitcoin

Before I start this article, a quick disclaimer: my purpose isn't to provide any investment guidance. I don't have any skin in the game and don't qualify to give BTC-related advice. But I've been following this scene for a long time and recently started dedicating more efforts to my research, listening to a few podcasts and reading interviews feat. Saifedean Ammous and Michaël Saylor, among other BTC advocates. I've just finished reading The Bitcoin Standard, by S. Ammous, which I recommend.  

Is Bitcoin here to stay?

Anxious investors are framing their question as if BTC was some sort of fad, a fashion or a phenomenon that could simply vanish into thin air (not to say "into the ether"), like a dying trend. 

It's not the first time in history that people are asking themselves this existential question. Look at this graph by Google Trends. 

The End Of Bitcoin?
The End Of Bitcoin?

Each time there's been a major swing in value (quick growth & fast drop), crowds have flocked to Google for reassurance or some doomsday confirmation that never came. The highest peak you see on the curve dates back to the period December 2017 to February 2018. Interestingly this massive surge of interest didn't start in the midst of a crisis but at the peak of a cycle, when BTC price reached $19,345.49 on Dec. 15, 2017 (then it started falling, to a bottom of $3,236.76 on Dec 15, 2018). 

The next major peak in "The End of Bitcoin" curve was in May 2021, when BTC started to recede from its high of $63,503.46 (more than 3 times the previous one). BTC all time high (so far) was yet to come, on Nov 8, 2021, at $67,566.83. Then it started falling again, along with the wider market. Tesla was thriving at more than $1200 in Nov 2021, it's now trading at $650. Meta was at $341, it's now hovering around $160. Coinbase has been hit even worse. In November 2021, it peaked at $342.98, it's now trading at $51.22 (June 19, 2022), that's a 85% drop in 8 months. BTC is trading at 20,199.79, so you could argue that it has shown slightly more resilience than Coinbase, having lost "only" 70% of its value compared to its peak in Nov 2021.  

Interestingly the interest for "The End Of Bitcoin" hasn't been trending that much over the past few months. Fair enough, it seems to pick up again at time of writing (June 2022). 

The End Of Bitcoin, the trend if back (June 2022)
The End Of Bitcoin, the trend if back (June 2022)

Should BTC holders be worried or is it just another dip before another rally, which could push BTC to unprecedented highs? 

All time curve of BTC vs USD (Source: Coinmarketcap).
All time curve of BTC vs USD (Source: Coinmarketcap).

BTC sceptics argue that we're entering a danger zone, after BTC fell under its Dec 2017 high on June 18, 2022 ($19,017.64 vs. $19,345.49). That's a symbolic milestone, for sure, but I would argue that it's nowhere near the end of Bitcoin. Saifedean Ammous once said (in 2019) that he would only be worried if BTC fell lower than $500. We're far from it and will probably never reach that low.  

Does Bitcoin have any value? 

In an epic debate with Saifedean Ammous, economist (and gold advocate) Peter Schiff argued hat Bitcoin had no real value (as compared to his shiny golden cufflinks) because you couldn't do anything with your bitcoins except transferring them to someone else. He also mentioned the absence of industrial use for BTC (as opposed to gold, silver and other commodities). 

It's a pointless argument though: a store of value doesn't need to have any material or industrial use to hold its monetary value. As long as there is a wide consensus around Bitcoin (that it will one day be worth more than it is today), validated by the liquidity invested into the asset ($385B at time of writing), it holds value and is valuable.

There's no point trying to emphasise the emotional value of gold jewels, touching as it may be. The reason why those cufflinks, necklaces or bracelets are valuable in the first place is due to the scarcity of their metal, not their shiny romantic appeal: gold has a very high stock-to-flow ratio (the stock is the amount of gold already mined whereas the flow is the quantity of gold mined each year), which is the #1 quality of sound money, as compared to commodities which can easily be mined, harvested or produced. When Peter Schiff called Bitcoin "Tulip Mania 2.0." in 2013, he was completely wrong, for a very practical reason: you can grow an immense quantity of tulip bulbs (as the Dutch did back in the days), which decreases their value, whereas you will never be able to mine more than 21 million bitcoins. 

Bitcoin is even harder than gold in terms of monetary value. Actually nothing today can beat Bitcoin in terms of money soundness. No one controls BTC and there will never be more than 21 million Bitcoins in circulation (a target which will be reached sometime in 2140). Last time I checked there were 19,071,775 BTC in existence (90.818% of the final supply). 

There's just one property that could still play in favour of gold at time of writing: longevity. It's been around much longer and has proven that it could hold value through centuries of wars, famines and other crises. But there's no reason why BTC could not offer the same kind of long term value protection. 

Can someone create a better crypto asset than Bitcoin? 

That's a fair question but it would be very difficult, for multiple reasons. 

Most (if not all) other crypto assets currently in existence were created and are managed by a team of highly visible stakeholders, who always have the possibility - if not the temptation - to alter the supply of their asset. Michael Saylor keeps on repeating that those cryptos should be considered and regulated as securities. According to him, Bitcoin is the only valuable digital property, enabling you to move money through space and time while preserving its value, whereas most other crypto assets are currencies or utility tokens. Their supply can be altered, which makes them poor alternatives to BTC as a store of value. 

There's no central authority managing Bitcoin. Its blockchain is immutable and could even resist a full shutdown of the internet, since BTC can be stored offline (on hardware devices, in cold storage). Bitcoin's creator (or creators) Satoshi Nakamoto disappeared years ago, without a trace. He/she has never cashed out his/her BTC stash (1.1M BTC, now valued more than $22B!). 

It would be very hard to re-engineer such a perfect genesis. When a project has proved its resilience in the absence of any proactive management, it offers the perfect governance, immune to conflicts of interest, corruption and other existential threats. Bitcoin is definitely future-proof.

Moreover, there is no rational reason for a new sound digital currency. BTC can perfectly play the role of the exclusive Layer One of a wide ecosystem of Web3 financial services. Faster & more agile Layers 2 such as the Lightning Network can become the plaftorm(s) built on top of the BTC protocol. You might have read that Lightspark, a brand new startup co-founded by ex-Meta VP / ex-Paypal president David Marcus, will soon explore the creation of services on top of the Lightning Network.  

For all its merits, why is BTC falling? 

If Bitcoin is the best form of sound money the world has ever seen, why has it followed the path of other risk assets (stocks, funds, bonds, other cryptos), constantly plunging since November 2021?  

Even if it's often presented as a valid recession-proof store of value (as opposed to debased FIAT currencies, incl. the USD), BTC is also (mainly) considered by millions of people as a risk investment asset. And, as we know, risk investments perform well in times of quantitative easing, when FIAT money is poured into the system by governments through bank loans, facilitated by very low interest rates. Cash deposits don't deliver any returns in times of money printing, so investors favour riskier assets to generate a decent return. When central banks increase interest rates to try to curb inflation, it has a negative impact on risk assets valuation, incl. BTC. Moreover, the crypto economy is disproportionally driven by small retail investors who're more into day-trading or gambling than wise long term bets.  

This negative correlation could be reversed if Bitcoin was primarily valued not for its speculative appeal but for its intrinsic monetary properties, i.e. its capacity to become the best store of value for your hard earned cash resources, something which can't be offered by deposits in FIAT currencies, losing value at an accelerating pace (look at the true inflation rate, well above the CPI numbers). 

There is a strong case in favour of BTC to be considered as true digital gold, boasting even better properties than gold. Bitcoin has all the features of the soundest form of money ever in existence and can both store value and offer a good yield on the deposits but it is still perceived far more as a trendy alternative to stocks, funds and bonds than as a safe alternative to gold. 

It's all about the perception. Bitcoin holders have to lower their time preference. We need more cathedral thinkers, less short-term speculators. In a time marked by a lot of uncertainties, it's definitely not easy to plan for a distant future. But Bitcoin could be one the building blocks of a bright new era of peace and prosperity, if properly perceived and widely adopted.

The challenges I can see hindering the adoption of Bitcoin are more at the exchange level than at the protocol one. Exchanges face the same kind of issues as traditional banks, including exposure to poor quality assets and dubious derivatives. The clean Layer One BTC protocol is solid but it's part of a wider ecosystem. We should separate the wheat from the chaff, focusing on the signal, not the noise