Tag Archives: stock-to-flow

Bitcoin’s Pre-Determined Disinflationary Monetary Policy

After 2024 Inflation is under 1% per annum, forever

Stock-to-Flow, a driver of value, doubles every four Bitcoin years

Easy to calculate in Block Time

The Federal Reserve Manages A Debt-Based Fiat Currency

The inflation in the M2 money supply in the US runs about 5% per year. In the last three years it has increased at a 5.0% rate, and in the past year at 6.0%. You may be surprised because you hear that the Federal Reserve is struggling to push inflation up to 2%. Well, that is for the particular core personal consumption price index that they prefer to follow. But the money supply can grow faster than price inflation because the population and productivity grow even while the monetary velocity (turnover rate) has been dropping in recent years.

Figure 1: M2 Money Stock, stlouisfed.org

The Fed seeks to manage inflation and forward expectations for inflation with interest rates, open market operations, and quantitative easing. The Fed’s monetary policies are set by their seven-member Board of Governors, who meet eight times per year.

Now For Something Completely Different

Bitcoin is nothing like that. It has a predetermined monetary policy for the next century and beyond, with no committees of bankers and economists. It is designed as standard money, whereas fiat in various countries is managed by their central banks, and always with political constraints of some sort.

Figure 2. Bitcoin total supply shown in blue and inflation rate shown in orange stair steps down. The values for the orange curve are plotted in logarithmic fashion. Inflation drops below 1% at 840,000 blocks when Block Era 5 begins. http://bitcoinhub.co.za/wp-content/uploads/2016/01/Bitcoin-Inflation-logarithmic.png

Bitcoin is disinflationary, in fact once the lost coin rate exceeds the new coin rate, it will eventually actually become deflationary. Since it is designed to have a maximum number of Bitcoins ever created, namely 21 million, then it must be disinflationary and the Halving process does that. Currently, there are almost 18 million that has been created by the Bitcoin mining process on the blockchain, so 6/7 of the ultimate supply already exists. The creation of the next 3 million or so is on an ever-tightening emission schedule, which means an ever-tightening monetary policy.

After the beginning of the next century, there is no monetary policy at all, since the last whole Bitcoin will be very slowly minted from around the year 2102 until 2140. There is no policy going forward other than simply that of fixed supply. This is the hardest money ever created by mankind.

Table 1 shows, for the first year of each of the Block Eras 2 through 10 (we are now in Block Era 3), the mining reward, the Stock-to-Flow and inflation, both for the prior year, and for the coming year.

The dominant factor in the tightening of the Bitcoin monetary policy is the Halvings that occur every four Bitcoin years. And a secondary factor is the reduction in monetary inflation that would occur simply because the stock of Bitcoin is ever-growing until a century and two decades from now.

What Is A Bitcoin Year (Block Year)?

Bitcoin’s calendar has Block Eras, Block Years, Block Months and so forth, determined by the block count (block height) of Bitcoin’s blockchain. I have elaborated this calendar in the blog Living on Satoshi Time: What Block is it?

Each Halving occurs after 210,000 additional blocks have been created in the blockchain. Each Block Year is 52,500 blocks in duration, each Block Month is 1/12 that length or 4375 blocks. The Block Years vary somewhat from our Gregorian calendar years but recently differ only by about a week or two per year.

Bitcoin miners are rewarded by new coins if they are first to solve the cryptographic problem for the winning block. This is their main incentive (they also earn transaction fees), and it is known as the block reward. Each Bitcoin block is about 10 minutes long and there is a difficulty adjustment process every 2106 blocks (a Block Fortnight). This difficulty adjustment is designed to keep the block time in the vicinity of 10 minutes.

Since everything is pre-determined within the Nakomoto consensus, we can build out a table of past, present, and future monetary stock, supply rate, inflation, and stock-to-flow for Bitcoin. It is more natural if we work in Block time and then this can be translated to regular calendar time, exactly for the past, and estimated for the future.

Stock-to-Flow is the inverse of the inflation rate. It measures how many years it would take to double the money supply at the current rate of annual new supply emission.

Every block in the blockchain (time chain) is timestamped so that one can determine the correspondence to Gregorian calendar time in the past and extrapolate to calendar time for future blocks.

We are now in the third Block Era (third quadrennial period). The history of block rewards is that the reward was originally, from January 2009, set by Satoshi at 50 Bitcoins, then the first Halving cut that to 25 in November 2012 as the block count (block height) reached 210,000. And in July 2016 the second Halving cut the block reward at block 420,000 to its present value of 12.5 Bitcoins.

The block reward will drop to 6.25 at the third Halving expected to occur in mid-May, 2020 and in early 2024 the fourth Halving will drop the reward to 3.125 Bitcoins.

Table 1 illustrates how these successive Halvings drive inflation down very rapidly. Note that inflation is just the inverse of stock-to-flow (S2F). Inflation will be less than 1% from early 2024 as the fifth era begins and the S2F moves above 100. And it will be less than 0.1% from the eighth era beginning 2036, as the S2F exceeds 1000. Bitcoin is destined to be an inflation-free asset, an exceptionally stable currency, and the hardest form of money ever created.

The forward-looking S2F (last column of Table 1) can be calculated at the beginning of each new Block Era according to the formula S2F = 4 x (2^E — 2) and the prior S2F is one-half of that value. Each Block Year between Halvings, S2F increases by 1. So it is all calculable in advance. The only uncertainty is exactly how Block Year boundaries relate to our calendar years.

Buy Bitcoin, They Aren’t Making Any More After 2140*

*This is not investment advice.

You know the expression “Buy land, they aren’t making any more of it.” Although there is quite a lot of land on planet Earth, some 57.3 million square miles although 57% is uninhabitable desert or mountain land. The inhabitable area is 24.6 million square miles or almost 16 billion acres.

Bitcoin is rarer. There is less than 1 Bitcoin per square mile of habitable land (for reference there are 2.59 square kilometers per square mile).

There will be 32 Halvings of the Bitcoin supply rate in total, tapering the supply every four Block Years, until around the year 2140, when the total number maxes out at 21,000,000 Bitcoins. And then that is it, no more Bitcoins will ever be created. In fact, the last full Bitcoin will take an exceedingly long 38 calendar years to create (small fractions each year of course)! Even halfway out from now until mining ends, i.e. 60 years from now in the year 2079, we will be down to the last 100 Bitcoins ever to be created.

All gold in existence is some $8 trillion worth. For gold, the stock-to-flow (S2F) is around 54, since new mined supply rises at around 1.9% per year. Among precious metals, gold has the highest S2F, and this is a driver of value. The total market values for precious metals gold, silver, platinum and palladium adhere to a power-law relationship of S2F to the 5/3 power, based on an analysis by the anonymous PlanB.

For Bitcoin, the current inflation rate is about 3.7% and the S2F is 27, not yet as large as gold’s but headed toward being very much larger than gold. Next year there is a Halving that will occur on May 2020 and that will drive Bitcoin’s S2F to 56, about the same as that of gold, and that implies supply inflation of 1.8%, much lower than for the USD.

Bitcoin Price’s Power Law Trajectory

During its history, the Bitcoin price has climbed steeply as the blockchain has grown. We have fit a power-law relationship P ~ (Byr)^k where P is price, Byr is the number of elapsed Block years, and k is the power-law index.

Table 2 uses Block year half-year price intervals from highcharts.com, at each 6 Block months. The next to last column shows the power-law index (slope in natural log-log space); it has been close to 5 for the last five years.

The slope or power-law index over the full range from Byr of 2 when prices started to be readily available until now is about 5.3.

Table 2 shows Block number, reward for that block, BYr or Block Years elapsed, the total outstanding supply at that block, the stock-to-flow for the prior year. The next two columns are the natural logarithm of the Block Year and the USD Price (from highcharts.com). The price roughly follows a power law in block number or Block year of the 5th power. The slope of the ln — ln relation, or power law index, is shown in the penultimate column. The four Block year average of the slope is shown in the final colum. The slope has been close to 5 since BlockYr 6.5. We are now close to 11.5 elapsed Block years.

In a future article, we will look at this in more detail and also look at the stock-to-flow model for Bitcoin price. That model, from PlanB (https://medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25), indicates a steeper than cubic power-law relationship between price and S2F.

We would like to understand how much value comes from the stock-to-flow and how much comes from Bitcoin’s ever-increasing security. Our thesis is that Bitcoin follows a double feedback loop of increased security as the blockchain grows, leading to a higher prices, leading to higher hashrate, which increases security.

And increasing S2F means increased scarcity, and that also drives the price higher.

We also assert that it makes more sense to analyze price and other relationships in the fundamental temporal basis vector for Bitcoin, Block time. The fundamental driver is the lengthening of the blockchain; Bitcoin defines its own calendar. After analysis, one can then convert to the Gregorian calendar.

We argue that the price cannot rise with S2F for another decade or two in a power law fashion. S2F itself is already an exponential (!) with blockchain height, running as ~ 4 * 2^E in the limit, while E itself is simply int(B/210000) + 1. So the implication is for price rising as a power law of an exponential of Byr (or block count), which cannot persist for a very long time.

In fact, PlanB’s model has Bitcoin’s market cap rivaling that of all gold within 5 years. And then it goes on to quickly subsume the value of all currency in circulation by the subsequent halving.

What we would like to begin understanding is how Bitcoin’s market cap will flatten from a steep power law relationship with the Blockchain length, as its inflation drops to zero. Will it asymptote toward a stable, possibly very large, value? And will that value be comparable to all gold, or all base money in the world (around $20 trillion according to @crypto_voices tabulation), or something smaller or larger?

The first implies a Bitcoin price heading to $400,000 and the latter a price of $1 million.

What will drive investment flows into Bitcoin from traditional holdings? What will the market pay for ever-increasing scarcity and security, a harder currency than mankind has ever seen?

We don’t yet have the data we need, but we are on the most interesting ride into the future with Bitcoin.



Bitcoin Cross the Chasm: Libra pushes it over

After 10 years of existence, and having increased in price by a factor of a million or so even while supply increased by a factor of seven, Bitcoin has crossed the chasm. Ironically, Facebook supplied the final push when they announced their Libra plans on June 18th.

Bitcoin’s high value is founded on two very strong attributes: security and scarcity. In addition it is highly divisible, fungible, and easily and rapidly transportable across the world. But there are thousands of cryptocurrencies that have those latter attributes. Yet they each have a small fraction of Bitcoin’s value. In fact about 2/3 of the value of all cryptocurrencies combined ($300 billion, approximately) is found in Bitcoin alone, at roughly $200 billion.

How can the price increase in a decade by a factor of a million even as supply went up? Because hashing rate, that drives up security, has increased even more, around a factor of a trillion. This made Bitcoin much more desirable to hold as a store of value. 

The growth in hashing power for the Bitcoin blockchain, logarithmic scale (Chart from blockchain.com)

Security

Security comes from hashing power applied to the mining process. Cryptocurrency mining via Proof of Work is the most effective consensus algorithm to maximize security for a decentralized accounting ledger. This computational hashing power is in the form of specialized ASIC hardware specifically designed for rapidly calculating the Proof of Work algorithm.

Bitcoin has steadily grown to an enormous 70 Exahashes of hashing power deployed around the world. That is 70 million trillion hashes per second. The hash rate has grown by a factor of 1000 in the past five years, with more mining pool nodes and better hardware. 

The coin with the second position in hash rate, Bitcoin Cash, a clone or hard fork of the original Bitcoin, has only 3% as much hash rate.

There is that much computing power directed toward solving the cryptographic puzzle, and with the winner claiming the current block reward of 12.5 Bitcoins each 10 minutes or so. Some $19 million is mined per day, at the current price of $10,750 thus it is worth throwing lots of compute power into the solution.

Security can be measured by how much it costs to mount a 51% attack on Bitcoin.  It costs around $1 million to rent enough compute power for an hour of mining; this would allow a counterfeiter to double spend, but the value of double spent coins would be less than the rental expense.

A 51% attack would not invalidate ledger entries that contain your Bitcoin received yesterday or five years ago, just as a new counterfeit dollar does not replace your existing one. The clever design of the Bitcoin blockchain means that each ten minute block added after a particular block increases the security of that particular block exponentially.

The more hash rate, the more security.

While some have criticized Bitcoin’s electricity consumption, roughly equivalent to Ireland’s needs, the conversion of electricity to secure information is at the heart of what provides Bitcoin value. The electricity is not wasted, energy is encapsulated as value; electrons are turned into secure bits. The electricity used in Bitcoin mining should be compared to the much greater use of electricity and energy in gold mining, for example, or in the offices and computational facilities of the banking system.

Furthermore, 74% of Bitcoin’s electricity is from renewable supply, especially  hydropower. 

Scarcity

The world has never seen a form of money with scarcity as great as that of Bitcoin. To be money, one requires divisibility for a standard unit of account, and stability in the supply.

Gold coins and silver coins have been used in the past because of the relative scarcity of these precious metals, formed only in supernovae. Gold, unlike silver, does not increase in quantity much each year since most gold ever mined is still around in the form of jewelry or bars or coins. The supply rate increase is around 1.6% per year. Historically, large new discoveries made a difference, but those days seem to be behind us. Asteroid mining of gold is decades into the future.

The yearly increase in supply depends on how the price for gold moves, mining discoveries and development, and the cost of energy and other inputs to the mining process. But the supply increase is rather stable. There are total above-ground stocks of around $8 trillion. One-quarter of that, some $2 trillion, is held by central banks around the world.

Governments have moved away from the gold standard during the last century, and all government issued money is now fiat fractional reserve currency, issued as debt. The supply is influenced by (and sometimes more directly controlled by) committees at the central bank through monetary policy. The increase in supply of dollars currently runs at over 4% per annum. Consumer price inflation is lower, around 2%, due to productivity increases in the economy.

Bitcoin new supply each day and each year is not determined by committees of Ph.D. economists and bankers, as in the case of fiat, nor influenced by its price, as in the case of gold! If the amount of hashing power drops in response to a price drop, the Bitcoin mining difficulty that is embedded in the algorithm automatically decreases and there is still one new block issued every 10 minutes on average, containing the equivalent of 12.5 shiny new Bitcoins.

Bitcoin’s supply increase is all baked into the Nakamoto consensus: there will be at most 21 million Bitcoin ever issued, and that final number is not reached for another 120 years. However, current supply is already at 17.8 million Bitcoins, so there are only 3.2 million more that will ever be created.

The limited supply does not restrict Bitcoin’s use as a medium of exchange since each Bitcoin can be subdivided into 100 million units of Satoshis (sats). Thus even if Bitcoin reached $1 million in price, each sat would be worth just a penny.

Approximately every 4 years the supply issuance rate is cut in half by means of cutting the block reward in half. These quadrennial events are called Halvings (or ‘Halvenings’). That means inflation decreases continually as (a) the stock grows, and (b) the rate of new coin issuance decreases. At the next Halving the block reward (block subsidy, formally) will decrease to 6.25 Bitcoins from the current 12.5 reward. At the Halving after that it will decrease to 3.125 Bitcoins per block.

While in its early years the supply increase rate was quite high for Bitcoin, now it is at a reasonable 3.8%, less than the US dollar supply increase of over 4%. And at the next Halving in May 2020 it will be cut to 1.8%. (The rate drops more than by half since the existing stock is growing every 10 minutes as well). By 2024, the inflation rate will drop under 1% and it will continually decrease inexorably toward zero.

Bitcoin supply gets tighter and tighter, unlike fiat currencies with continued variable inflation and the risk of inflation getting out of control.

PlanB has built a very nice model of Bitcoin price vs. scarcity, using stock-to-flow ratios, which represent the inverse of the annual percentage supply (flow). Existing stock refers to the total number of Bitcoin ever mined. Flow is the new supply rate. Thus stock-to-flow is the number of years’ of supply, at current rates, that would be required to double the outstanding stock. 

Bitcoin will never, ever, double its outstanding stock, because stock-to-flow keeps tightening in the hard-coded Bitcoin supply algorithm. In the PlanB model, price correlates very well, at 95%, with a high power of the stock-to-flow variable, roughly the cube of that ratio. Bitcoin’s stock-to-flow will double, and be close to gold’s as of next year.  And since market cap (value of all Bitcoin) has correlated with such a steep power law, this is a big deal.

Double feedback loop

The beauty of Bitcoin’s design is that security and scarcity work together in a self-reinforcing pair of cooperating feedback loops as shown in the figure below. 

In the upper loop, we are indicating that Bitcoin is already scarcer each year relative to increasing dollar supply, and as of next year’s Halving, it will be continually scarcer relative to all fiat currencies and match gold as well. This increased scarcity drives price higher. 

In the lower loop, we are indicating that higher prices encourage more mining power, more hashing power, and that increases security. Increased security drives prices higher. 

And thus scarcity increases security. And increases in both work to increase the price. 

The long term outlook is excellent. Volatility is high at present due to a relatively thin market compared to gold, currencies, and Facebook or Apple stock. It will decrease with time as more value is captured into Bitcoin.

Both scarcity and security work in concert to drive Bitcoin price upwards. Copyright 2019, MoneyorDebt

Asset or debt?

All fiat currencies represent debt. Fiat currencies are issued in exchange for debt of individuals, corporations, or governments.

Facebook’s Libra is a debt-based token. It is a so-called stable coin backed by a basket of fiat currencies, which themselves represent debt. Money Creation 101: a bank makes a loan and new money is created; a central bank buys a treasury bill and new money can be created. There is no limit to the amount that can be created (apart from likely regulatory restrictions); it will be created and destroyed relative to demand.

Libra has a model of centralized security, managed by an Association of some 28 companies, and it has no scarcity other than that of the reserve basket of fiat currencies that back it. Libra cannot increase in value, rather its value inflates away along with the Dollar, Euro, Yen, and Pound components of the basket. Bitcoin is an asset, a pure asset with no associated debt. Like gold it comes into existence by a mining process, but mining occurs on computers rather than from the ground. If there is a debt crisis or banking crisis, Bitcoin is not affected, in fact, it would be sought after. Bitcoin was created by Satoshi Nakamoto in 2008/2009 in large part as a response to the debt crisis that brought on the Great Recession a decade ago.

Store of value or medium of exchange?

Money must be a store of value, a medium of exchange, and a unit of account. The default unit of account around the world is the US dollar, but the other main currencies such as the Euro, Pound, Yen, and Yuan are major units of account.

All of the over 100 fractional reserve currencies score highly in the medium of exchange category, at least within their own borders. They do not store value for the long term, losing half their value every decade or two or three depending on the strength of the particular currency and varying inflation rate.

Bitcoin is designed, like gold, first and foremost as a store of value, with its very constrained monetary supply. Its monetary policy is even superior to that of gold, and completely defined in advance.

No other money has ever had its monetary policy for the next hundred and even thousand years laid out in advance. Gold was the closest, but new mine discoveries always added major supply increases.

Bitcoin has been criticized on the medium of exchange front, but it is improving in that regard as well. First, remember that it is subdivided into a hundred million sats, so small quantities are not a problem. Fees are sometimes high, but trivial if you are moving large amounts, and much less expensive than the costs of bank wires or moving gold. Transfers are much more rapid, occurring within an hour for sufficiently secure confirmation.

The Lightning network and other second layer solutions such as wrapped Bitcoin (ironically using Ethereum ERC20 tokens) are making Bitcoin more accessible for small purchases by allowing transactions to be handled off-chain and later settled in bulk back to the Bitcoin blockchain. 

Government reaction to Libra

Theannouncement of Libra by Facebook and the group of companies known as the Association in mid-June has thrown governments into a tizzy. In the US, the Federal Reserve chair, the SEC chair, the Treasury Secretary and even the President all weighed in with their opinions. The net-net of comments were that Libra needs to be closely regulated, certainly with respect to KYC/AML (know your customer and anti-money laundering), and President Trump, presumably at Secretary Mnunchin’s urging, said they ought to be required to obtain a banking license. Secretary Mnunchin expressed the usual money laundering concerns.

Hearings before Congress were quickly scheduled and took place in the Senate and House mid-July. David Marcus, who leads Libra development at Facebook’s Calibra subsidiary, testified. He was not especially forthcoming on whether Facebook will be able to restrict some users from access to the Calibra wallet, and had limited information about the Association. The other members of the Association have only signed letters of intent; the charter is not yet ratified.

Congressperson Waters, who chairs the House Financial Services committee, has called for a pause in development until reviews can be completed. Marcus declined to commit to this, or to a preliminary sandbox environment working in conjunction with regulators. A bill has been introduced in Congress that would outright ban Libra, but this seems unlikely to pass.

The IMF, European Central Bank, and other central banks are almost panicking at the prospect of a competitive global currency. The UK Parliament will schedule hearings. The French Finance minister said Libra must not be allowed. India is foolishly trying to outlaw cryptocurrency completely. The Chinese central bank has announced they will develop their own central bank digital currency; they also just published a guide to Bitcoin.

Now what is interesting is that in the US, the Administration, the Fed, and Congress are beginning to draw a clear distinction between Libra, which is corporate money, and one might argue a shadow banking system, and Bitcoin, which is private money, with no centralized control.

It is encouraging for Bitcoin that some Congresspeople get the difference. In fact Congressman Patrick McHenry stated “I think there’s no capacity to kill bitcoin. Even the Chinese with their firewall and their extreme intervention in the society could not kill bitcoin.”

Regulation is already generally in place in the US for Bitcoin and cryptocurrencies more broadly. The SEC is restricting and regulating new cryptocurrency token offerings ICOs and are looking at Bitcoin ETF proposals. The SEC have stated that Ethereum and Bitcoin are not under the purview of ICOs, essentially recognizing the private money nature of the way they were created. (Ethereum is more problematic since they wish to move to Proof of Stake in the future). The CFTC has approved futures trading in Bitcoin. The IRS has been treating cryptocurrencies as assets taxable for capital gains purposes.

So there is no prospect for banning Bitcoin in the US and probably not in most Western countries or Japan and Korea. A Chinese court upheld property rights for holding Bitcoin in July. Although some mining restrictions have been placed in China, this seems more about managing electricity usage and even theft rather than an outright ban on cryptocurrency mining. Iran has recently legalized cryptocurrency mining.

In sum, the reactions of the US government and other governments toward the Libra announcement indicate a desire to closely regulate this corporate money style of ‘cryptocurrency’. This is especially the case since Libra is from a large social media company already under fire for data privacy breaches and whose scale of billions of potential Libra users could pose a systemic threat to central banks’ management of their national currencies.

As Libra is slowed down by regulations in various nations, Bitcoin is unimpeded. As governments recognize the difference between a corporate money (with Libra being a product an association of corporations) and Bitcoin’s private money nature, Bitcoin benefits.

One can argue that all of the attention given to Libra with the announcement and to cryptocurrency more broadly, along with the realization that Bitcoin cannot be stopped,has provided a push of Bitcoin across the Chasm, with Libra’s help even though Libra itself is is not scheduled for release until 2020. 

Bitcoin on a log scale, starting late 2013. (source: Coindesk)

Chasm is crossed by Bitcoin: 20 reasons

1. Bitcoin has been around for 10 years, since early 2009, and has increased in price by six orders of magnitude since April 2010, even as supply increased seven times.

2. Bitcoin has been through two Halvings; the next is only 10 months from now; this is the fundamental driver of scarcity with fully predictable inflation headed under 2% and then under 1% . Supply is now tight and only getting much tighter.

3. Bitcoin suffered through the crypto winter of 2018 and bounced back by a factor of over three times in price since the start of 2019. It has moved back above $10,000 with prospects for $50,000 plus within the next year or so due to the forthcoming Halving (PlanB model of stock-to-flow projection yields the future price estimate).

4. Bitcoin has an enormous lead in security over all other cryptos with far and away the greatest amount of hashing via specialized ASIC accelerated computers.

5. There are some 32 million Bitcoin wallets held by perhaps 10 million people; while it now has significant presence, there is also huge room for growth.

6. Facebook’s Libra has put the Fed, Congress, Treasury Department, SEC into a tizzy. Also the IMF, ECB, Bank of China  and other central banks are more or less panicking around the challenge of global digital currency alternatives. The IMF is creating a series of papers to look at alternatives that could include holding e-money ‘stablecoin’ currency reserves at the central bank.

7. The attention on Libra seems to be leading to a view from Congress and the Administration that (a) we must regulate Libra closely, Facebook cannot be trusted and  (b) Bitcoin is here to stay. 

8. Bitcoin is already the clear global digital currency alternative from a Store of Value perspective and could challenge gold in that regard. Gold has a total market capitalization of $8 trillion of which $2 trillion is held by central banks. Bitcoin is still much smaller at 1/5 of a $Trillion.

9. In the US Bitcoin regulation is mostly in place, with taxation and KYC /AML for exchanges sorted out, a futures market established, and the next big step is retail investment products such as ETFs to ease mass adoption.

10. While volatility of Bitcoin price is high (7% per month) it is decreasing and expected to continue to do so as the market deepens.

11. Bitcoin is an asset, fiat is debt. That alone should drive adoption especially with the next recession and future debt and banking crises. Negative interest rates may be coming to the US, certainly a return to very low rates is on the horizon.

12. Central banks are looking at implementing digital currencies that they would control, but that offers minimal innovation; such a central bank digital currency would still be just the same old fractional reserve fiat, inheriting problems of instability and remaining as a poor long term store of value.

 13. Central Banks cannot resist the cryptocurrency /e-money tide. This leaves them three major alternatives: (a) accept corporate money such as Libra, even holding reserves for them, and squeezing banks as a result (b) outlaw or restrain corporate money and build their own digital currency which could mean individuals hold balances at central banks, also squeezing banks, or (c) strengthen their currencies by adding Bitcoin to their balance sheets along with their gold. They could allow banks to issue their own digital money in competition with Libra and other corporate money, and let the market sort it out with appropriate but not heavy-handed regulation and risk supervision.

14. I do not expect the US,  Japanese, European, or British central banks to add Bitcoin to their reserves any time soon. But some smaller central bank may very well, and start a Bitcoin reserve race. The central bank of central banks, the BIS, will try to slow them down by saying they cannot include any Bitcoin held as part of their reserve accounting position. But central banks might well hold anyway if they believe it will appreciate relative to gold.

15. The first Central bank to actually add Bitcoin to reserves gets a jump on all the others, and could set off a race. Bulgaria may be de facto the first, since their government has seized Bitcoin used in criminal activities that has a present value of $2 billion. This is about equal to the nation’s gold reserves. If they are smart they will not auction it off.

16. Great macro investors like Ray Dalio and Raoul Pal see a next recession coming and continued overhang of debt pushing the US toward zero and negative interest rates. More debt monetization is on the horizon in their view, and in such low interest rate environments with money printing, pure assets like gold and Bitcoin benefit from a flight to safety. With negative interest rates and even small inflation, cash is trash.

17. Libra is a gateway drug to Bitcoin, and exchanges will make a market. As new people get  introduced to crypto through Libra, they will become more aware of Bitcoin and could choose to exchange Libra for Bitcoin as a savings vehicle, while using Libra and competitors for spending purposes.

18. Fiat and Libra and e-money are payment methods, spending vehicles, primarily mediums of exchange. Bitcoin is a savings vehicle, primarily a store of value that can presumably be used for greater purchasing power in fiat or Libra terms in the future due to its stronger monetary policy. Lightning Network and other second layer solutions are enhancing the utility of Bitcoin for purchasing as well.

19. Libra has sharpened the differences in the crypto space. Bitcoin has crossed the chasm because governments in the West are now understanding the clear distinction between corporate money ‘crypto’ and the original decentralized Bitcoin. They have largely worked out their overall approach to Bitcoin regulation while struggling with what to do about Libra and other ‘stablecoins’ or corporate money. Their fear of Bitcoin has lessened as tools to track its usage in money laundering and transnational crime have been developed.

20. After a decade of phenomenal growth, and in time for the 2020s, Bitcoin is coming of age. Expect a growth spurt and many more developments.

“The world that Satoshi Nakamoto, author of the Bitcoin whitepaper envisioned, and others are building, is an unstoppable force” – Patrick McHenry, U.S. Congressman