Someone recently asked me how the hell I rationalized investing in bitcoin back in 2013. This was my answer... First I learned what it was. It took me months to wrap my head around it, but when I finally did I was totally blown away. I kept thinking of potential problems and for every one I could come up with I found that Satoshi had an answer built right into the protocol. There came a point where I just knew that it really was as good as people were saying that it was. It really was the first amazingly well designed digital currency that had all the features required to succeed.
So the first big revelation was that bitcoin was, in fact, a real currency. Period. It was just like dollars or pesos or pounds, but unlike all other fiat currencies it had a few unique properties that no other currency on the planet had. First it was not controlled by a central bank. Second, there would only be 21 million bitcoins ever created which meant it could never be diluted by rampant money creation. Finally, it was the only currency that could be transferred across the globe, securely, almost for free, and nearly instantaneously without involving anyone other than the sender and receiver.
Now think about the difference between a dollar and a bitcoin. Dollars are great. But we know that over time they lose value because more and more dollars are created at will by our central bank. When you want to send dollars to another person you have to pay high fees, trust a third party, and it takes multiple days to arrive. There are lots of ways to send dollars and they all kind of suck. So, yes, dollars are way better for most scenarios but in certain ways bitcoin is far superior. To be clear, I never have believed that bitcoin would displace local currencies.
Bitcoin was just another currency. Just another “dollar” but digital and with some amazing new features. So then I started to wonder how many dollars and pesos and pounds there were being used on planet earth. I wondered what the value of all the money in circulation that people were using day to day was. If bitcoin was a new, badass currency then surely over time it would take market share from other fiat currencies which did not have the awesome features bitcoin had. I wanted some perspective.
I don’t have the numbers from 2013 when I first looked at this, but here is what the numbers look like today and I draw the same conclusion in 2017 that I drew in 2013. According to the 2015 CIA Factbook there is about $29,000,000,000,000.00 trillion floating around in the form of coins, banknotes and checking deposits. This is literally just the "easily accessible" money and does not include things like time deposits or money market accounts. So we’ve got $29 trillion worth of money in circulation, with about $3.9 trillion of that being US dollars. In 2013 bitcoin's market cap was under $10 billion and today it is around $46 billion. That means that currently the value of all the crappy old currencies represents 99.8% of the total and bitcoin is 0.2%. In my opinion, it is extremely likely that bitcoin will continue grow in popularity. Even if it never evolves into anything more than what it is today I cannot imagine it not increasing in value (relative to the other currencies) to represent at least 1% of the easily accessible money supply. Multiply bitcoin's current value of $2,822 by 10 and that would put bitcoin at $28,220.
Will we get to $28,220 any time soon. Hell if I know. But when you view bitcoin as just another currency that is competing with all the other crappy, central bank controlled currencies, it sure seems to me that it is poised to take far more than 1% of the market over the next decade. This is the rationalization I used in 2013 when I first tried to decide if it was worth owning any bitcoin and as a very rough way of looking at things I come to the same conclusion today. It sure seems like bitcoin is an idea whose time has come. Ethereum is amazing too and my gut tells me that both will see steady growth as the world realizes exactly how liberating cryptocurrencies can be.