TheCryptoverseGuide Post # 2 What I think Buffet meant with Bitcoin is rat poison - the ONE ENORMOUS problem of Bitcoin no one discusses that may lead it disappear by 2035-2050, about 100-80 years before the last Bitcoin is mined (a supply and demand analysis, not just a SUPPLY analysis).

In another piece I clarified that bitcoin mining refers to the process of using GPUs to solve complex tasks/puzzles and get rewards for verifying transactions on the network (available here). I also wrote that, the most important thing about Bitcoin is the Bitcoin Halving events. These events are dates which are about 4 years apart from each other and cut the reward of the miners by half.

1. Supply analysis

1.1. Bitcoin halving events, cycles, rewards, changes and implications for future Supply

In this section, I look at the Bitcoin halving cycles, their implications for block rewards, supply and future block rewards. The key point of this analysis is to show that with each halving cycle, the decrease in mining rewards causes to be less incentive to keep mining Bitcoins and verify transactions on the network. This may have significant implications post 2030-2035. But before we go into these, let's dive into the halving cycles and what they did for Bitcoin rewards and also analyse the current and future supply as well as future rewards.

Let as look at Figure 1 below. In 2009, the rewards miners could obtain were 50 Bitcoin reward per block, which was halved in 2012 or a 50% decrease to 25 Bitcoin per block, and in 2016, a 50% decrease to 12.5. The last halving that Bitcoin had was in 2020, lowering block rewards down from 12.5 to 6.25.

Figure 1. Bitcoin halving cycles and reward changes

Let us now look at Figure 2 below, which visualizes things in another way. In 2009 there were 0 Bitcoin, by 2012, half of the TOTAL supply or 10.5 of 21 million had already been mined. This is so important I want to stress it again, half of the total bitcoin supply of 21,000,000 Bitcoin has already been mined from 2009 to 2012, and those who mined in that specific 3y time period received the highest rewards (due to being the first adopters). By 2016, due to the halving of Bitcoin rewards, only 5,800,000 new Bitcoins were created (or a 50% which is much smaller increase than from 0 to 10,500,000). So these are the second most-profitable miners because for the period they mined 25 Bitcoin per block, which in 2016 became 12.5. As of 2016 to 2020, only 2,600,000 new Bitcoin was created from ( the increase from 15.8 mln to 18.4 mln shown again by Figure 2). This has decreased by half since then to next year - 2024, whereby in 2020-2024 only 1,300,000 million will be created. And wait for it, after 2024 to about 2028, only 600,000 new Bitcoin will be created (i.e. after 2024, Bitcoin will not be created in millions, but only 600,000 new bitcoins will be created, so in hundreds of thousands - deflationary supply).

Figure 2. Bitcoin supply 2009-2028

Some would argue that this exactly what makes Bitcoin valuable, i.e. its deflationary supply in a world of inflationary currencies. While this on the surface might seem true, the problem with Bitcoin is that all the biggest gains (in terms of percentage moves) and in terms of its rewards are over.

While, some will claim this is exactly why it will go to $1,$10,$100 million over time, my argument is that Bitcoin's role will diminish. It will likely be in the top10 coins by 2030-2050, but eventually it may be out of top 20. Why?

Well, the idea that limited supply will cause Bitcoin to increase forever as mining will continue to 2148, so we must HODL to then to me does not make sense. Let me explain why?

In economics and management, a company chooses to perform an activity which is profitable and stops doing it when it's no longer profitable (in business profitability is calculated differently as in economics there are different definitions profit, trust me I studied both, they are different). Therefore, if we know that about 90% of all Bitcoin is created, and rewards are 3.125 Bitcoin as of 2024 vs 50 Bitcoin in 2009 per block (-93.75% decline in the absolute value of rewards obtained via Bitcoin mining), does it make more or less sense to start and continue Bitcoin mining? Most people get this wrong and assume it is still a good time to start because mining will continue for at least another 100 years, but will it?

If we look at figure 3, it shows how the block halving events have decreased bitcoin mining rewards per block. It also show the exact value of 3.125 Bitcoin per block during 2024-2028. What it doesn't show is that by 2028, the block reward will be halved again to about 1.5625 (per block), by 2032 this will be 0.7815 Bitcoins per block and by 2036 it will be 0.390625 Bitcoins per block. So far things might still be okay (and this is to me from where the end will begin). This is because people will eventually realize that in about 2 more halving to 2040, the rewards per block get decreased to 0.1953 Bitcoins per block and and finally by 2044 it is less than 0.1 BTC per block (or 0.09765625 Bitcoins per block to be specific), an ever decreasing, FOMO-creating supply. But is this a FOMO or FUD indicator?

Figure 3. Rewards per block 2009-2024

Let's look at this from another POV, if by 2024, 19.7 million Bitcoin is already created and by 2028 it will be about 20.3 million of the total supply created. In other words, after 2028 there will be only 700,000 Bitcoin left to be mined until 2148. You can say it's exactly that limited scarcity that is the reason why it should be above $10 million by 2030. And this might be right, but what about after?

Well, if economics theory applies, and I don't see why not, the rewards post 2028-2036 will become so small that the effort and cost of mining Bitcoin relative to its rewards will start becoming disproportional on the cost side. In other words, miners due to earning less and less have over time less of an incentive to  mine.

What happens if miners stop mining? Well, as we said, for Bitcoin transactions to take place on the network, miners must compete to solve these complex problems to get the reward. But if no one has incentive to solve the problem which comes to somewhere post 2030 to 2050, who will mine Bitcoin? Will someone use 100,000 GPUSs to mine 0.1 Bitcoin per year?

Well that depends on the exact economic incentive.

In other words, if Bitcoin is over $1-$10 million, it may still be worth it to mine even the small portions of it that become available with an ever increasing scarcity.

However, what happens in 2148 when all Bitcoin is mined? What happens with reward incentives to verify transactions? Did anyone tell you the answer to these because I did not get the memo.

And more importantly what happens if Bitcoin simply falls below $1 million and no miner has an incentive to mine. Does the Bitcoin network go in standstill because no one is mining and it's literally stuck?

1.2. What deflationary supply actually means for mining rewards and miners?

The most of Bitcoin rewards were obtained in 2009-2012 followed by 2012-2016, as of 2020 onward, rewards have become smaller and smaller. In the context of mining any physical commodity (like gold), the mining process stops once the cost of mining exceeds the profit of mining (this somehow applies even now to Bitcoin mining, as in bear markets, when prices are low, a lot of people cannot sustain mining at a minus). In other words, economics suggest that one cannot afford to do an activity at a minus for a long time (because cost exceeds revenue and creates a negative profit).

If we think about this example of bear markets and how Bitcoin mining is reduced as a whole, this makes the 3 miners who control over 90% of the mining activity of Bitcoin (MUCH DECENTRALIZED, MUCH WOW), even more powerful because smaller competitors who cannot remain competitive in the mining process due to lack of economies of scale are kicked out of the industry (so it really becomes like the gold rush where people mined gold with shovels but eventually now it's a business only for gold miners, the same parallel seems to be playing out with Bitcoin). To extend it further, 2009-2020 was the gold rush of people. After 2024 to 2036, it will become increasingly difficult for individuals to mine (i.e. like with gold there will still be a few lost souls), but most will be monopolized. And after 2036-2044, I imagine the Bitcoin network which is already dominated by 3-7 miners, will be dominated by 10 and they will carry out all the transactions.

Also since some of those biggest miners are mining for a long time, they have enough Bitcoin from 2012-2016 to sell and compete for the mining power even in bear markets, causing other miners to go bankrupt because they cannot compete and mine at a minus.

So, the one key problem with Bitcoin is that eventually mining rewards will be so small that they will not be worth it to mine at all unless the price is extremely high to offset the enormous costs of say mining 0.1 Bitcoin, we will need each 0.1 Bitcoin to be between $1 and $10 million as a minimum for the goal of mining 0.1 (or $100,000 to 1 million) to make sense and the process of mining to actually take place. And Bitcoin maxis will have us believe that exactly because of this ever more scarce supply, this is exactly what should happen. In other words they believe the decreasing supply to be the main reason for price to increase exponentially. 

1.3. Staking as an option in the world of reduced to supply to make existing supply worth even more (and decentralization even less)

Basically, participating in pools of bigger miners, to give them even more power is the only way this goes (as economies of scale win industrial processes, like the mining of Bitcoin). However, if the top 3-5 miners already control 90% of the mining power, how much more can they control? Well, 99-100%, obviously. So the option for Bitcoin to continue to exist and remain a store of value is only one - that everyone has staked their bitcoin with the top10 miners, which in turn increases the power of these 3-5-10 miners even more and supply is kept drastically reduced as everyone obtains higher rewards from staking than mining (as of 2023-2024, we might see staking yields be superior to rewards for mining). In other words, Bitcoin miners themselves are likely to give people an incentive to drop their own mining and become even more dominant with larger economies of scale and larger efficiency in becoming the only 3-5-10 miners who mine Bitcoin.

All other people could therefore stake their bitcoin in liquidity mining pools to ensure that they get similar % returns as those top Bitcoin miners or at least better rewards rewards to individual mining options.

However, this by definition, unless people do not mind to have 99% of the network run by 3-5-10 miners, will completely destroy the demand for Bitcoin as a decentralized currency (or at least if people could put it together as I am so eloquently doing thus far).

2. Demand

In this section I use the famous Bitcoin dominance ratio as the analysis of Demand (this is a good measure for this because it shows how much money went into bitcoin vs alternative coins, which is the best measure of their actual demand = how much money was actually put in, demanding them). In this context, BTC dominance of 100% means, that the demand for all crypto coins is - Bitcoin, Bitcoin dominance of 50% means that 50% of all demanded coins are Bitcoins (or inflow of money into coins) or only 1/2 goes into Bitcoin. Lastly, Bitcoin dominance of 25%, means that Bitcoin represents only 1/4 of total crypto coins demand. At 10%, it will mean that Bitcoin is 1/10 of the demand. And from here, I assume you can see why demand is equally important as supply. Basically, Bitcoiners assume the type of growth Bitcoin had when it was 100-70% of the entire crypto space. Now that is less than 65% and going down, how will Bitcoin grow to $10 million? How about when it's 25% or 10%? Anyone see a problem in the genius Bitcoiner's camp or just me?

While this may seem very implausible based on the mass view about Bitcoin, my problem comes from this "Bitcoin Dominance" (the demand aspect) (See Figure 4 below). This term defines the percentage of Bitcoin's market cap relative to all cryptocurrencies' (as a group) market cap. While you  may wonder why this is important, I think it is important because it shows 1 thing no one is talking about - the ever decreasing role of Bitcoin in the world (and the ever increasing comments about it the Media). The graph illustrates that when Bitcoin was created, it remained the only cryptocurrency from 2009 to about 2012-3. As of then, different new cryptos started to appear and nothing changed to about the end of 2017. 

Figure 4. Bitcoin dominance and XRP counter-moves

As of 2017, due the so-called ALT season, Bitcoin's dominance decreased from 100% of the crypto space to about 37% of the entire crypto space (and so the demand for Bitcoin was about 1/3 of all coins). Some would say this was the era of scam coins designed to take your Bitcoin and that everything else that is not Bitcoin is a scam. So the Bitcoin community's defence would be that all of us who invest in crypto do not understand that Bitcoin and crypto are different and Bitcoin is bitcoin and everything else is crypto which is designed to steal the most valuable asset - Bitcoin. To this I say

While its true that there are a lot of scams, this should have allowed Bitcoin to grow a lot in dominance maybe back to 90%? No, it actually grew to about 65% (during 2018-2020 in the bear market where other crypto's fell by a larger percentage). So the bitcoin dominance never shows that bitcoin grows more or faster than alt coins, no, it's only that when it falls it falls by less. However, even more importantly, as of 2011-2013 it was 100%, then in 2020 at its high it was 65%, now in 2021 it's at about 50%. This means from 2009 and being 100% of demand for all coins, the next biggest top it had is at about 65% (i.e. Bitcoin was demanded 2/3 of the situations and 1/3 went into other coins even then). 

In sum, if after December 2017, it was clear that all other coins are scams, why did Bitcoin dominance not grow to 90%-100% but barely grew to 2/3 of all demand - 65%? If Bitcoin was so great, why hasn't there been anything built on it, spoiler alert, there can't be and there won't be. Spoiler alert 2, Bitcoin dominance is unlikely to be ever more than 50%, and on a persistent downtrend to 10%-5% (to eventually 0%).

2023-2026 to 2027/2028

My expectation is by 2026, we will drop to a new low of about 25%. Every high that Bitcoin makes in dominance will be corrective (i.e. Bitcoin will never be 100% or 65% of all coins), it will increase maybe to 50%-65% in a bear market (say mid 2025/2026 to mid 2027/2028 and then to 10%, to 25% and then eventually it will represent no more than 5% of the entire demand for cryptocurrencies. 

In other words, Bitcoin will never manage to recapture its previous highs in terms of dominance vs other cryptos. In other words, Bitcoin will never be 100% or 90% or 65% of the dominance, it will be defined by a lower high (in crypto bear markets).

So the only time Bitcoin dominance will increase as it has been to now, is during bear markets. And this is not because we suddenly return our "common sense" but because platforms like Binance allow us to sell in positions in BTC or other crypto. So buying Bitcoin is the equivalent of selling alt coins at a profit in Bitcoin. In other words, the increase of dominance may not even be Bitcoin buying, it may be selling alt coins into Bitcoin. But all discussions about this do not seem to clarify this aspect of the equation. 

People who have not been in crypto before 2017, often forget that during 2015-2017, Binance did not even have a cash option, there were no stable coins, so the only coin you could sell into was Bitcoin (artificially increasing its dominance). Since late 2019, I wrote about DeFi and cash equivalent coins when DEFI was about 800 million as an industry together. As of then, people in the end of this bull market had the ability to sell in cash or stable coins or Bitcoin (now 3 options, not 1 like prior to 2017). A lot sell in Bitcoin because they trust stable coins and cash even less. Again, selling in Bitcoin is not due to actual demand for Bitcoin, but it being more trustworthy than stable coins, again artificial boost in dominance. In the future, as options increase, will Bitcoin be demanded even for this? If a real-central bank-backed stable coin appears, I imagine people will be fine by selling into it, instead of Bitcoin, Tether or Coinbase/Binance dollars. 

Your one argument against this (as a Bitcoiner)

You can say, well your expectation is that Bitcoin dominance will continue to decrease and this is based on technical analysis and that is nonsense. Yes, the specific target level of Bitcoin becoming less than 26% (or for Bitcoin to represent only 1/4 of the demanded tokens around the world as 74% of all bought coins are not Bitcoin) and then post 2030-2035 to become less than 10%-5% (or the demand for tokens is 90-95% for other coins and not Bitcoin) for all digital tokens is based on technical analysis, correct. And yes, for some reason this could be wrong in the exact percentage targets. But why does it make sense that Bitcoin is eventually 5-10% of the total demand for coins or less?

What is not based on technical analysis is the actual trend itself which is visualized simply through the data. Even a 5y old looking at this first graph can say that the direction is down. and why is this logical? Because they are superior technologies and blockchains which can do everything bitcoin can do and much more, faster, better and cheaper. As a result, the perceived advantage of Bitcoin being the first will diminish and people will stop believing the narrative, causing each subsequent bitcoin high in the dominance vs other coins to be lower and lower (i.e. it may spike in bear markets, but each spike will be lower, now we had 100% be 65%, in the next, we at best reach 50%-60% again or even remain lower at about 30-40%. If by 2027-2028, Bitcoin demand is barely 3/10 of the demand for all coins or 4/10 of the demand all coins, how could people still believe that Bitcoin is different from crypto in any way? And by 2036-2044, if it is 5-10% of the demand for all coins, will there by anyone left using Bitcoin?

FYI, Michael Saylor and Plan B are both wrong because they analyse only supply and not demand. So is Catty wood and all the morons in this camp.

All their models assume prices entirely on demand, or assuming Bitcoin is 50%-100% of all demand for coins, it's not, it never will be, it hasn't been since 2017 and 2020 respectively. It has been in a downtrend, and you are stupid to believe Bitcoin will ever be above 50% of the demand for all coins. It shows you literally know nothing about new technology, disrupting technology and that the first version of a technology never wins. Bitcoin has not been designed to win. Bitcoin was the first experiment that such a technology has value, as a case study example. Over time, to assume it's dominance will be more than 10% is stupidity^(21million).

3. Supply + Demand (together)

Miner reward decreases, concentration of mining power + demand of Bitcoin decreases -> no exponential rally of 100x from $15,000 per bitcoin to $1.5 million (sorry ARKK, and sorry Catty, maybe in 2030-2035, but no way in 2025)., sorry to spoil your party, it ain't happening, forget about it.

I have explained that Bitcoin should suffer from diminishing returns, which is already true. See Figure 5.

Figure 5. Bitcoin's diminishing returns

Each rally's percentage gains are decreasing by quite a lot - 62,000% in 2009-2012, then 11,000% in 2012-2014, then only 2226% in 2019-2021, and now? Well, less. Why does this make sense? Because even my former classmates who have no knowledge about investments are now buying the dip. As a result, everyone knows and expects Bitcoin to be the best investment, which will not happen because JP Morgan are unlikely to be outperformed by a former classmate of mine who has never bought an investment (if you are buying Bitcoin to outperform other cryptos, you might have a hard time ahead of you).

Now adding everything together - 1) decreasing mining reward, 2) about 20 of 21 million already mined, 3) decreasing percentage returns in each cycle, and 4) decreasing demand over time from 100% to 37% to max 65% and continuing lower (Bitcoin dominance is less than 50% even today, i.e. 1/2 of all demand for coins already is not for Bitcoin). Does this sound like a formula that equals Bitcoin to $10 million forever and $100 million and even $1 trillion? No, actually quite the opposite. It suggests that eventually no one will care about Bitcoin because 1) rewards will be small, 2) its role in the crypto space will be 5-10% of everything and 3) it will as a result continue to produce gains which become more like the stock market and less like its past rallies.

If it makes sense that if one crypto goes to 0 it's Bitcoin. Why? A comparison to technologies you have forgotten about

Not because I don't like it (I have no feelings about Bitcoin, or any of my investments, I have analyses) but because never in history did the first version of a technology become the dominant version. If you look at Google's original business plan and Google now, it has nothing in common because it could change. Bitcoin cannot change and evolve, so it cannot be like Google. Was Google the first or the second search engine, or the third? For sure, it wasn't the first because you needed to open Internet Explorer or Safari to download it, trust me I have done it on both. So the leader today is not the first technology.

JP Morgan is famous for losing a lot of money on the light bulb because he invested with the creator of technology, they both lost because another company delivered economies of scale in the process and made a better process of making the invention of Edison in a more profitable way

Prius was the first hybrid car, but Tesla is the first electric car. In my analogy, Bitcoin is the Prius, Ethereum is the 2.0 Prius and XRP/QNT/XLM are the Tesla. These are far superior to their predecessors, the only one who doesn't understand why is you this is why you buy Bitcoin because the media, some guru or some Twitter a$$hole with 1 million followers told you to. So following a guy whose job is digital marketing and markets $hit to you, makes sense to you? 

Anyone still using CDs, DVDs, Blue-ray players, mp3 players or physical newspapers? In 100 years, my belief is that students will study about Bitcoin as a historic artefact that was the first and allowed the thought to prospect, however, by then, it might only have place in history books.

Anyone reading this from a Nokia phone, remember how dominant Nokia was in 2002-2008? did you know it's management team was actually pitched the idea of a smart phone before Steve Jobs introduced the iPhone (it had an app shop and smart functions and other features which made it very similar to the actual iPhone). In other words, some of their product engineers came up with the concept first, but management decided that it was too risky to go for the innovative solution (boy, were they wrong as it turns out not doing it was the move that cost them everything).

Do you get my Bitcoin point now?

The point is every technology has its dominance and for me, Bitcoin's dominance is ever decreasing. This is true whether I look at Bitcoin dominance graph as a simple trend or a technical analysis trend. This is logical because as better technology disrupts the first emerging technology, Bitcoin's role and importance will keep diminishing.

So what did Buffet mean in my opinion?

I think that Buffet understood this (or a part of it) about 5 years ago when he called it rat poison. He basically meant that for people who participated now, it's great. However, he also meant that everyone joining post 2016-2020 to mine Bitcoin is a fool joining in a bubble and a technology which has already started to lose its appeal. This is not to say it cannot grow for another 5-15 years before it ultimately disappears, but it has one direction - lower and lower demand.

Over time, I think he recognizes that the incentives to mine will decrease, the dominance of the 1-st technology will decrease and 3) those who bet their dreams on Bitcoin to grow like in the past will be disappointed.

Together these 3 would really mix up a "poison" for the average individual, who does not stop to think about such matters.

Debunking Plan B's stock-to-flow model in the long-term

Plan B's Bitcoin model is partially right, but mostly very wrong as Bitcoin halving events have been and will be bullish for bitcoin 1-2-3 more times. However, after they become 6-7, and everyone thinks that this will go on forever, Plan B's model is likely to completely fail.

This is because it ignores the fact that there is a design flaw in Bitcoin, the design flaw in my opinion is that it's rewards are ever decreasing which will cause 1) less incentives to mine and keep the network running, 2) more centralization of rewards by the already dominant miners and 3) less decentralization and less rewards for anyone who is not the top 10-20 miners. This in turn, in a world of decreasing dominance for Bitcoin, will cause prices to not jump by percentages which are even remotely similar to those of the past. Even worse, the eventual Bitcoin faith is death because it eventually will have no role other than maybe be used to pay on the dark web again if there is anyone left mining bitcoins to verify your transaction that is.

In other words, unless price remains above $1-10 million post 2030-2035, Bitcoin will fail because the math of continuing to mine it will not work out at a profit anymore. Therefore, the key condition but not guarantee for Bitcoin to survive is to have a price that is so large that everyone want even 0.0001 or 0.001 or 0.00001 of it. Does this seem like a possible future? Yes. Does it seem like a likely future? No.

In short, the stock-to-flow analyses only the supply dynamic aspect - the decreasing supply and suggests that this is all we need to know about future value. However, economics which has been around long before Plan B and his models, has clearly defined that there is a second part of the equation and this is demand. He probably slept through that class, I remember it too, it was kind of boring.

Anticipating that future demand will grow by the same percentages as it has in the past, especially about something which there is objective evidence that is less demanded (refer back to Bitcoin dominance, Figure 3 above)

Most likely, Buffet also knows that Demand plays a big role as well as Supply, Plan B doesn't seem to think so. Is he wiser or less wise than Buffet? Is Michael Saylor and Catty Wood? I do not think so.

To sum up

The one problem is that as block rewards continuously decrease, economic theory suggests that the incentive decreases and players will stop doing it as its no longer profitable. The amount of miners who exit does not have to mean that the Bitcoin network totally stops because there is no one left to mine (even though in theory it can happen). Most likely however, the 90% dominant 3 miners will become 10 which control 99% of all mining. Also, Bitcoin is more likely to grow post 2025-2030 more like the stock market than its historic moves.

Economists are said to never be able to predict anything, so here is this economist's prediction that 2024-2030 will be the last amazing years for Bitcoin. Post 2030, they will become decreasingly less amazing. Even now, to expect more than 100-300k would be to expect too much. I outline why I think the $77,000 is a pretty low target for this cycle and what my views about the top of Bitcoin are - here.

Catty, Saylor, Musk, and Plan B and their $1 million to $1.5 mln per Bitcoin by 2025 have a very different view of analysis, this is mine. Mine does not exclude $1.5 mln by 2030-2035, rather it suggests whatever the top of 2030-2035 is, this is most likely gonna be the last significant top. After that, I would not count on any exponential returns from 2035 to 2148 as all the exponential gains will be priced in (as markets are forward-looking). So by 2030-2050, I believe all gains to 2148 will be priced in, leaving Bitcoin with a much higher risk than reward potential. At best the gains post 2036-2044 will resemble those of Microsoft today (and I am being really generous to compare Bitcoin to a company like Microsoft because Bitcoin is definitely not the "Windows of Blockchain", if anything its QNT (Quant)).

Implications for personal investing

This is NOT to say I am NOT bullish for 2023-2026 to say $100-300k (I am bullish to $100-$400k per Bitcoin by mid 2025/Jan 2026, read here why). This also does not mean that I will not participate in Bitcoin's bull market which I expect of 2023 to mid 2025/Jan 2026. However, I will participate via Bitcoin mining stocks as a better way to expose myself to Bitcoin than Bitcoin. This is because, no matter what Bitcoin does, Bitcoin miners are likely to do a 5-10x larger gain for each 100% of Bitcoin. So this is the only play where as bitcoin miners grow and gain further dominance via economies of scale, their return as a stock will be more and compensate for the decreased percentage gain of Bitcoin. In other words, Bitcoin miners will outperform because they are businesses with industrial economies of scale. Read more about this here.

I can play basically those 2-4 more cycles or max 3 to 2030-2035. What about after?

After 2030-2035, I am likely to never touch anything to do with Bitcoin, unless it becomes clear to me why and how this decreasing mining reward and lack of incentive to keep the network running (via mining) will not cause it to eventually fail. In other words, as bitcoin mining difficulty increases isn't that also the time bomb which triggers in 2035-2050 as it becomes totally not profitable to mine and even keep the Bitcoin network alive?) That's a scary question but my proposition is that each time rewards are halved, at least some Bitcoin miners are discouraged as rewards get smaller, which literally means there are less incentives to mine bitcoin and keep the network running. On top of that, those who will have the incentive to do it, are those who already control 90% of the network. So how is this good for valuations and a decentralized store of value?

My own personal favourites

So for me as of now, and even more so in the future the best available opportunities in blockchain in retrospect of 2030-2035 and beyond to at least 2130-2135 are likely to be the ISO20022 token list. These include blockchain firms like Ripple's and its XRP token, Stellar foundation and its XLM token, Quant foundation and its QNT token. I personally think these will benefit enormously and grow in dominance relative to Bitcoin in such way that XRP/BTC increases by over a factor of 10. In other words, as XRP's importance in the world grows, it will grow to be at least 30% of all coins and at one point equal Bitcoin (NOT IN PRICE, but in MARKET CAP). I have another token of those - QNT which I believe will surpass Bitcoin by price from 130 today relative to 22k of bitcoin.

To bring back the dominance figure (look back to figure 4). We can see, there was only 1 really sharp drop in 2017 from 100% to 37%, in that time, XRP went up 100,000%. Now I'd speculate that when Bitcoin dominance drops to about 37-25%, XRP will top at a new high both vs the dollar and vs Bitcoin (i.e. it will register a new high to reflect it's much higher demand). At minimum, XRP dominance is likely to grow by 7-11x from 2% to 16-24%. The question is can it reach 30-40%?

So the argument about XRP in reality is opposite of Bitcoin, sure there is a large supply, but most people are underestimating the demand (in trillions and hundreds of trillions by 2100). So if I had to choose 3 coins to keep my assets to 2100, it'd be XRP, QNT and XLM and not Bitcoin. Someone in 2100 can check who was right. I hope they study me at school.

So this is NOT a hate message against Bitcoin. It's an early warning to myself to remember that post 2030, Bitcoin is likely to become increasingly obsolete and unworthy to mine.

I think Buffet being better at valuing financial instruments than most of us GIVEN THAT HE IS THE RICHEST PERSON FROM INVESTMENTS IN THE WORLD so I think he is unlikely to be wrong on his comment (He was just not specific to say that this will be evident by 2050-2070, or maybe he didn't know how the math would actually work, so I have done it for him). However, I think his comment will be proven right only in 2030-2050. Until then, there is money to be made of Bitcoin. However, like everything this will come to an end and most likely be known as the 2009-2030/2050 greatest bubble in financial history, and Buffet is likely to be the person who is attributed to be the first one who figured it out. I also hope with this piece I will be known as the first person by 2050 who saw the collapse of Bitcoin while everyone was FOMO-ing each other that Bitcoin is the best asset. To me this thesis was true for 2009-2021, but as of 2021-2026, it will be mediocre and post 2028-2036 it will be barely worth it, and after 2044-2050 it may as well not even be worth it for Bitcoin to continue to exist.

In a way, this is a type of piece I wrote just to say that while Buffet is often called the old grandpa, he is still the richest person from the actual process of investing and figuring out what good investments are. This piece is my way to show that he probably had a deep reason to say it, without having to explain all the details to us, in his typical Buffet personality.

Me, thinking of myself like him, would like to put myself in a position to defend his argument and in the process eloquently destroy misguided beliefs about Bitcoin's future. In the process I showed also how easy it is to actually recognize that as rewards for mining Bitcoin continuously decrease this means that Bitcoin miners have less and less incentives to run the network (literally self-suicide is included), or to run it in a way that 10 miners don't represent the entire mining. This is an analysis that directly contradicts Stock-to-Flow and suggests that Demand as well as Supply have a say, not only supply (debunking his model). This is not to say that Bitcoin cannot have 1-2 more rallies say by 2026 and by 2032 and 2036, the question is what happens from there? Does Bitcoin stay above 1 million because supply is the one thing that matters as Plan B thinks or is it Demand and Supply and Bitcoin potentially becoming less than 10% of the entire crypto space (and eventually going to 0). I would say the latter or somewhere in-between.

The key message however remains, the best of Bitcoin is behind it, and there is a period of 10 years where it can still provide good returns, but after, it will be the worst bet in the entire crypto space.

Predicting Bitcoin's exact collapse 2035-2050 (Based on my own macro views for the future, and the e-book of 2020, which contains predictions for 2025-2030-2035 and until 2150).

If I had to predict a more specific period, it would be either in 2040 when block rewards are about 0.19 to 2044 where block rewards become less than 0.1. To me, this means from 2044-2050, this is the most likely period from which the end of Bitcoin will begin (the end of it being centralized as 99% of mining power is likely to be in 10 miners and the end of it because the rewards for running the network have diminished enough so that only those miners have an incentive to mine. And since the bitcoin network will become in a way a closed network, it won't be the open, decentralized network everyone markets it to be. And some day in-between 2030-2050, it will start on a trajectory of opposite progress which brings it back to its original role - as a means to settle illegal transactions and nothing more. Not a store of value, not decentralized, and not open (yes you can run a node to mine, but your mining power will be nothing and your reward will be negative)

If I had two speculate on the exact way this would happen:

Scenario 1) By 2050, Bitcoin itself becomes so centralized by the top 10 miners that is no longer decentralized at all, not liked anymore and after 2050, no incentive to mine in a world where Bitcoin's represents 5-10% of all demanded tokens.

Scenario 2) The more likely for me is that bitcoin does reach 1 million, but not by 2025/2026, that I think is somewhere between 150-400k. But by 2030-2035, we may eventually see a 1-2 million bitcoin, which in itself, if also combined with interest rates back to 0% by 2030-2035, I'd say will signal the next big crisis like 2008. So the 2009-2035 period, will be the Blockchain bubble in the future history books.

Those who have read my e-book know I called the crisis of 2021-2022, and some know that I also called the 2020 COVID-19 crash (both about 12 months before they actually happened). I also, explicitly stated that the 2021-2022 will be confused as the big crisis which will lead many people to be out of the biggest rally to 2026-2030 (which I already see happening now).

However, stocks and Bitcoin's future might together come to an end, and abruptly so, in about 2030-2035. This may include 2 more bull/bear cycles of Bitcoin say 2023-2026 as the bullish, 2026-2028 as the bearish, and 2029 to 2030-32 as the last bullish sequence (as a hypothetical example of this and 1 more bull run post 2028). However, once these happen, this is likely to set up US for a 5-10y bear market where potentially stocks decline by 50% or more, and Bitcoin declines by 90% or more.

I could be wrong about my exact prediction of time, but this macro US equity top is likely to be 2030-2035. And then at least a 5-10 year bear market to 2040 - 2045. By 2050, the pre-conditions for the next biggest 30-50y bull run to 2080-2100 will begin and it will become clear by Bitcoin's price action whether it will be bullish post 2035-2050.. 

By 2050 (which is only 27 years away) it will be known if there are incentives for it to survive in the new biggest growth period to 2080-2100 as my book predicts, the next biggest 30-50y bull run will come after this big crisis of 2035-2050, which I also wrote about in my book.

This is to say that the Bitcoin top, might mark the 2009-2035 bull run and its end with bitcoin crashing 90% and either taking to 2050 to recover or never recovering at all. Another important point of this is that Bitcoin's top is not only Bitcoin's top, it is also the top of other tech assets (despite hardcore Bitcoiners who try to convince us otherwise), like this:

When a person with nearly 1 million followers literally disinforms people, by saying that Bitcoin does not move with tech stocks, this shows how informative people with 1 million followers are. My response clearly shows the exact tops of both graphs, showing an at least 98-99% correlation. What chance does a person stand when everyone around them misinforms them?

Final questions to make you understand my argument in very simple words

P.s. Remember 2008? Yes, the real estate crash or the global financial crisis of 2008. Well, the crisis was explained to have been caused by incentive structures. Specifically, banks rewarded employees based on amount of loans given. This span out of control to such an extent that the incentives became the goal, causing loans to be given to all kind of people who would not have qualified for a mortgage.

What does this have to do with Bitcoin? Well, if the incentive is to validate transactions on the network to get more Bitcoins, what happens when the incentives continuously change, in this case, decrease? Some would say, it's exactly the opposite of what banks did as the incentive is constantly decreasing instead of increasing. Yeah, no!

The result of this decreasing incentives policy (the bitcoin halving events) is that FOMO is increased and price is higher than it should be because we factor in future decreased incentives as of today. So in essence, the FOMO behaviour is to get the reward today because in the future it will be small and thus the future gains to 2150 are likely to be fully priced in by 2050 (Just like Intel stock's future growth to now was priced in 2000 in the dot.com bubble and it has never been above it's previous high ever since, 23 years later). If Intel invented semiconductors and is now the worst company in the sector, what makes you think Satoshi's Bitcoin which is the inventor of Bitcoin will have a different fate relative to Intel?

There are even those who write if u have 1 bitcoin u are already rich as there are 7 billion people and 21 million bitcoin. 

However, if 99% of it is controlled by 10 miners, is it decentralized, used and does having 1 bitcoin make it 1 of 7 billion people or 1 of the 10 miners who run its network? Is it 21 million for 7 billion people? Or is it that actually Bitcoin eventually will be used by less than a million people because there will be better options? I'd say, I will be shocked if there are more people using Bitcoin in 2050 relative to today (more people will use blockchain technology, but less people will use Bitcoin).

As incentives change, behaviour changes, and the incentives become the goal, if I apply this to the case of Bitcoin, then the rewards are the goal, as they decrease, the incentive to participate and validate transactions is lowered, i.e. the incentive for bitcoin to exist disappears, and so does Bitcoin (well not fully maybe, but back to its 2012-2013 usages and maybe prices).

P.s. 2 - Remember the famous Tulip bubble? There is a great book called - The Madness of the Crowds. The Tulip bubble lasted several years and this was in 1600s and locally in the Netherlands. So if a bubble can last 5-7 years in 1 country based on tulips as an asset, why should it not be able to last 30 years, when the bubble is global and the fomo is on a digital tulip ? By 2050, btc will be obsolete is what common sense suggests.

I have seen this last metaphor applied wrongly every time (i.e. for each 2-3 year cycle of Bitcoin and it's top). However, my logic of it, is that if a bubble on flowers lasted 3-4 years only in one local country, I don't see why it cannot see why the bubble of Bitcoin cannot be from 2009 to 2030/2050. If the "local madness of the crowds" was enough to keep Dutch tulips up for 3-4 years, imagine what "a digitally-connected mad crowd" which spams each other on Twitter about why Bitcoin is N1 can do. In short, due to the global component (like 2008 global real estate bubble), this becomes a global bubble that eventually ends one way (no buyers and only sellers). Therefore, the madness of the crowd for Bitcoin will end at one point or another and maybe it's not a Tulip, but at best by 2035 it will be an overvalued house which already costs much more than it should like Real Estate in the US was in 2008.

In short, at best by 2035-2025 Bitcoin will be like an overvalued house - hard token with some utility (but very overpriced and thus having to decline some 80-90%), or at worst it will be gone like the Tulip Bubble which never happened again. Maybe one day people will sell Bitcoin to buy Tulips again? Anyone no? That's because people realized a Tulip is just a flower. Imagine what happens when people realize that Bitcoin is just a cryptocurrency, just the oldest, least efficient, most expensive and actually most centralized in terms of ownership and future rewards.

My two favourite quotes are - "history does not repeat itself, it rhymes" and "the best predictors of the future aren't smarter, they were just willing to take one more look, one more time"

In other words, Bitcoin's 50,000% gains are gone and will not repeat, they will rhyme, i.e. another token can grow 50,000%, one that hasn't already as an example. Likewise, the Tulip Bubble is not repeating itself as Bitcoin does exist for some 15 years now. However, there is a saying in investing books, which is if you take the asset which performed best in the last 30 years, it is likely to do the worst in the next 10-15y to Bitcoin. It would be exactly in 2039, when 30 years have passed and people will have totally lost the idea that a 30y trend can have a 5-10-15 y correction. Therefore, as of 2039, it would be 99,9999999% more likely that Bitcoin crashes for at least 5 years to 10 years instead of it keeps on growing like the past.

P.s. 3 - wouldn't it be ironic that Bitcoin was created to solve the problem of perverse incentives and it itself becomes the history of incentives perverted via bitcoin miners who own 99% of mining power by 2030-20305? I mean banks control 99% of money and if Bitcoin miners control 90-99% of bitcoin mining, is that actually different or the same? I'd say its actually the same, because people are the same. The psychology behind both bankers to control 99% of money and Bitcoin miners to control 99% is based on the same trait of human greed. So there goes your revolution, decentralization and freedom trend. If you don't know it, Bitcoin is the most CENTRALIZED network because 5-7 wallets own 95% of all supply and less than 10 miners are about 90% of it's total mining. Much decentralized, Much wow.

P.s. 4 - I believe Gold price per oz, currently at $1700 may reach $20,000-$100,000 in the period from 2030/2035-2050 and become equal to 1 bitcoin or even more (this directly opposes stock-to-flow as he believes it will in the end be bigger than the stock market). He is wrong of course, because assuming something will go on forever is a bad strategy and a wrong model. Nothing goes on forever, currencies dies, countries die, companies die, we die. So how can something created by us people, not die eventually? Gold exists in nature and Bitcoin exists only until there is "greed about it's value" and a "perceived benefit of mining it". The moment demand for it is 5-10% of all coins, the supply side will matter so much less than people give it credit. Does it matter if I have a low supply of something no one wants? 

Demand would have much higher predictive power in explaining future prices (i.e. the demand for Ripple's technology which aims to solve a multi-trillion dollar problem suggests that eventually it's demand should exceed $10-$100 trillions in the future). No one considers and understands supply and demand and that's why everyone is confused about which technology and why. Most people with business/economics background who are in Bitcoin ought to ask for a refund on their degrees (if you cannot understand why Supply is not the only factor and you graduated, you did not deserve it, you were just given a degree for the reason you paid - hey, another perverted incentive in the education system, but anyway).

In other words, by 2035-2050, a major top of all markets is likely to happen, a macro prediction. This itself is likely to bring all tech and risk assets down, cryptos, etc. It may as well be that from 2035-2050, gold reminds about its value, and I cannot believe it, but Peter Schiff may be proven right that Bitcoin is worse than gold. Unfortunately he has  been claiming it since 2012, and he will only be right about 2036-2050. These are my interpretations based on the macro-framework I have created for myself to guide me as long as I am alive, which has it's 2020 predictions about a world crisis in 2021-2022, interest rates going above 3%, and money printing. You can read more here.

Did you know that central banks still own over 1 trillion in gold at this price? Must be you and your Bitcoin friends know which assets are better than buffet and central bankers too. I would be scared to be like you and think I am smarter than BIS and central banks and Buffet. Sure, they might be part of our current system of capitalism, but bitcoin is not going to be the next system.

 I.e. forget about Bitcoinism, if anything CBDCs will win. 

When it happens in 2035-2050, remember me 

If anyone who knows Plan B, Catty Wood, Michael Saylor or Lyn Alden can forward this piece to them and ask them to explain how I am wrong, I would love to hear their feedback. Because their theses are only on the supply, and assuming a constant if not increasing demand. However, what happens in a world, of decreasing demand where Bitcoin fades to 10-5% of all money flows into coins? What happens if 90-95% of demand is for other coins due to superior technology?

What happens is that Bitcoin never goes over $10 million, it never is mined to 2148 because it simply does not exist post 2050-2080 or wherever. The key message is one, Bitcoin will be gone one day just like me. The question I have is who dies first, me or Bitcoin, I'd say Bitcoin will die before me.

A last gift for the most patient readers (a historic parallel of how the future may rhyme with the Tulip bubble and the fundamental reasons behind the tulip bubble - human nature)

P.s. here is a quote from the madness of the crowds, and u can tell me if this in any way sounds familiar, and whether it finally makes sense why Bitcoin will be gone post 2050? I have bolded the important parts for you.

"..individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first. We see one nation suddenly seized, from its highest to its lowest members, with a fierce desire of military glory; another as suddenly becoming crazed upon a religious scruple; and neither of them recovering its senses until it has shed rivers of blood and sowed a harvest of groans and tears, to be reaped by its posterity. At an early age in the annals of Europe its population lost their wits about the sepulchre of Jesus, and crowded in frenzied multitudes to the Holy Land; another age went mad for fear of the devil, and offered up hundreds of thousands of victims to the delusion of witchcraft. At another time, the many became crazed on the subject of the philosopher’s stone, and committed follies till then unheard of in the pursuit. It was once thought a venial offence, in very many countries of Europe, to destroy an enemy by slow poison. Persons who would have revolted at the idea of stabbing a man to the heart, drugged his pottage without scruple. Ladies of gentle birth and manners caught the contagion of murder, until poisoning, under their auspices, became quite fashionable. Some delusions, though notorious to all the world, have subsisted for ages, flourishing as widely among civilised and polished nations as among the early barbarians with whom they originated,—that of duelling, for instance, and the belief in omens and divination of the future, which seem to defy the progress of knowledge to eradicate them entirely from the popular mind. Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. To trace the history of the most prominent of these delusions is the object of the present pages. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.

Popular delusions began so early, spread so widely, and have lasted so long, that instead of two or three volumes, fifty would scarcely suffice to detail their history. The present may be considered more of a miscellany of delusions than a history—a chapter only in the great and awful book of human folly which yet remains to be written, and which Porson once jestingly said he would write in five hundred volumes! Interspersed are sketches of some lighter matters,—amusing instances of the imitativeness and wrongheadedness of the people, rather than examples of folly and delusion.

The key point is - the madness of the crowd is caused by herd thinking, and if you are in the Bitcoin herd, well, you are in the madness of the global crowds (the first global such event, about 400 years after this one). So it took us 400 years to move from local to global madness, just saying.

In short, I am all in favor for 100-400k by 2026, I am all in favor for 1 million to 2 by 2030-2035. But no, I do not think after this we grow to 10 million, 100 and a trillion. Rather we go back down.

Someone actually had a brilliant idea on visualizing this. In this case it's wrong as it shows 68k as the top and going back to 0.05. However, if I do take my analogues, I'd say if we ever reach $1 million per bitcoin, that will start its rainbow downtrend to its eventual total collapse.

I plan to be there to tell you, I told you so!

The first technology never becomes the massively-adopted one. 

If I helped in one thing I hope is this - to remember that any single investment, asset and in this case Bitcoin, may have 30 years of positive and amazing returns, and then crash for 10-15 years. This would make it a partial solution for the our future 10-15 y of our lives, as there are still about 15-16 years to 2039. However, after that, if you bet on Bitcoin, you might be one of the last ones who do. And in that sense, one decision can never be all the solutions to our problems in life. 

Even if Bitcoin were to have a 30y cycle to 2039 or be to 2044 or 2050, this will also eventually end, and somewhere between 2035 to 2050, Bitcoin as we know it today will have stopped being what it is today - it will have stopped existing as the Bitcoin vs crypto narrative, or at worst it will just have stopped existing because this narrative will be fully gone.