Bitcoin leader: In the chaos of 2020, I see the ladder of progress

2020 is the craziest year in recent times. The whole world is jumping back and forth between crises, schizophrenia. This is a very bad phenomenon, and it seems to have pushed the world into an abyss of chaos.

Yet, as Littlefinger pointed out to us in A Game of Thrones, Chaos is not an abyss but a ladder.

This year, Bitcoin has benefited from the chaos and established new use cases. New deep thinkers have entered the space, and the content they have created has made it easier for new Bitcoin enthusiasts to enter and traverse the rabbit hole. Central banks around the world have gone completely crazy with printing money, while Bitcoin has unequivocally established its use case as a corporate reserve asset.

Three of the most amazing thought leaders added to the crypto space this year are Robert Breedlove, Jeff Booth, and Lyn Alden. Each has contributed something unique to the space and has had a significant impact on my framework for understanding Bitcoin and its place in the world and history.

Robert Breedlove and "The Number Zero And Bitcoin"

This year, Breedlove helped me understand Bitcoin’s place in history and the huge impact this invention has had on humanity.

Breedlove released The Number Zero And Bitcoin two weeks after every market in the world plummeted (March 14th). I printed it out at work to read during any breaks. I read it twice on the first day, once on the second day, and listened to Guy Swann’s version at least twice since then.

Until now, I have not come across a thinker who has identified the importance of the invention of Bitcoin. Breedlove explains the history of the creation/discovery of the number zero, and the huge improvements that it has brought to human society. In short, zero can achieve a step-change increase in productivity and creativity in everything humans do. And in the case of Bitcoin, Breedlove's view is that Bitcoin will provide similar exponential gains in creativity and productivity in everything humans do.

Jeff Booth and "The Price Of Tomorrow"

This year’s king of exponential thinking is Jeff Booth. Booth wrote a book called The Price Of Tomorrow, in which he lays out the dichotomy between the exponential and deflationary nature of technology and the exponential inflationary tendencies of debt-based money markets printing money.

Exponentials are difficult for the human mind to comprehend, but exponential trends are seen everywhere in nature, from the growth of a single-cell embryo to a fully functional baby to the way hurricanes form and develop. Booth uses a thought experiment in which the reader is asked to guess how thick a piece of paper would become if it were folded in half 50 times. The result is that after folding in half 50 times, the thickness of the paper will be equivalent to the distance from the earth to the sun.

Booth goes on to use the metaphor of folding paper to explain how technology is exponentially reducing the cost of things across the planet, making everything cheaper and more accessible. And this deflationary pressure from technological progress is working against monetary inflationary forces from central banks. Faced with exponential deflationary pressure from technology, banks need to print more and more money. However, these practices distort pricing signals in the open market and create significant capital misallocation throughout the global economy.

Booth believes he is right, and that only through an absolutely scarce commodity like Bitcoin, and by basing all economic calculations on it, can we map technological deflation into the economy and give a true pricing signal. Booth believes that the Cantillon effect, which inflates asset prices, has seriously miscalculated about 90% of the value of assets worldwide. In other words, there will be a repricing in the future, and a house worth $500,000 will drop to $50,000.

Lyn Alden and puzzle explanation

Lyn Alden has laid out the context of how an inflationary monetary system works in a number of papers and podcasts this year.

Alden is the first person I have read who can describe how each puzzle affects the other and how the Rube Goldberg financial machine might affect different asset classes, governments and people. Alden is very smart and she is able to bring her concepts and ideas to the masses in an understandable way. Alden believes that central banks and governments around the world have painted themselves into a corner and their financial obligations require them to print more and more money.

In September 2019, the US financial markets suffered some serious shocks due to the repo market crisis, and the Fed had to secretly print money to keep banks solvent. However, this was just a prelude to 2020, and the Fed made a "windfall" after the COVID-19 lockdown began. In order to keep the entire financial system solvent, the Fed had to enact quantitative easing (QE) anyway, and it covered up the fact that the dollar supply was inflated by more than 20% under the guise of supporting the economy through the COVID-19 crisis.

You can watch Booth’s forecasted exponential growth in the monetary base in real time on the Fed’s own website. During the last financial crisis, the total assets on the Fed’s balance sheet grew from about $1 trillion to $2 trillion, and this financial crisis has grown the balance sheet from $4 trillion to $7 trillion.

If Booth and Alden's analysis proves to be correct, then the vertical line on the right side of the balance sheet in the above figure will only be the beginning of an exponential rise, and the new spending bill of about $1 trillion that the US Congress is trying to pass once again proves that their analysis is correct. The next round of blockades will provide more quantitative easing to save zombie companies and illiquid markets.

Watch out, inflation is coming!

Michael Saylor, De-risking Institutional Investment in Bitcoin

Booth and Alden aren’t the only ones who see exponential inflation coming. This summer, Microstrategy CEO Michael Saylor shocked the Bitcoin space when he announced that his company would be moving to the Bitcoin Standard and holding Bitcoin as its primary reserve asset.

The genius of this move is that it is a defensive strategy. Saylor does not want to lose the purchasing power of the company's assets due to the central bank's crazy money printing, so the company now holds assets that are non-depreciable. Framing its purchase of Bitcoin in this way reduces risk for other public and private companies.

At the time of writing, Microstrategy holds approximately $700 million in Bitcoin and plans to purchase an additional $650 million in the near future. Saylor appears to have kicked off a new round of game theory with his purchase, as companies like Square, MassMutual, Riot, and Stoneridge have either purchased Bitcoin themselves or disclosed that they have Bitcoin on their balance sheets.

These companies are now playing a game of musical chairs. It’s a race to see who has the most Bitcoin on their balance sheet, and who can better protect their company from the devaluation of their assets caused by exponential monetary inflation. And this is a good thing for Bitcoin.

Currently, the demand for Bitcoin has exceeded the amount of new coins mined by miners, and the macro trend seems to be that these purchased Bitcoins are leaving exchanges and entering cold wallets.

The supply-side liquidity shock is rolling in. This is good for long-term Bitcoin holders, but simple demand/supply economics will take over at some point and push the fiat-denominated value of Bitcoin past well-known highs.

The exponential opposition between technological deflation and money printing inflation will have an impact on the price of Bitcoin, and in most cases, the price of Bitcoin will go up. Bitcoin is climbing, and the price will rise with it.

By Greg Zaj

Compiled by: Public account @萌眼财经