At the time of Bitcoin reaching a new high: A new perspective on understanding Bitcoin

Author: @LiamWang88, Independent Researcher

Just a few days ago, the price of Bitcoin broke through $70,000, reaching an all-time high. Since Satoshi Nakamoto published the Bitcoin white paper in 2008, Bitcoin has gone through 16 years of development. In these 16 years, Bitcoin has transformed from something no one believed in to being gradually accepted by the public, from having no value to reaching historic highs, which very typically reflects the tortuous upward development path of a new entity.

There is no doubt that the rise in Bitcoin's price has brought about tremendous investment/speculation opportunities. Whether long-term holders, speculators, or bystanders, everyone is inevitably shrouded in a huge FOMO sentiment, eagerly discussing the next high point for Bitcoin: $80,000, $100,000, $150,000, or even $200,000… Although the answers vary, there is a surprising consensus on the expectation of continued price increases.

In my view, the heightened sentiment helps Bitcoin form a broader consensus foundation. However, the more this atmosphere prevails, the more we should detach ourselves from it and reflect on the journey of Bitcoin's birth and development.

A Brief History of Bitcoin: Milestone Moments

On October 31, 2008, a person named Satoshi Nakamoto published a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System." In this paper, Nakamoto detailed the feasibility of electronic currency based on timestamps and proof of work.

Of course, many people will ask why Nakamoto published such a paper. To answer this question, we must revisit what happened in the world in 2008.

On September 15, 2008, the large American financial firm Lehman Brothers declared bankruptcy, triggering a global financial crisis.

In response to the crisis, the U.S. government launched a massive rescue operation for the domestic financial system, and the Federal Reserve started the printing press, implementing quantitative easing policies that severely jeopardized the stability of the global financial system. That year, whether in New York, London, Tokyo, or Hong Kong, every financial professional felt precarious, worried about whether they would be unemployed the next day; influential global media such as The Wall Street Journal, Bloomberg, The New York Times, and The Financial Times discussed how to address the crisis almost daily; every major global event revolved around one theme: how to save the market. In short, that year, the global financial system was in a state of lament, and everyone was shrouded in the shadow of economic recession.

The systemic collapse of financial intermediaries and the self-destructive motives of wrongdoing, coupled with the inflation and exchange rate turbulence caused by the excessive issuance of sovereign currencies, as well as the slow global rescue efforts, all reflected the inherent fragility and flaws of the traditional financial and global monetary systems. It was against this backdrop that Bitcoin emerged.

On January 3, 2009, with the official launch of the Bitcoin system, Nakamoto mined the genesis block (block number 0) of Bitcoin, marking the official birth of the Bitcoin network, and he received a reward of 50 bitcoins. Interestingly, this block contains a message: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." https://en.bitcoin.it/wiki/Genesis_block

By May 22, 2010, a programmer named Laszlo Hanyecz living in Florida had the idea to try to use his bitcoins to purchase something in the real world, ultimately exchanging 10,000 bitcoins for two pizzas from a local pizzeria. This was the first time Bitcoin had exchange value, and May 22 is thus celebrated by crypto enthusiasts as "Bitcoin Pizza Day."

Fast forward to November 28, 2012, Bitcoin experienced its first halving in history. On that day, the price of Bitcoin was about $12 per coin, and six months later, on May 28, 2013, the price rose to $130 per coin.

On July 9, 2016, Bitcoin began its second halving in history. On that day, the price of Bitcoin was about $660 per coin, and by January 9, 2017, the price reached $900 per coin.

On May 11, 2020, Bitcoin underwent its third halving in history. On that day, the price of Bitcoin was around $8,600 per coin, and six months later, on November 11, 2020, the price surged to $15,700 per coin.

The magic of Bitcoin was not over yet. On June 9, 2021, the Salvadoran parliament passed a bill approving Bitcoin as the country's legal tender. This marked the first time Bitcoin was officially recognized by a sovereign nation.

On January 21, 2023, Bitcoin developer Casey Rodarmor launched the Ordinals protocol, leading to a surge in inscription opportunities, marking a historic moment for the creation of the Bitcoin ecosystem.

On January 10, 2024, the U.S. Securities and Exchange Commission (SEC) approved 11 Bitcoin spot ETFs, meaning that retail and institutional investors in the financial market could purchase Bitcoin to enrich their diversified investment portfolios, marking a milestone event in Bitcoin's history.

Looking at the development history of Bitcoin, if a new entity is to become a particularly worthy investment asset, continuously building and solidifying consensus is an essential condition. However, more importantly, it is the "perfect" integration of multiple accidental and necessary factors: ① A special historical context or an opportunity related to systemic change in human society; ② Demonstrating scarcity, as the 21 million bitcoins determine that its supply is not unlimited; ③ Possessing innovative yet mysterious attributes, as no one knows who Nakamoto really is; ④ Uniqueness, as no one can deny that Bitcoin is the first product that embodies the decentralized spirit of blockchain.

The Value of Bitcoin: More Than Just Digital Gold

It is precisely this "perfect" integration of multiple accidental and necessary factors that creates Bitcoin's uniqueness and gives it unparalleled value.

Currently, the most widespread consensus on Bitcoin's value is to regard it as "digital gold," which means that Bitcoin, like gold, is a very good hedge against inflation.

This analogy seems reasonable, as both share many similarities in characteristics. The most obvious are two points: ① Both have a limited supply; ② Both can serve as alternatives to fiat currency.

Following this logic, let's take a look at the current market value gap between the two. According to data from companiesmarketcap, as of March 12, 2024, the market value of gold is $14 trillion, while Bitcoin's market value is approximately $1.4 trillion.[1] From this perspective, Bitcoin still has at least ten times the growth potential. This logic is seen by many as a strong argument supporting the continued rise in Bitcoin's price.

If we look at a longer time frame, taking the decade from 2013 to 2023 as an example, as shown in the chart below, except for the years 2014, 2018, and 2022, Bitcoin's overall return far outperformed assets like gold and the S&P 500 index. This further highlights Bitcoin's superiority in investment appreciation and inflation hedging. https://www.visualcapitalist.com/bitcoin-returns-vs-major-asset-classes/

The low market value of "digital gold" brings significant growth potential to Bitcoin. However, in my view, understanding Bitcoin solely from the perspective of "digital gold" is far from sufficient. In other words, I believe Bitcoin is much more than just "digital gold"; its imagination surpasses that of gold. There are two main points:

1. Gold is currency, but Bitcoin is currency + technology ecosystem. Since the advent of currency in human society, it has primarily served three functions: ① Store of value; ② Measure of value; ③ Medium of exchange. From the perspective of currency, both Bitcoin and gold undoubtedly fulfill these functions. However, Bitcoin's advantage over gold lies in the fact that Bitcoin possesses not only the attributes of currency but also represents a new technological innovation. This is something gold cannot compare to.

Due to its technological attributes, blockchain, represented by Bitcoin, has greater flexibility for expansion and is more likely to give rise to and develop a technological ecosystem. Today, with the emergence of inscriptions and other new phenomena, the Bitcoin ecosystem is beginning to rise rapidly. While it is uncertain what the future of the Bitcoin ecosystem will look like, it is certain that Bitcoin's technological attributes, combined with its monetary attributes, will create greater imaginative space.

2. Gold is prepared for human society, while Bitcoin is prepared for a new intelligent human society. The so-called human society includes various social forms such as slave society, feudal society, and capitalist society. In these forms, gold has accompanied us for thousands of years.

My understanding of the new intelligent human society is that it represents a completely different social form created by humanity through more powerful intelligence in the future:

① Interstellar society: We will no longer just be Earthlings but will become cosmic beings. Elon Musk's plan to colonize Mars has already shown that some adventurers among the human species are making great strides in this direction.

② AI-human society: Yes, I am not talking about humans + AI, but AI humans. This means that humans will not only coexist with the AIs they create but will also possess certain AI functions themselves, with chips implanted in their brains, making anything possible, right? Similarly, OpenAI has already demonstrated the powerful capabilities of AI, and we have heard many new terms about virtual societies: metaverse, digital humans, virtual avatars… In the process of transitioning from real society to virtual society, humanity has never stopped exploring.

Whether in an interstellar society or an AI-human society, there will be a need to establish a social economic system, and currency will be needed to serve as a medium for storing, measuring, and exchanging value. At least from the current perspective, there is no other item more suitable than Bitcoin. Of course, as many people worry, with the increasing maturity of quantum computing, perhaps one day, Bitcoin's code will be cracked, thus losing its scarcity attribute. There will also be those who question that if one day humanity colonizes Mars, we might discover items similar to gold, and Bitcoin may not be the ultimate option.

No one can predict what the future holds. Throughout the long river of history, every new entity is essentially a social experiment of significant transformation in human society. However, from the present perspective looking towards the future, Bitcoin, which has developed over 16 years, is far from its end.

Opportunities for Bitcoin: Standing at a New Starting Point

Since the birth of Bitcoin's genesis block in 2009, early participants in Bitcoin have reaped substantial rewards. When you prove that you have made money with Bitcoin, it either demonstrates that your understanding is deep enough or that your luck is good enough. With the recognition of Bitcoin spot ETFs in January 2024, I believe Bitcoin has reached a new starting point. At this starting point, my judgment is:

① The role of Bitcoin as a hedge asset is becoming increasingly strong, and the overall chips will become more concentrated in the hands of institutions and large holders, while retail investors' demand for Bitcoin investment will be stimulated but will require new supply.

② The technological ecosystem attributes of Bitcoin are just beginning to emerge. Whether long-term holders or investors/speculators, there will be intentional or unintentional efforts to create and discover new Alpha opportunities. The emergence of inscriptions can be seen as an attempt; the reason I use the word "attempt" is that I do not know whether inscriptions are the correct answer or if there are other possibilities. But if one day you make money with Bitcoin, it remains true: either you have proven that your understanding is deep enough, or you have proven that your luck is good enough.