The Past, Present and Future of Crypto

 
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I think we need to constantly remind ourselves that only 8 years ago, 10,000 Bitcoins bought two pizzas. The valuation was arbitrary, but it was the first sale. I want to know what size the pizza was, how many toppings, what type? Was it any good? Actually, we know the answers is two Papa John’s pizzas, according to Forbes. There’s more. Here’s the request that Laszlo Hanyecz made on Bitcoin Talk back on May 22, 2010:

“I’ll pay 10,000 bitcoins for a couple of pizzas.. like maybe 2 large ones so I have some left over for the next day. I like having left over pizza to nibble on later. You can make the pizza yourself and bring it to my house or order it for me from a delivery place, but what I’m aiming for is getting food delivered in exchange for bitcoins where I don’t have to order or prepare it myself, kind of like ordering a ‘breakfast platter’ at a hotel or something, they just bring you something to eat and you’re happy!

I like things like onions, peppers, sausage, mushrooms, tomatoes, pepperoni, etc.. just standard stuff no weird fish topping or anything like that. I also like regular cheese pizzas which may be cheaper to prepare or otherwise acquire.

If you’re interested please let me know and we can work out a deal.”

May 22 will be forever known as Bitcoin Pizza Day. Today, those two large pizzas are worth $69,074,900.00 USD. Bygones.

Based on the quote of 10,000BTC being worth $41, that means that on May 22, 2010, one Bitcoin was worth $0.0041-per-coin.

I understand that this is all meaningless in a post-December 2017 $19,783.06 world; however, Bitcoin is a little like Manhattan. Manhattan is an island, so New York City is only 22.82 square miles. Similarly, Bitcoin is limited to 21 million coins. 17 million Bitcoin have already been mined; however, the moment the final coin is mined, presumably in 2140, that’s it. There are no more. Ever.

When every square inch of Manhattan Island was finally developed, minus Central Park, the city built up – into skyscrapers. Then, when the sky was fully developed, the only place to go is up in value based not on a false scarcity like diamonds or petrol but a real scarcity in places to do business and places to live. Likewise, Bitcoin. According to u/nsoniat on reddit, “There are 35.9 million USD millionaires in the world. With 21 million BTC max in existence … how many millionaires are you preventing from owning a whole BTC? Buy and HODL” Charlie Lee of Litecoin fame has the same intuition:

Speculative investing is a rich man’s game. Buying all your Bitcoin at the height of the market when a Bitcoin was valued at $19,783.06 isn’t the end of the world if you didn’t need that money to buy food or pay your mortgage. If you treated your Bitcoin the way you treat your comic book- and postage stamp-collecting and think of buying Bitcoin as a sort of retirement plan, then you’re good to go.

There are so many stories of people who mortgaged their homes, took out expensive short-term–not 30-year–loans, or drained their retirement accounts or liquidated their pensions to buy coins in November and December of 2017. This reminds me of the housing bubble we Americans suffered, ironically also in December. December 30, 2008.

Housing prices peaked in early 2006 right before the bubble burst. Unlike Bitcoin, buying a house at the height of the market for well above what it was worth only a few years before while everyone else is doing the same thing results in either having a house that’s underwater but you can still live in; or, it results in a foreclosure. Generally a foreclosure notice is issued 30 days after the fourth missed monthly payment; then, the borrower will have 2 to 3 months to reinstate the loan and stop the foreclosure.

With Bitcoin, you get nothing. Unless you can just keep them until your investment in the Bitcoin gets above water again and you can either sell at a profit or just continue holding out. The cool kids called this strategy Hodling. HODL is a slang term that commits to holding crypto coins and never selling them–at least not until the magic time, not too far in the future.

Saying that Bitcoin is like gold or like a stock or bond–is it money, is it a collectable, is it a financial instrument?–isn’t even scratching the surface. When I was growing up, I only knew houses and homes; later, I realized that someone’s home, if they own it, is the single most expensive, important and valuable asset they will ever buy and probably the only thing separating them from retiring comfortably and retiring into indigence. In America, owning a home is the most important investment of your life and also where you and your family lives.

Likewise, being valuable is only Bitcoin’s third most interesting aspect. The most valuable gift that Satoshi Nakamoto gave us is blockchain’s distributed ledger. Along with Ethereum, which was design derivatively in order to make it even easier to extend and build upon the blockchain spine upon which both coins live. So far blockchain is being used for airlines, shipping companies, health and pharmaceutical companies, oil and gas, real estate, food safety, passenger screening and national security, supply chain management, and even for civics to help prevent against voter fraud and voter ID. Blockchain does an amazing job of keeping a ledger or transactions in such a way that the books can’t be cooked. The decentralized nature of blockchain and the transparency and relative identity obfuscation (not anonymity) associated with blockchain makes it perfect for logistics, identity, research, shipping, and supply chain management. The integration of a decentralized ledger can kill money laundering and embezzlement dead overnight.

The second most valuable gift that Satoshi Nakamoto gave to us was Bitcoin itself: ground zero, day one, of a crypto-economy. There were surely digital currencies and even in-game currencies that predated Bitcoin. I, myself, was tired of mining my own gold in Ultima Online, so I went to the Internet to look for eCommerce sites that would trade me magical items and gold for US dollars. There were dozens of articles that highlighted the rooms full of slaves who spent their days and nights on MMORPGs like WoW and UO–and so many others–gold farming and then selling it for real-world money–to me and people like me. People got rich gold mining, it’s true; however, but only Bitcoin created an economy so decentralized and so autonomous that it has so far avoided most of the best attempts, internationally, of of shutting large flourishing economies or tax noncompliance.

Now, there is a worldwide market for Bitcoin and over 1,600 altcoins, some more decentralized than others, all of which are dependent upon the Bitcoin in one way or another. Some coins piggyback on Bitcoin’s infrastructure; others, like Ethereum, while neither forks nor variations on Bitcoin or built on Bitcoin’s blockchain, still tend to become more or less valuable based how bullish or bearish the market for Bitcoin is.

Bitcoin Bourse

A bourse is a market organized for the purpose of buying and selling securities, commodities, options and other investments. Bourses are most commonly associated with global oil sales and, until recently, all bourses were traded based on the US Dollar. This has made the US a very powerful player in international trade.  Likewise, until recently, many countries around the world pegged the valuation of their currencies based on the US Dollar. They did this to prevent hyperinflation or hyper-devaluation or stagflation–as a hedge against volatility. Bourses and fiat currencies were pegged to the UK Pound Sterling before then (sound as a pound) and will probably move to the Euro after; however, the only reason to do it is to benefit from the Dollar’s stability and strength.

(Image from Bitcoinwisdom – 4 year graph of BTC)

While Bitcoin has suffered from extreme volatility, it’s also still a baby. Before the Universe–and our Milky Way galaxy–coalesced into planets and stars from gas and dust, it was extremely volatile. The endless pockmarks all over the moon act as proof. Maybe Bitcoin is past its terrible twos but it surely became a teenager back in November and December, 2017, “don’t look at me, I’m gross–stop looking at me!.”  My colleague Dan reminded me that Fall and Winter of 2017 was Bitcoin’s de facto coming out party. A global sweet sixteen, debut, quinceanera, and Bar Mitzvah all at once. The market heated up, all the attention happened at once, nobody wanted to miss out (FOMO) and, sadly, not everyone wants every Bitcoin day to be as rewarding as their debutante ball, all floofy gowns and tiaras. If your life is like that, you’re already very rich (ask your parents, you might not know how rich your family is yet because it’s just how you were brought up).

Until now, all this growth and volatility had a lot to do with sex appeal and desirability. The excitement of being in heat, the excitement of something new, the promise of getting lucky without needing to put any real work, time, or investment in. The reason why all the current Bitcoin HODLers are talking about HODLing so loudly and so often is they all know what we’ve forgotten: when it comes to marriage, sometimes it’s best to wait. And Bitcoin’s worth it. There’s absolutely no one else like her–and after she reveals all 21 million of her coins, that’s it.

According to the Hayes model, a single Bitcoin could easily be worth $55,931.60 by 2020. Robert Sluymer and Tom Lee of Fundstrat are even more bullish, still believing that Bitcoin will recover and rally to $25,000 by the end of this year and will will rise to $125,000 per Bitcoin by 2022. Davos alumnus, Jeet Singh, believes that it’s the volatility, stupid, that’s going to spike Bitcoin all the way up to $50,000 before the end of the year. To Singh, the only way to make money is by timing a volatile market well: buy low, sell high. To him, even buying at $19k wasn’t buying high considering the sky’s the limit when it comes to how Bitcoin’s valued. Ask a resident of NYC who has lived there since the 60s and they would never have been able to predict the current Manhattan housing marketing in a million years (thank God for rent control).

Llew Claasen predicts a $40,000 Bitcoin before new years concurrent with the death of up to 90% of the 1,600 already struggling altcoins. To him, “most of the cryptocurrency projects will actually turn out to be scams” so this will be their reckoning.

When I graduated from college in DC in 1993, I thought rents and housing prices in NYC–the city of my birth–were too expensive to rationalize moving from Washington to Manhattan. Back in 1994, the NYTime published an article in 1994 complaining about rent prices. A one-bedroom in Manhattan averaged $1,500/month, a two-bedroom averaged $1,900/month up to $2,500/month for something nicer near Lincoln Center. Today, in contrast, on average, a one bedroom in Manhattan is $3,100, a two bedroom is $3,662.

Lesson? Don’t avoid buying today just because you remember what you paid in 2012; also, don’t hold out for unreasonable Bitcoin prices, either. Allianz advisor, Mohamed El-Erian, considers Bitcoin to be a solid buy if it goes below $5,000-per-coin. Is that your magic number?

And remember, you can buy however much of a fraction of a Bitcoin as you can afford. Don’t save up for a full coin, buy and buy as much as you can afford, all the way down to a Satoshi, the smallest fraction of a Bitcoin possible, 0.00000001 BTC.  Considering how volatile crypto is and will remain for the foreseeable future.

As the saying goes, when the United States sneezes the world catches a cold; when Bitcoin sneezes, altcoins get a cold; sadly, when the world sneezes, Bitcoin gets a cold, too. It’s a vicious circle of volatility.  When Bitcoin goes up so do the altcoins. The best way to inoculate Bitcoin against getting sick whenever a government regulatory agency sneezes is to follow Charlie Lee’s advice on Twitter, “before you buy any other coin … try to own at least 1 BTC first.”

What are your Bitcoin magic numbers? What is your buy price and what is your sell price?