Has Bitcoin Reached Its Peak?

“For 99% of the population, bitcoin fades into irrelevance.” This statement recently graced my X feed—along with a crude meme designed to shut me up. Statements like this multiply any time the price of bitcoin pulls back significantly or stalls in price or fails to do what everyone expected or even hits surprising new highs. That is, basically any time is a good time for nay-sayers to claim that bitcoin has topped out.

Has bitcoin permanently topped out? Has the market saturated so that the price will simply ebb and flow with general market conditions the way gold has done for the last 10-15 years? Is NGU (number go up) technology an illusion? Let’s consider some of the arguments people make for why bitcoin could be at or near the top of its ultimate range.

Of all the reasons to give, this one may be the most ludicrous. Satoshi Nakamoto designed bitcoin to be an alternative to fiat currencies that could not be created at the whims of government. Satoshi left a comment in the genesis block—”Chancellor on brink of second bailout for banks”---suggesting that he saw bitcoin as a remedy for the evils of the banking system. A non-state, non-inflationary currency would discourage or prevent the conditions for bank runs, and it would stop the government from socializing bank losses by printing new money and debasing the currency.

Bank defaults and bailouts continue unabated. Fractional-reserve and zero-reserve lending create defaults as well as boom-bust business cycles, and these practices are still with us. Governments have shown no signs of fiscal restraint—spending far beyond tax receipts and creating new money to cover the deficit. Bitcoin is needed as much as it was in 2009 when the genesis block was mined.

Current payment systems such as debit cards, Paypal, Venmo, etc., typically charge businesses around 3% of every transaction to facilitate payments. This creates a massive drag on valuable exchange and siphons prosperity from everyone. Bitcoin has the potential—with solutions like Lightning and other Layer-2 technologies—to scale payments so that fees are greatly reduced and people can transact freely.

The need for censorship-resistant money is greater than ever. Central bank digital currencies (CBDCs) are rapidly creating government-imposed barriers to free commerce. Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) requirements continue to shut many people out of the banking system. Bitcoin is still needed to solve these problems.

The argument goes something like this. Bitcoin initially attracted cypherpunks and nerds. The mechanics of bitcoin are hard to understand, and bitcoin isn’t easy to use. Most people aren’t interested in learning about these technicalities and going through the hassle to self-custody. We can’t expect ordinary people to embrace bitcoin any more than we can expect them all to flock to Linux over Windows and Apple OS. Right?

The reality is that everyone who embraces bitcoin is highly motivated to explain it and encourage others to adopt it. The more others embrace it, the more the value of my bitcoin goes up. That doesn’t just mean the price goes up—it does! It also means that the utility of my bitcoin goes up because a larger network of people use it. This is different from a hard-to-use operating system. Money has incredibly strong network effects, and that incentivizes growth.

As bitcoin becomes more mainstream, the need for in-depth understanding decreases for the average adopter. Everyone uses the dollar today, but few understand how the system works. Bitcoin will grow in familiarity and social trust, and this will reduce the need for individual understanding.

The more people adopt bitcoin, the more incentives will exist to make bitcoin easy to use. Early adopters of the automobile had to hand-crank the vehicle and deal with a lot of greasy mess and self-maintenance. Now, we jump in the car, push a button, and drive off. The same process will happen for bitcoin.

Occasionally, I do this thought experiment. You probably know of many people who have actually understood the problems that bitcoin solves and how bitcoin works to solve those problems. Over the past few years, how many of those people do you know of who no longer consider bitcoin to be a viable solution? How many truly educated bitcoiners have sold all their bitcoin and gotten out? I only know of a handful. Bitcoin adoption is almost entirely a one-way street. Bitcoin adoption will continue to grow as bitcoiners educate and recruit others, and the price will go up in the long run as more people bid for this absolutely scarce resource.

Bitcoin is not perfect. A better system of tradeoffs and incentives could conceivably be developed that would make for better money. But that fact does not mean bitcoin will be made obsolete. Unlike its predecessors, gold and fiat, bitcoin solves all the essential problems of money—salability across time, space, and scale. Gold has poor salability across space because it is not easy to transfer across distances. Fiat has poor salability across time because the infinite supply causes it not to hold its value. For the first time in human history we now have in bitcoin a highly divisible digital asset with absolute scarcity. It has properties that make it highly salable across time and space and scale.

The network effect of bitcoin means that a better technology has insurmountable hurdles to overtake bitcoin. Esperanto may be superior to English in some sense, but in almost 150 years of existence it has made little progress in unseating English as the international second language. Its user base is estimated between 30,000 and 2 million. English solves the problem of international communication, and its network effect makes it overwhelmingly unattractive for anyone to opt out for an alternative—even if English is marginally harder to learn than Esperanto.

As a measure of network effect, bitcoin alone is currently valued at over 55% of the entire crypto market cap. Out of those tens of thousands of other crypto assets, only a few even claim to be money. Bitcoin dwarfs the others in network effect. At the most basic level, 55% of the crypto market is incentivized to promote and use bitcoin because it benefits them. Just as a visitor to a new country quickly learns which currency is most widely accepted and reliable, new crypto users will want to know which market is most liquid and which will most likely hold and grow value. 

Any alternative to bitcoin would have to overcome bitcoin’s commanding head start in network effect. To do this, a concerted effort from a centralized party would be necessary to catch up. The centralized party would be subject to all the temptations and outside forces affecting fiat—to inflate the supply, to censor transactions, to change the rules. The likelihood of this working is extremely small.

It is true that bitcoin transactions are illegal in some jurisdictions, and exchanges are illegal in some places even if transactions aren’t banned. This creates significant challenges for on-boarding. But peer-to-peer options still exist as well as the option to earn bitcoin for remote work. The very fact that governments are setting up legal barriers to bitcoin is telling. It means people are not freely choosing their broken fiat currency but have to be forced to do so. They understand that bitcoin is more attractive. It is nearly impossible to stop people from buying what they want. All they accomplish with anti-bitcoin laws is to push the market underground and out of sight. If anything, it might even provoke more demand.

Wiser jurisdictions understand that pushing bitcoin out will mean that technical innovation and a tool for economic freedom get pushed out too. A welcoming environment for bitcoin use and development will attract freedom-loving, entrepreneurial people who will help grow economies and provide tax revenue. Countries that ban bitcoin will not be able to compete. This policy has its own self-imposed penalty.

This argument takes various forms. “Bitcoin has been around for 15 years, and I still can’t buy a cup of coffee with it.” “Bitcoin does not protect privacy.” “The price fluctuates so dramatically that it is ridiculous to claim it is a store of value.” “Bitcoin claims to be an inflation hedge, but the price went down when inflation went up.”

All of these arguments have the same basic flaw. They confuse the intrinsic properties of bitcoin with the progress of adoption and development. Bitcoin is a new, maturing asset that shows great promise but needs time to mature. Who would look at an outstanding 10-year-old basketball player and say he's no good because he can't dunk like the pros? Money is a social phenomenon. Society as a whole must go through a process of recognizing the intrinsic properties of bitcoin that make it good money and of collectively converging on that choice over time. As that happens, a consensus about the value of bitcoin will grow and simultaneously become more stable.

As bitcoin goes through an adoption phase, that will include technology infrastructure development that helps to scale bitcoin and thereby allow it to serve as modern money for the world.

Consider the adoption of gold. After gold was discovered, technology was required to refine it, to standardize it, and to verify it. The first person to discover gold wasn’t able immediately to use it as a medium of exchange. Other people had to recognize its value for that purpose over time, and progressively a social consensus grew around gold as a monetary asset. Thousands of years of human history passed from the time gold began to be used as money before it won out as the dominant money all over the world.

Bitcoin’s penetration in only 15 years is remarkable considering that it started as a personal project of a pseudonymous developer. WIth no company or government launching it, bitcoin has grown faster than the internet. It has one of the steepest adoption curves of any technology in history. It has been adopted as a reserve asset by large companies and nation-states.

Bitcoin is harder to acquire than money or stocks or mutual funds. Self-custody is the only way to secure all the advantages of bitcoin, and it can be technically challenging and inconvenient. Perhaps the friction to on-board is more than the next wave of potential adopters is willing to endure.

While bitcoin on-boarding has some friction, it is not really that difficult. Users can download an app with River, Strike, or Swan, transfer funds from a bank account, and purchase in the app. Likewise, users can onboard through the Sovryn Alpha dapp and purchase BTC on Rootstock with a credit card. 

Bitcoin is far easier to self-custody than gold. And it is a better monetary asset than gold—more easily transferred, more censorship-resistant, more divisible, more scarce, and more easily verifiable. As a maturing asset, it also has far more potential upside. In spite of gold’s disadvantages, its market capitalization is more than ten times that of bitcoin. If users are willing to buy and hold gold with all its difficulties and relative inferiority, there is every reason to believe they will do the same for bitcoin as they learn more about it. As this happens, bitcoin will grow in price to compete with the market capitalization of gold and beyond.

Bitcoin is just getting started. It has all the characteristics we need for a revolution of the monetary system. With its commanding network effect, we expect to see progress on the two fronts that bitcoin needs to grow:

• adoption and the education that drives that
• technology development for scaling, ease of use, and expanded applications without compromising the key characteristics of bitcoin

Articles like this are designed to clear away misconceptions and educate potential users on the massive potential that still lies ahead.

Development is moving forward. Layer-2 projects and other off-chain projects are building systems on top of the bitcoin network without requiring risky or controversial changes to the base layer. Lightning and Ark bring scaling and reduced fees to payments. Sovryn allows bitcoin-based lending, borrowing, and trading. BitcoinOS will be a full ecosystem that deploys bitcoin in an infinite variety of programmable ways in a decentralized manner, enabling privacy, ease of use, and flexibility.

Bitcoin hasn’t topped. It isn't fading into irrelevance for 99% of the population. Given its decentralized nature and the entrenched nature of fiat, it has burst into relevance at shocking speed for a full 1% of the population—around 80 million people! And the percentage is growing. We are very early.