Today bitcoin reached the point where 92% of bitcoin eventual supply is now in circulation. Price has rallied 33% this week to almost $27k. The next halving is in just over a year. We are entering the last 12 month period where supply will increase by more than 1%.
We have had other threads talking about the banking failures in the US this week. It's a bit of a mixed bag for bitcoin as I see it. Silvergate going down is bad for bitcoin businesses as it was the bank many of them used. Is it a real problem, or will some other bank(s) just fill the gap? I don't know. I guess the big boys like Coinbase are fine regardless.
The other banks running into trouble is the type of thing that leads people on the path to bitcoin. It probably will take time for them to get to the end of that path, but starting to question whether your money is safe in the bank, or even why the day-to-day usage of digital money is tied at the hip to fractional reserve banking, are the kinds of questions that lead you to the rabbit hole.
Banking problems/failures cause people to become more interested in self sovereign money.
While companies are unlikely to go full-Saylor shoving their whole treasury (and beyond, via leverage) into bitcoin, many of them may consider that having a certain amount in bitcoin is worth the volatility risk because it has no counter party risk. That's the 'custody' aspect.
But maybe you are not concerned about the custody aspect. Because the FDIC limit suddenly no longer seems to apply. You believe the gov/fed is always just going to inject liquidity (money printer: brrrrrrrr) to protect depositors in the case of bank failures/runs. That just further dilutes the dollar though, which is further upward pressure on the bitcoin price as measured in dollars.
I've been involved in, and thinking about, Bitcoin for many years now, and it has become rarer for me to have what I consider to be original thoughts about it in recent years. But lately I've had two.
Firstly, I know a lot of people have trouble with the somewhat circular nature of how bitcoin can be money - it can be money if people use it as money, but if in the future no one uses it as money it will not be money, in fact in that case I believe it will cease to exist. This is kind of true of anything used as money, but I understand the argument that at least in the case of gold, you can use it for non-monetary uses, or in the case of fiat the government will force usage of it as money. So you have some kind of floor, somewhere, that you don't have with bitcoin.
What occurred to me this week is that the concept of banks is also circular. A bank is only a bank as long as everyone doesn't try to withdraw at once. People don't withdraw only because they don't think other people will withdraw. And there's some kind of parallel with bitcoin here if you consider selling bitcoin as the equivalent of withdrawing from a bank. I don't need to sell my bitcoin if I don't think other people will.
What differs is what happens when there is a run. With a bank, it's fractional reserve, so a run can mean it reaches a point where it runs out of liquidity and fails. With bitcoin, selling causes the price to reduce. The big difference here is that bitcoin price reducing can act as a catalyst for demand. The lower the price goes the greater the potential upside for a buyer. For a proper failure you would need an actual systemic problem like all mining to halt or some external reason that people are not willing to buy 'cheap' bitcoin (e.g. it has been surpassed by a competitor), but my point is bitcoin solves the "bank run" case naturally through pricing. Cool.
The second thought relates to bitcoin versus potentially infinite other cryptocurrency competitors. I found what I think is a real world example of how much the first-mover advantage and network effects matter. I recently made the common case bitcoiners make to someone about why gold became the most popular form of naturally occurring money. They then suggested that platinum would surely be just as useful to use as money as gold, since it seems to share all the same advantages gold has.
I was a bit stumped at first, as I had not realised platinum would be as suitable, but sure enough it seems it's pretty similar to gold. I went in search of the answer myself and found an article by Peter Schiff (ughh)
about this. The crux of it is platinum was not discovered until 1735 by which point gold was already established and had a large network effect. This makes perfect sense of course, it's not enough to be as good, or even slightly better, you need to bring something significantly new to the table to overcome an existing network effect.
An additional thought is that it seems we are at much greater risk of bank runs than previously due to the speed and ease of communication on the internet. Word spreads fast on twitter and social media, as we saw with what happened with SVB in only 24 hours.
