Money . Bitcoin . Inflation . Devaluation

​​​

​

​​

​

​​

​

​​

​​

​​

​​

​

Money:  Printing Money -> Increase Purchase Power/Demand -> Inflation -> Decrease Purchase Power -> Devaluation

Bitcoin: Increase Value -> Increase Purchase Power/Demand -> Inflation -> Decrease Purchase Power -> Devaluation

​

​

Money = Inflation = Devaluation

Bitcoin = Deflation = Devaluation

​

Bitcoin's Nature:

• Deflationary: Bitcoin's limited supply can lead to price appreciation over time.

• Inflationary: Increased demand for goods and services fuelled by Bitcoin wealth can drive up prices.

• Devaluation: While Bitcoin's limited supply can contribute to price stability, excessive inflation can erode its purchasing power. If the rate of inflation outpaces Bitcoin's appreciation, it will require more Bitcoin to purchase the same goods and services, diminishing its value.

​​​

• Natural state of free market is deflation.

• Bitcoin imposing free market in the world

 

Purchasing Power:

• If prices of goods and services rise faster than your income or Bitcoin, your purchasing power decreases. In essence, purchasing power is determined by the relationship between income and the cost of living.

• ​When prices for goods and services rise faster than your income or Bitcoin, your purchasing power diminishes. This means you can buy fewer goods and services with the same amount of money (Bitcoin).

​​

Bitcoin Adoption perspective:

• Early Adopters: A small percentage of the population, likely significantly less than 6.8%, have actively embraced Bitcoin and may be benefiting from its potential as a hedge against inflation and a store of value.

• Passive Holders: Some individuals may hold small amounts of Bitcoin as an investment or out of curiosity, but may not actively use it for transactions.

• The Majority: The vast majority of the global population remains largely unaware of or uninterested in Bitcoin.

 

​

Money:  Printing Money -> Increase Purchase Power/Demand -> Inflation -> Decrease Purchase Power -> Devaluation

 

This sequence accurately describes the potential consequences of excessive money printing:

​

1. Printing Money: Governments can increase the money supply by printing more currency or through quantitative easing.  

2. Increase Purchase Power: Initially, this can lead to a temporary boost in purchasing power as people have more money to spend.

3. Inflation: However, as more money chases the same amount of goods and services, prices rise, leading to inflation.  

4. Reduce Purchase Power: As inflation erodes the value of money, people can buy less with the same amount of currency.  

5. Devaluation: In extreme cases, the currency can become significantly devalued, making it less valuable compared to other currencies

​​​

 

​​​

Bitcoin: Increase Value -> Increase Purchase Power/Demand -> Inflation -> Decrease Purchase Power -> Devaluation

​​​​

While Bitcoin's fixed supply makes it resistant to traditional inflation, its increasing value can indirectly contribute to inflationary pressures in certain contexts. Ark Invest CEO Cathie Wood predicts Bitcoin could hit $650,000, with a bull case of $1–1.5 million by 2030.

​

Let see how Bitcoin's rising value can contribute to inflation, devaluation when rate of inflation outpaces Bitcoin's appreciation,:​

​

• Bitcoin Value Rises: As Bitcoin's value rises, individuals holding Bitcoin gain more purchasing power. This can lead to increased demand for goods and services, potentially driving up prices. 

• Increased Purchase Power: As Bitcoin ownership surges, with 25% of Americans currently owning it and projections suggesting 100% by 2033, a significant increase in wealth accumulation is expected in coming decade. South Korea is experiencing a cryptocurrency boom: 15.6 million people, or 45% of the economically active population, own cryptocurrencies. This growing financial purchasing power could translate into heightened demand for goods and services. With limited supply to meet this expanding demand, inflationary pressures may arise, potentially driving up prices.

• Increased Institution Government Ownership:  As more of the limited supply of Bitcoin is held by substantial institutional investment (e.g., MicroStrategy), inflows into Bitcoin ETFs, and a global competition to accumulate Bitcoin Strategic Reserve, akin to a "digital gold rush.", less is available for individual investors to purchase. This reduced supply could drive up demand and, consequently, the price.

• Corporate Adoption: The adoption is accelerating as more companies recognise Bitcoin’s value as a scarce, liquid, and global asset.

• Increased Demand For Goods: A thriving Bitcoin market can stimulate economic activity, leading to increased demand for goods and services, which can also contribute to inflation.

• Relative Inflation: If Bitcoin's value appreciates faster than the value of fiat currencies, it can lead to a relative increase in the price of goods and services denominated in fiat currencies. This is because people may be willing to pay more for goods and services if they can use Bitcoin to do so.

• Decline in Purchasing Power:

• a) If the cost of living or the price of goods and services outpaces the appreciation of Bitcoin, the purchasing power of Bitcoin holders could diminish. This means that the same amount of Bitcoin may buy fewer goods and services over time.

• b) Additionally, increased demand for goods and services, driven by the growing number of Bitcoin owners, could intensify competition for resources. This could lead to further price hikes and exacerbate the erosion of purchasing power. In essence, this scenario could lead to a form of inflation, where the value of Bitcoin relative to goods and services decreases.

• Devaluation: While Bitcoin's limited supply can contribute to price stability, excessive inflation can erode its purchasing power. If the rate of inflation outpaces Bitcoin's appreciation, it will require more Bitcoin to purchase the same goods and services, diminishing its value. For instance, if you buy a certain amount of goods with 1 Bitcoin today, you might need more Bitcoin to buy the same amount in the future due to inflation. Conversely, if Bitcoin appreciates faster than inflation, it can maintain or increase its purchasing power

​​

​​

Note:

Product Price Decrease: If the deflationary effect of Bitcoin outweighs inflationary pressures, it could lead to a decrease in the overall price level of goods and services.

Product Price Increase: However, if inflationary pressures dominate, it could lead to an increase in prices and a decrease in the purchasing power of Bitcoin.

​

​If the rate of inflation (the increase in the general price level of goods and services) outpaces the rate of Bitcoin's appreciation, then indeed, more Bitcoin will be required to purchase the same goods and services. This would effectively decrease Bitcoin's purchasing power, leading to a form of devaluation.

If the rate of inflation is lower than the rate of Bitcoin's appreciation, then indeed, less Bitcoin will be required to purchase the same goods and services. This would effectively increase Bitcoin's purchasing power.

​

If a sustained period of high inflation occurs and Bitcoin's price doesn't keep pace, it could lead to a decrease in its purchasing power. This scenario is more likely to occur if:

• Central banks continue to print money at an accelerated pace.

• Global economic instability leads to widespread inflation.

• Bitcoin's price fails to keep up with the rising cost of goods and services.

​​​

​​

Bitcoin Deflation: A Real-World Example

​

Bitcoin's limited supply creates a unique economic dynamic. As demand for this scarce asset grows, its value tends to appreciate. This means each Bitcoin can potentially purchase more goods and services over time, even in the face of inflation.

 

Early investors, who acquired Bitcoin at a significantly lower price, often benefited greatly from this appreciation. However, as more people enter the market and demand becomes more widespread, the potential for such substantial gains may diminish for later investors

​

Let's illustrate this with a scenario:​

• 2025: 1 Bitcoin is worth $100,000.

• 2029: 1 Bitcoin is worth $450,000. (increase 450%)

​

During this period, let's assume a one-bedroom apartment increases in price from $1,000,000 to $3,500,000. (increase 350%)

 

Initial Cost (2025):

• To buy the apartment in 2025, you'd need approximately 10 Bitcoin ($1,000,000 / $100,000).

 

Future Cost (2029):

• To buy the same apartment in 2029, you'd need only 8.75 Bitcoin ($3,500,000 / $450,000).

 

The Takeaway: Even though the price of the apartment has increased 350%, the number of Bitcoins required to purchase it has actually decreased. This demonstrates how Bitcoin's value has appreciated 450% relative to the asset, highlighting its potential as a store of value and a hedge against inflation.

​​

​

Bitcoin Devaluation: A Real-World Example

​

While Bitcoin's limited supply can help stabilize its value, it's not immune to the effects of inflation. If the overall price level (%) of goods and services rises faster than Bitcoin's price level (%), its purchasing power can erode.

​​

During the period of high inflation in late 2021 and throughout 2022, with inflation peaking at around 9% in June 2022, Bitcoin's price declined by approximately 65%. This challenges the narrative of Bitcoin as an effective inflation hedge during that period.

In contrast, real estate prices continued to rise significantly during this period. While specific market data varies, many real estate markets experienced substantial appreciation, potentially outpacing Bitcoin's performance and highlighting the complexities of assessing inflation hedges in a dynamic market.

​

Let's consider a scenario:

• 2025: 1 Bitcoin is worth $100,000.

• 2029: 1 Bitcoin is worth $350,000. (increase 350%)

​

During this period, let's assume a one-bedroom apartment increases in price from $1,000,000 to $4,000,000 ( increase 400%).

​

Initial Cost (2025):

• To buy the apartment in 2025, you'd need approximately 10 Bitcoin ($1,000,000 / $100,000).

 

Future Cost (2029):

• To buy the same apartment in 2029, you'd need 11.43 Bitcoin ($4,000,000 / $350,000).

 

The Takeaway: Even though Bitcoin's price has increased, the rising cost (400%) of the apartment has outpaced Bitcoin's appreciation (350%). This means that in terms of purchasing power, Bitcoin has actually decreased in value relative to real estate.

​

In essence, while Bitcoin can be a valuable asset, it's important to consider its purchasing power over time, especially in relation to the rate (%) rise comparison.

​

​​

​

Bitcoin May Loss Its Hedge Against Inflation in 2033

​

We've accurately identified the potential challenges to Bitcoin's role as an inflation hedge in future.

​

If a significant portion of the population holds Bitcoin, government or institutions, such as BlackRock, MicroStrategy and more than 30% of UAE population adopt Bitcoin, or 99% of world population owned BTC by 2033, its price could become more influenced by traditional economic factors like inflation and interest rates in coming years. This could potentially diminish its effectiveness as a hedge against inflation.

​

For example, if the rate of inflation outpaces Bitcoin's appreciation, it will indeed require more Bitcoin to purchase the same goods and services. This would effectively decrease Bitcoin's purchasing power, diminishing its effectiveness as a hedge against inflation.

​​​​​

As of now, about 3% of the global population has adopted Bitcoin. These early adopters may benefit from Bitcoin's potential as a hedge against inflation and a store of value.

The remaining 97% of the global population are considered late adopters (around 2033), who may face the challenges of diminishing purchasing power due to inflation.

​

​Hedge against inflation is lost when the rate of inflation outpaces Bitcoin's appreciation. It will require more Bitcoin to purchase the same goods and services, effectively decrease Bitcoin's purchasing power, diminishing its effectiveness as a hedge against inflation.

It happens only when 97% of the global population who are late bitcoin adopters (around 2033), and face the challenges of diminishing purchasing power due to inflation.

​

Cost of living is higher eg $5 coffee becomes $50

Standard of living is lower if not better.

​

​

A Deeper Dive into Bitcoin's Future as an Inflation Hedge

​

If major world powers like the US, China, and the UK were to accumulate a significant portion of the Bitcoin supply, it would have profound implications for the global economy.

 

While Bitcoin has been touted as a hedge against inflation, its effectiveness could be compromised under certain conditions, particularly if widely adopted by governments and institutions worldwide.

​

Key Factors Influencing Bitcoin's Future as an Inflation Hedge:

1. Market Manipulation: Large-scale buying and selling by governments and institutions could manipulate the market, reducing Bitcoin's effectiveness as a hedge.

2. Regulatory Changes: Stricter regulations or bans on cryptocurrency trading could limit its accessibility and impact its price.

3. Technological Advancements: New cryptocurrencies or digital assets with superior features could challenge Bitcoin's dominance.

4. Economic Conditions: Global economic events, such as recessions or geopolitical tensions, could significantly impact Bitcoin's price.

​

The Paradox of Mass Adoption:

Ironically, widespread adoption of Bitcoin could paradoxically weaken its inflation-hedging properties. As more people and institutions invest in Bitcoin, its price becomes more susceptible to traditional economic factors like supply and demand, interest rates, and monetary policy.

​​

​

​

Real-World Example: Real Estate

​

Let's consider a hypothetical scenario:

​

• 2024: You own 1 Bitcoin, worth $70,000 each. With this, you can purchase a modest 1 studio ($70,000) in a specific neighborhood.

• 2030: Due to inflation, the same studio now costs $200,000. However, Bitcoin's value has only doubled to $140,000 each.

• 2030 Problem: To purchase the same studio in 2030, you now need to have 2.85 Bitcoins ($200,000), instead of 1 Bitcoin ($140,000)

​

Why This Happens:

​​

• Inflation Erodes Purchasing Power: As the price level rises, the value of a fixed amount of currency, including Bitcoin, decreases.

• Relative Value: If Bitcoin's value doesn't keep pace with inflation, it becomes less valuable relative to real-world assets like property.

• Bitcoin Price Appreciation: Bitcoin's value increases from $70,000 to $140,000.

• Real Estate Price Appreciation: The price of the 1 studio also increases at a faster rate (285%) than Bitcoin (200%)

• Decreased Purchasing Power: As a result, the number of Bitcoin required to purchase the studio increases, indicating that Bitcoin's purchasing power has declined relative to real estate.

​​

In essence, while Bitcoin offers potential for growth, it's crucial to consider the broader economic environment. If inflation outpaces Bitcoin's appreciation, it could lead to a decline in its purchasing power.

​​

In this example, a Bitcoin holder would need to pay more Bitcoin to purchase the same studio in 2030 compared to 2024. This indicates that Bitcoin's purchasing power for real estate has decreased, effectively devaluing BTC relative to real estate assets.

​

​It's important to note that while Bitcoin has the potential to appreciate significantly, it's not immune to the effects of inflation. A diversified investment strategy, including both Bitcoin and traditional assets, can help mitigate the risks associated with potential devaluation.

​

Factors Influencing the Relationship

The relationship between Bitcoin's value, inflation, and devaluation is complex and influenced by various factors, including:

​

• Economic Conditions: Overall economic health, interest rates, and employment levels.

• Government Policies: Monetary and fiscal policies implemented by governments.

• Market Sentiment: Investor confidence and perception of Bitcoin's value.

​​

While Bitcoin's fixed supply makes it resistant to traditional inflation, its increasing value can indirectly contribute to inflationary pressures. The extent of this impact depends on various factors and requires careful analysis. As Bitcoin's role in the global economy continues to evolve, understanding its potential economic implications remains crucial.

​

 

A Refined Analysis of Bitcoin's Role as an Inflation Hedge

​

Bitcoin's Complex Relationship with Inflation

​

While Bitcoin has often been touted as a hedge against inflation, its effectiveness in this role is nuanced and depends on various factors.

 

The Double-Edged Sword of Adoption:

• Increased Demand: As more people and institutions adopt Bitcoin, its demand increases, potentially driving up its price.

• Reduced Hedging Potential: However, widespread adoption can also tie Bitcoin's value more closely to traditional economic factors, such as inflation and interest rates. This could diminish its effectiveness as a hedge against inflation.

 

The Impact of Inflation on Bitcoin's Value:

• Increased Demand: If inflation erodes the purchasing power of traditional currencies, people may turn to Bitcoin as a store of value. This increased demand could drive up Bitcoin's price.

• Decreased Purchasing Power: If Bitcoin's price appreciation doesn't keep pace with inflation, its purchasing power will decline.

 

The Role of DeFi and Stablecoins:

• DeFi's Potential: DeFi platforms can offer innovative financial products and services that could help mitigate the effects of inflation.

• Stablecoins: These cryptocurrencies pegged to fiat currencies can provide a more stable store of value compared to volatile cryptocurrencies like Bitcoin.

 

Conclusion:

Bitcoin's role as an inflation hedge is complex and subject to various factors. While it has the potential to be a valuable asset, it's important to consider its limitations and risks. Diversification and a long-term investment horizon are crucial for managing risk and maximizing returns.

 

To summarize, Bitcoin's effectiveness as an inflation hedge is influenced by:

• Market sentiment and adoption rates

• Technological advancements in the blockchain space

• Regulatory environment

• Macroeconomic factors like inflation and interest rates

• The development of DeFi and stablecoin ecosystems

 

By understanding these factors, investors can make informed decisions about their Bitcoin investments.

​

How DeFi Can Mitigate Inflation

​

DeFi, or Decentralized Finance, offers several mechanisms to potentially mitigate the effects of inflation:

​

1. Yield Farming:

   • By staking cryptocurrencies on DeFi platforms, users can earn interest on their holdings. This can help offset the effects of inflation by generating additional income.

2. Lending and Borrowing:

   • DeFi protocols allow users to lend their crypto assets and earn interest. This can provide a stable source of income, especially during periods of high inflation.

3. Stablecoins:

   • Stablecoins pegged to fiat currencies can protect against inflation by maintaining a relatively stable value.

4. Decentralized Exchanges (DEXs):

   • DEXs can provide access to a wider range of assets and trading opportunities, potentially helping users to diversify their portfolios and hedge against inflation.

   • ​

However, it's important to note that DeFi is a relatively new and volatile industry. While it offers potential benefits, it also carries significant risks, including smart contract vulnerabilities, market manipulation, and regulatory uncertainty.

​

Therefore, it's crucial to conduct thorough research and exercise caution when participating in DeFi activities.

​

​--------------------​​​​​​​​​​

​

​

Printing Money

• Increased Purchasing Power: When a government prints more money, it increases the supply of currency in circulation. This can lead to increased purchasing power for individuals and businesses, as they have more money to spend.

• Inflation: If the increase in money supply outpaces the growth of the economy (i.e., the production of goods and services), it can lead to inflation. This is because there is more money chasing the same amount of goods, which drives up prices.

​

Bitcoin Price Appreciation

• Increased Purchasing Power: BTC holdings in publicly traded and private companies, ETFs and countries own 12.108% of total 21 million Bitcoin. As Bitcoin's value rises, people and companies holding Bitcoin have more purchasing power. This can lead to increased demand for goods and services, putting upward pressure on prices.

• Inflation: If the increase in Bitcoin's value is significant enough, it can contribute to inflation in the broader economy, particularly if Bitcoin is widely used as a means of payment.

​​

​

 

Institutional Holdings of Bitcoin: A Growing Trend

 

While Bitcoin's recent price surge may seem like a victory for the cryptocurrency community, it's important to consider the potential implications.

​

The increasing influence of large financial institutions and governments on the Bitcoin market raises concerns about the long-term vision of decentralization. As more Bitcoin is accumulated by centralized entities, it could undermine the core principles of the cryptocurrency and potentially lead to increased price volatility and market manipulation.​ It's crucial to assess whether this trend is truly beneficial for the future of Bitcoin or if it's a step towards a more centralized and controlled financial system.

 

A growing trend of government and institutional adoption has seen entities such as BlackRock, MicroStrategy, and major countries accumulate a significant portion of Bitcoin's supply. As of 2024, these institutions collectively held over 12% of the total 21 million Bitcoin, potentially shaping the cryptocurrency's future trajectory.

 

Some of the key implications of this trend include:

 

• Increased Institutional Adoption: The growing interest from established financial institutions like BlackRock and JP Morgan signals increased legitimacy and potential for mainstream adoption of Bitcoin and Bitcoin ETF. 

• Potential for Market Manipulation: Large holders could potentially manipulate the market through coordinated buying or selling, impacting price movements. 

• Large-scale government purchases of Bitcoin could indeed lead to market manipulation. If major world powers were to accumulate significant portions of the Bitcoin supply, they could potentially influence the price through strategic buying and selling. This could lead to increased volatility and make it difficult for individual investors to predict price movements.

• Additionally, government involvement could introduce regulatory risks. Governments might impose stricter regulations on cryptocurrency trading, which could impact its price and liquidity.

• Reduced Decentralization: The concentration of Bitcoin holdings in the hands of a few entities could reduce the decentralized nature of the cryptocurrency, raising concerns about potential control and censorship.

• Regulatory Scrutiny: Increased institutional involvement may attract greater regulatory scrutiny, which could have both positive and negative consequences for Bitcoin's development.

​

It's important to note that while 12.108% is a significant portion, the majority of Bitcoin's supply is still held by individual investors, ensuring a degree of decentralization. However, the growing influence of institutions is a notable trend to watch in the Bitcoin ecosystem.

​

​The increasing institutional interest in Bitcoin, particularly through ETFs, presents a complex and paradoxical scenario. On one hand, it signifies mainstream acceptance and could potentially drive significant price appreciation. However, it also raises concerns about the potential loss of decentralization, a core tenet of cryptocurrency.

​​​

The Benefits:

• Increased Legitimacy: Institutional investment lends credibility to Bitcoin as an asset class, reducing its perception as a speculative asset.

• Increased Institutional Interest: The growth of Bitcoin ETFs, fueled by cash-and-carry arbitrage, indicates increased institutional interest in Bitcoin as a legitimate investment asset. The use of sophisticated trading strategies like cash-and-carry arbitrage suggests a maturing Bitcoin market with greater liquidity and efficiency.

• Increased Strategic Bitcoin Reserve: Countries like El Salvador, US and Poland adopt Bitcoin's potential as a store of value and a hedge against inflation.

• Price Stability: Large institutions can provide liquidity and stabilize Bitcoin's price, reducing volatility.

• Cash-and-Carry Arbitrage: While cash-and-carry arbitrage has fueled the expansion of Bitcoin ETFs, the fundamental investor interest in Bitcoin persists.

• Regulatory Clarity: Increased institutional interest may drive regulatory clarity, which could foster broader adoption.

• Technological Advancements: Institutional involvement can stimulate innovation and development within the Bitcoin ecosystem.

• Hyperbitcoinization: Widespread adoption of Bitcoin, a prerequisite for hyperbitcoinization,

​

Potential Risks:

• Bitcoin: A Tale of Two Extremes

• Bitcoin, once hailed as a decentralized currency, is facing a growing centralization problem. A small group of wealthy individuals and institutions now control a large portion of the total supply. This concentration of power raises concerns about market manipulation and price volatility.

• If these large holders were to suddenly sell their Bitcoin, it could trigger a significant market crash, harming smaller investors. As Bitcoin continues to evolve, it's important to monitor these trends and consider the potential risks and benefits of increased institutional involvement. For example, BlackRock's Massive Sell-Off: The world's largest asset manager moved 1,870 BTC worth $188.7 million, sparking concerns and speculation in the crypto market in 28 Dec 2024. Possible Motivations:

• 1. Profit-Taking: Locking in profits after Bitcoin's recent surge.

• 2. Market Manipulation: Potentially destabilizing the market to create buying opportunities at lower prices.

​

• ----------------

​

Examples of Risks:

• Centralization: 1.94% of total BTC addresses hold 92.73% of BTC. There are some exchanges, but BEST case is 2% control 74%. Concentrates power and control in fewer hands. Bitcoin: the people's money—except 2% of 'the people' are sitting on 74% of the supply like dragons hoarding gold. This isn’t decentralization; it’s a high-stakes poker game where retail investors are the chips on the table. If these whales decide to cash out, the rest of us will be left with crumbs, memes, and a painful lesson in power dynamics. 

• Reduced Decentralization: A significant portion of Bitcoin's supply held by a few large institutions could reduce the network's decentralized nature. Bitcoin's Decentralization Dilemma. Mass Bitcoin hoarding by governments, institutions, and wealthy individuals reduces circulating supply, increasing price volatility and susceptibility to manipulation by "whales."
  " 1.94% of total BTC addresses hold 92.73% of BTC. There are some exchanges, but BEST case is 2% control 74% "
  Bitcoin was envisioned as a decentralized digital currency, free from the control of governments and financial institutions. However, the reality is more nuanced. A significant portion of Bitcoin's supply is concentrated in the hands of a relatively small number of entities, including exchanges, wealthy individuals, and potentially even governments.
  This concentration of wealth and power raises concerns about the long-term viability of Bitcoin's decentralized model.
  If a small group of individuals or institutions were to decide to sell a large portion of their Bitcoin holdings, it could trigger a market crash, potentially causing significant financial losses for other investors.
  This scenario highlights the inherent risks associated with a system that, despite its decentralized nature, remains susceptible to the influence of a few powerful players.

• Market Manipulation: There's growing concern about the potential for market manipulation by large institutional Bitcoin holders. These entities could significantly impact the cryptocurrency's price by strategically timing large-scale buys or sells. A recent example of this was a dramatic flash crash by Meitu institution, where $100K Bitcoin plummeted nearly 10% in a mere 43 seconds. This rapid price drop caught many off guard, especially Bitcoin futures traders who were unable to execute trades or stop-loss orders in time. Or, probably, someone could manage to open a short prior, dump $649M, close the short, buy back long. Another example, following a critical statement by J.P. Morgan " Bitcoin is a fraud", its price declined by 24%. Subsequently, both J.P. Morgan and Morgan Stanley reportedly acquired Bitcoin at the lower price point (J.P. Morgan Manipulation Tactics on Bitcoin.)

• Cash-and-Carry Arbitrage: While cash-and-carry arbitrage can increase market liquidity, it could also potentially be used to manipulate prices or create artificial demand.

• Regulatory Risks: Increased regulatory scrutiny could lead to stricter rules that hinder Bitcoin's growth. It could also be triggering regulators red flags to investigate trades to see if there were market manipulation foulplay.

• The Regulatory Threat to Bitcoin: As Bitcoin continues to gain popularity and market share, it poses a potential threat to traditional financial systems controlled by governments. To protect their interests, governments may impose stricter regulations on cryptocurrencies. Historical examples, such as the US Executive Order 6102, which restricted gold ownership, demonstrate how governments can implement measures to control assets that challenge their authority. Similar restrictions could be imposed on Bitcoin, potentially limiting its use and value. It's crucial to stay informed about evolving regulations and to consider the potential impact on your Bitcoin holdings. As the cryptocurrency landscape continues to evolve, it's essential to navigate the regulatory landscape carefully.

• Dependency on Centralized Entities: Reliance on custodial services could reduce individual control over Bitcoin holdings.

• Bitcoin Wealth Inequality: Bitcoin can widen the income gap between large and small holders.​

• Insider Trading: Creates opportunities for unfair advantages.

• Front-Running: High-frequency trading firms or individuals with privileged information could potentially profit by front-running large trades.

• Information Asymmetry: If certain individuals or institutions have access to non-public information about Bitcoin's future, they could use this information to their advantage.

• Unproductive asset: Bitcoin ETFs run by Centralized Financial Institutions, which hold your Bitcoin through a centralized exchange like Coinbase, all leading to single point of systemic risks. With $100B locked into an unproductive asset that too in a centralized manner. $100B could have helped the economies generate new business, create jobs and increase trade exports.

• " When Blackrock holds 1M Bitcoin and they've pushed the price to $1M. Blackrock will make $2.5B in Fees, Every. Year. Forever "  - Thomas Fahrer. Assuming a standard fee of 0.25% annually, the fee would be: Fee = AUM * Fee Rate Fee = $1 trillion * 0.25% = $2.5 billion

• Potential for Abuse: A PoS (Proof of Stake) system dominated by a single entity eg BlackRock raises concerns about potential abuse of power, such as censorship, manipulation of transactions, and the potential for the system to be used for political or financial gain.
   

• Authoritarian Control: Bitcoin can be weaponized for authoritarian control ie Trump, Saylor, Musk, and the rest of the crypto robber barons have in mind for the world. eg Saylor just lay out America’s plan to rug-pull BRICS by adopting Bitcoin and dumping gold. 

• Exploit of Centralized Exchanges: By minimizing reliance on digital technologies and online transactions, individuals can reduce their exposure to cyber threats, such as hacking, phishing, and identity theft. For example, a security researcher found a bug in Kraken’s platform - a flaw allowing balance inflation. But instead of responsibly reporting the issue, they worked with others to exploit it, draining $3M from Kraken’s treasury (not client funds). They then demanded a negotiation for their bounty ie extortion. Centralized exchanges can be exploited by insider cyber security - EXTORTION!

• ​Centralized exchanges can be vulnerable to exploits, as demonstrated by the recent Kraken incident. A security researcher discovered a critical bug allowing users to artificially inflate their account balances. Instead of responsibly reporting the issue, they exploited the vulnerability to steal millions of dollars. This incident highlights the risks associated with centralized exchanges and the importance of robust security measures. Real danger lies in coordinated, sophisticated attacks. Such attacks are done by government-backed or organized criminal hacker teams.

• Cyber Security Risk - Big Crypto Exchange Hack: Top exchanges can be breached in hours by ethical hackers. Cybercriminals are monetizing their tools, creating a marketplace for mass destruction. Cold Storage isn’t perfectly safe. Even hardware wallets aren’t immune. Crypto security is crucial, staying proactive can make all the difference in protecting digital assets.

• Quantum Computing: Quantum Threat to Bitcoin's Security. The emergence of quantum computing poses a significant threat to Bitcoin's security. Quantum computers, with their immense processing power, could potentially break the cryptographic algorithms that secure the Bitcoin network. This could render Bitcoin's underlying technology vulnerable to attacks and undermine its value proposition as a secure and decentralized digital currency. To mitigate this risk, the Bitcoin community must proactively develop and implement quantum-resistant cryptographic algorithms. This will require a significant overhaul of the network's infrastructure and protocols. While Bitcoin remains a valuable asset, it's crucial to address the potential quantum threat to ensure its long-term viability.

​

• Top 100 Bitcoin Rich List addresses and Bitcoin distribution - Bitinfocharts.com

​

It's crucial to strike a balance between encouraging institutional adoption and preserving Bitcoin's decentralized nature. A healthy ecosystem requires a diverse range of participants, including both individual and institutional investors.

​​

​

​

​

The Double-Edged Sword of Institutional Bitcoin Ownership

 

• The increasing involvement of large institutions in the Bitcoin market has raised concerns about potential market manipulation. These entities, with their significant financial resources, could influence the cryptocurrency's price through strategic buying or selling.

​​

• A recent example of this was the dramatic flash crash of Bitcoin, where the price plummeted nearly 10% in a matter of seconds. While the exact causes are still debated, some speculate that it could have been triggered by a large institutional sell-off. Another possibility is that a sophisticated trader could have manipulated the market by opening a short position, dumping a significant amount of Bitcoin, and then closing the position at a lower price.

​

• Furthermore, the potential for significant profits from managing large Bitcoin holdings has attracted the attention of institutional investors like Blackrock. If Blackrock were to accumulate 1 million Bitcoin and successfully push the price to $1 million, it could potentially earn billions of dollars annually in fees.

​​

• However, it's important to note that such a scenario is highly speculative and subject to market dynamics, regulatory risks, and operational costs. While institutional involvement can bring stability and credibility to the cryptocurrency market, it also introduces new risks and challenges.

• ​

​

​

The Risks of Bitcoin ETFs in Exchanges

​

​

Bitcoin ETFs, managed by centralized financial institutions, such as Blackrock's Bitcoin ETF (IBID) introduce significant risks to investors. By holding Bitcoin through centralized exchanges like Coinbase, these ETFs create a single point of failure.

 

This centralized approach can lead to:

 

• Security Vulnerabilities: Centralized exchanges are susceptible to hacking attacks, which could result in the loss of investor funds.

• Regulatory Risks: Changes in government regulations can impact the operations of these exchanges and the value of the assets they hold.

• Counterparty Risk: If an exchange faces financial difficulties or bankruptcy, investors may lose access to their funds.

 

With billions of dollars locked into these centralized ETFs, there's a missed opportunity to allocate capital to productive sectors of the economy, such as innovation, job creation, and trade.

​

--------------

​​

The Risks of Centralized Bitcoin ETFs

 

Centralized Bitcoin ETFs pose several risks to the broader financial system:

 

• 1. Single Point of Failure: By consolidating Bitcoin holdings into a few centralized entities, these ETFs create a single point of failure. A security breach, regulatory crackdown, or financial insolvency could have significant implications for investors.

• 2. Reduced Decentralization: The core principle of Bitcoin is decentralization. However, centralized ETFs undermine this principle by concentrating ownership and control in the hands of a few institutions.

• 3. Market Manipulation: Large-scale buying and selling by these institutions could potentially manipulate the Bitcoin market, leading to price volatility and unfair market conditions.

• 4. Systemic Risk: If a major ETF were to experience a significant loss or collapse, it could have ripple effects on the broader financial system, particularly if it's highly leveraged or interconnected with other financial institutions.

​

To mitigate these risks, it's crucial to promote decentralized ownership of Bitcoin and to encourage the development of decentralized exchanges (DEXs) eg Uniswap, and custodial solutions. By empowering individuals to hold their own Bitcoin, we can strengthen the network's resilience and reduce the potential for systemic risk.

​

​

-----------------------------

​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

​

​​

The Paradox of Bitcoin: A Hedge Against Inflation, Yet Prone to Hoarding

 

Bitcoin, touted as an inflation hedge, faces a critical dilemma: its limited supply, while a key feature for some, can also hinder its function as a widely-used currency.

​

• Hoarding Behavior:​

  • Large-Scale Accumulation: Governments, institutions, and wealthy individuals are accumulating significant Bitcoin reserves, further limiting its availability for circulation. Countries in bitcoin strategic reserves are 
    United States, Japan, Canada, Brazil, Russia, South Korea, Turkey, Saudi Arabia, Argentina, Switzerland,, Singapore, Nigeria, Venezuela, Kazakhstan, Ukraine, El Salvador, Panama, Zimbabwe, Cuba, Central African Republic etc.

• Investor Focus: Many investors prioritize capital appreciation over utilizing Bitcoin for daily transactions.

• Economic Implications:

  • This hoarding behavior mirrors the pitfalls of gold-backed currencies during the Great Depression.

  • Reduced Economic Activity: Limited circulation can stifle spending, production, and overall economic growth. Small circulating supply inflates prices initially but creates massive sell pressure as institutions dump.

  • Deflationary Pressures: Decreased spending can lead to falling prices, increasing the burden of debt, and potentially exacerbating economic hardship.

​

This paradox highlights the tension between Bitcoin's potential as a valuable asset and its ability to function as a widely-used and accepted medium of exchange.

​​

​

Consequences Of Extreme Bitcoin Hoarding

​

• Scarcity vs. Utility: Even if Bitcoin isn't used for daily transactions, it could retain value as a store of value or hedge if people still find it useful.

• Digital Gold: Some view Bitcoin as "digital gold," a scarce asset to be held. However, unlike gold, Bitcoin can be used for transactions.

• Velocity of Money: Hoarding reduces Bitcoin's circulation (velocity), hindering economic activity and potentially decreasing its value, despite its scarcity.

• Speculation vs. Use: While speculation drives much of the price, real-world use cases are crucial for long-term value. Hoarding hampers these use cases.

• Paradox of Hoarding: Ironically, hoarding, done in anticipation of rising prices due to scarcity, can actually undermine value by reducing utility.

​

​What Happen When High Price Of Bitcoin Becomes Unsustainable?

​

• 1. Price Correction/Crash:

• If hoarding undermines Bitcoin's utility, confidence could erode, triggering sell-offs and a significant price correction or even a crash. This could be exacerbated by speculative bubbles bursting and margin calls.​

​

• ​2. Decreased Mining Profitability:

• Hoarding reduces transactions, lowering miner fees. A price drop further decreases miner revenue, potentially forcing some to shut down, impacting network security.

​

• 3. Shift in Market Dynamics:

• Uncertainty and price corrections can increase Bitcoin's volatility. This could shift focus towards practical use cases, potentially boosting development of related technologies and even leading to the rise of alternative cryptocurrencies

​

• ​4. Regulatory Scrutiny:

• Extreme hoarding could trigger regulatory scrutiny due to concerns about market manipulation and the need for consumer protection

​

• 5. Long-Term Implications:

• A major price crash could damage Bitcoin's reputation and long-term adoption, leading to a re-evaluation of its 'digital gold' narrative and future role in finance.

​

• The cryptocurrency market is complex and influenced by various factors. However, the potential consequences of unsustainable pricing due to hoarding highlight the importance of a balance between scarcity and utility for any currency or asset to maintain long-term value.

​

​​

Key Aspects Of Bitcoin And Its Potential Future.

​

Gold as a Store of Value:

• You're absolutely right that gold has a long history of being used as a store of value. Its scarcity, durability, and historical acceptance have made it a popular choice for preserving wealth across generations.

 

Bitcoin's Volatility and Potential for Stabilization:

• Bitcoin is known for its price volatility. However, as the market matures and adoption increases, it's possible that this volatility could decrease over time, leading to a period of relative price stabilization.  

 

The Hoarding Argument:

• If Bitcoin's price stabilizes after a significant correction, it could indeed become more attractive for long-term holding or "hoarding." This is based on the idea that:

  • Scarcity: Bitcoin has a fixed supply of 21 million coins, making it a scarce asset.  

  • Store of Value Narrative: If Bitcoin is seen as a reliable store of value, similar to gold, people may choose to hold it as a way to preserve wealth.

 

However, there are some important considerations:

• Utility: Unlike gold, Bitcoin has the potential for use in digital transactions. If hoarding becomes too prevalent, it could limit Bitcoin's utility as a medium of exchange, which could negatively impact its long-term value.

• Adoption and Regulation: The future of Bitcoin will depend on its continued adoption and the regulatory landscape. If adoption stagnates or regulations become overly restrictive, it could affect its attractiveness as a store of value. eg Morgan Stanley CEO Ted Pick said the bank is working with Treasury and other regulators to offer crypto transactions.

• Technological Advancements: The cryptocurrency space is constantly evolving. New technologies and cryptocurrencies could emerge, potentially challenging Bitcoin's dominance.

​

It's plausible that Bitcoin could be hoarded after a significant price correction and stabilization, especially if it solidifies its position as a store of value. However, its long-term success will depend on a balance between its scarcity, utility, adoption, and the overall development of the cryptocurrency market.

​​​

​

Widespread Hoarding Reduces Inflation Hedge

​

If everyone hoards Bitcoin and no one spends or trades it, the velocity of money (how quickly money changes hands) decreases. This can have a few consequences: 

A lower velocity of money can slow down economic activity, potentially leading to deflationary pressures (falling prices).

​If Bitcoin isn't actively used in transactions, its price appreciation might not keep pace with inflation, thus weakening its effectiveness as a hedge.

 

The very characteristic that makes Bitcoin attractive as a store of value (scarcity) can also undermine its ability to function as an effective inflation hedge if it leads to widespread hoarding. 

​

​If Bitcoin is primarily hoarded and not used in transactions, it may behave more like a collectible asset (like rare art or gold) than a currency or an effective inflation hedge. Its price might still increase over time due to scarcity, but it might not directly correlate with or offset inflation in the broader economy.

​

​​

limitations Of Bitcoin As An Inflation Hedge For Late Adopters

​​​​

Chasing Your Own Tail:

The analogy of "chasing your own tail" effectively captures the scenario where Bitcoin's price appreciation doesn't keep up with inflation in 5-10 years time. In this case, even if your Bitcoin holdings increase in number, their real-world purchasing power might stay the same or even decrease.

 

Bitcoin Purchasing Power where Inflation Outpacing Bitcoin's Appreciation:

If the rate of inflation is higher than the rate at which Bitcoin's price increases, then the purchasing power of Bitcoin will decline. This is a crucial point and highlights the fact that Bitcoin is not a guaranteed hedge against all levels of inflation.

 

Early vs. Late Adopters:

• Early Adopters (3%): Early adopters have potentially benefited from Bitcoin's significant price appreciation over the past decade. This appreciation may have outpaced inflation in many cases, providing a real increase in purchasing power.

• Late Adopters (97%): If they enter the market when Bitcoin's price is already high and inflation continues, they might not see the same level of gains. In fact, they could experience a decrease in purchasing power if inflation outpaces Bitcoin's further appreciation.

 

Cost of Living and Standard of Living:

The example of a $5 coffee becoming a $50 coffee illustrates the impact of inflation on the cost of living. If Bitcoin's price doesn't increase proportionally, it would indeed take more Bitcoin to buy that same coffee. This directly translates to a lower standard of living in terms of purchasing power, even if the nominal amount of Bitcoin held remains the same or increases.

 

Key Considerations:

• Rate of Adoption: The rate at which Bitcoin is adopted globally will play a significant role. Increased adoption could drive demand and potentially push the price higher, which could help it keep pace with inflation.

• Inflation Rates: The actual rate of inflation in different economies will also be a crucial factor. If inflation remains relatively low, Bitcoin might still act as a reasonable hedge. However, in periods of hyperinflation, Bitcoin's ability to keep up is less certain.

• Bitcoin's Volatility: Bitcoin's price is highly volatile, making it a risky asset. This volatility adds another layer of complexity when considering its effectiveness as an inflation hedge.

 

In conclusion:

Bitcoin's effectiveness as an inflation hedge could be limited, especially for late adopters. It's important to recognize that Bitcoin is not a perfect solution and that its ability to protect against inflation depends on a complex interplay of factors, including adoption, inflation rates, and market dynamics. The "chasing your tail" analogy is a useful way to visualize this potential limitation.

​

----------------

​​

Market Manipulation: A Growing Concern

The increasing influence of large institutions and governments in the cryptocurrency market raises concerns about potential market manipulation. These entities, with their significant financial resources, could significantly impact the cryptocurrency's price through strategic buying and selling.

• Examples:

  • The Meitu Flash Crash: The dramatic flash crash of Bitcoin, where prices plummeted nearly 10% in a mere 43 seconds, highlights the vulnerability of the market to sudden price swings. This event, potentially triggered by large institutional sell-offs or sophisticated trading strategies, underscores the risk of market manipulation.

  • BlackRock's Sell-Off: BlackRock's recent sale of 1,870 BTC sparked market volatility, raising concerns about the potential for large institutions to destabilize the market for their own benefit, such as creating buying opportunities at lower prices.

  • Centralization hashrate influence: BlackRock's mining company investments could give them significant hashrate influence. This raises concerns about indirect control, potential coordination between companies, and further centralization, increasing risks like 51% attacks and censorship.

  • ​Potential for Abuse: A PoS (Proof of Stake) system dominated by a single entity eg BlackRock raises concerns about potential abuse of power, such as censorship, manipulation of transactions, and the potential for the system to be used for political or financial gain.

  • Historical Precedents: In 2017, J.P. Morgan CEO Jamie Dimon famously called Bitcoin a 'fraud.' This, coupled with subsequent reports of Morgan Stanley and J.P. Morgan's own Bitcoin purchases, highlights how the actions of large financial institutions can significantly impact market sentiment and price movements.

  • Exchanges eg Coinbase can manipulate Bitcoin-backed loan: Borrow against your bitcoin without selling it. Coinbase can't directly force you to buy/sell Bitcoin. However, they can influence:

  • Loan Terms:

  • Interest Rate Hikes: Increased borrowing costs can incentivize Bitcoin sales to cover expenses.

  • LTV Adjustments: Lower LTVs may force borrowers to sell Bitcoin to maintain their loans.

  • Market Impact:

  • Liquidations: Forced Bitcoin sales during price drops can increase selling pressure.

  • Investor Sentiment: Coinbase's actions can influence market confidence and potentially trigger price drops.

• Consequences:

  • Erodes Investor Confidence: Market manipulation can erode investor confidence in the integrity and stability of the cryptocurrency market.

  • Undermines Decentralization: The ability of large entities to influence prices undermines the decentralized nature of Bitcoin, where price discovery should be driven by market forces.

  • Creates Unfair Advantages: Market manipulation can create unfair advantages for large players while disadvantaging smaller investors.

• Mitigating Risks:

  • Increased Transparency: Greater transparency into the trading activities of large institutions could help mitigate the risk of market manipulation.

  • Regulatory Oversight: Appropriate regulatory frameworks may be necessary to prevent and address market manipulation activities.

​

​---------------------

​

Jeff Booth Masterclass: The Price of Tomorrow & the Truth About Inflation, Deflation and Bitcoin - Natalie Brunell

​

​

​

​

​

​

​

​

​

​