Why Is Bitcoin Going Up? 7 Insights From The Bitcoin Standard
Why is bitcoin going up? Bitcoin’s price has soared from mere cents to almost AU$100,000 in a little over a decade. With an average compound annual growth rate above 150%, it has left many people wondering, what is driving the mass adoption?
We’re already seeing the biggest banks in Australia and across the globe begin to offer bitcoin services. El Salvador has made it legal tender and several other countries are looking to do the same. With a fixed supply of 21 million bitcoins, it's clear that the increased demand is driving the price higher. So the real question is, why do so many people want to own bitcoin?
To gain an insight into what has driven the incredible adoption of bitcoin, we explore some insights from The Bitcoin Standard.
Why is bitcoin going up? - Quick overview
Here are several of the forces that could be driving bitcoin’s price higher:
- Better form of money
- Hardest money ever invented
- Hedge against hyperinflation
- Economic freedom
- Remittance payments
- Neutral money
- Money printing
What is The Bitcoin Standard?
The Bitcoin Standard is a book by Dr. Saifedean Ammous, who earned a PhD in Sustainable Development from Columbia University and an MSc in Development Management from the London School of Economics. Although many simply know him as an Austrian economist.
The book traces the evolution of money, from times when seashells were used as money to when gold dominated, and now to digital currencies. Drawing parallels to gold, it focuses on the importance of sound money like bitcoin and how it can sustainably grow our economy.
Stepping back to look at the history of money and the growth of technology, the book highlights our current need for bitcoin, which helps explain why its price keeps going up.
Why is bitcoin going up? The Bitcoin Standard highlights the hidden forces driving bitcoin’s price higher
1. Better form of money
While Bitcoin is a new invention of the digital age, the problems it purports to solve — namely, providing a form of money that is under the full command of its owner and likely to hold its value in the long run — are as old as human society itself.
There are many new exciting innovations and technological breakthroughs. However, they haven’t seen the same financial returns as bitcoin. This is in part because of how important money is to society. Naturally, many people believe a better form of money is set to become incredibly valuable.
2. Hardest money ever invented
The monetary media that survived for the longest are the ones that had very reliable mechanisms for restricting their supply growth — in other words, hard money.
Bitcoin is the hardest money ever invented. While gold still has an inflation rate of a few percent each year, bitcoin will eventually have zero inflation when it reaches its limit of 21 million bitcoins.
3. Hedge against hyperinflation
Hyperinflation is a form of economic disaster unique to government money. There was never an example of hyperinflation with economies that operated a gold or silver standard.
Investors are more fearful of hyperinflation than they have been in a long time. Recently, the CEO of the payments company Square and social media site Twitter, Jack Dorsey, tweeted that hyperinflation will happen in the U.S. and across the world.
As nations are no longer operating on a gold standard, excessive printing from central banks could make hyperinflation more likely. In response, many investors are turning to bitcoin as a hedge against hyperinflation.
4. Economic freedom
Any person who owns Bitcoin achieves a degree of economic freedom which was not possible before its invention.
It’s easy to take for granted the economic freedom and opportunity we have in a country like Australia. However, in many countries across the globe with a weaker rule of law, they don't have the same economic freedoms. That could explain why we’ve seen some of the fastest bitcoin adoption in countries like Venezuela. Bitcoin provided one of the few ways that citizens could protect their savings against out of control inflation.
5. Remittance payments
Bitcoin’s advantage is that by bringing the finality of cash settlement to the digital world, it has created the fastest method for final settlement of large payments across long distances and national borders.
Bitcoin’s Lightning Network makes it even faster and more affordable to send bitcoin abroad. The Lightning Network is a layer 2 payment protocol built on top of bitcoin, essentially solving bitcoin’s scalability problem.
6. Neutral money
Bitcoin, having no counterparty risk and no reliance on any third-party, is uniquely suited to play the same role that gold played in the gold standard. It is a neutral money for an international system that does not give any one country the “exorbitant privilege” of issuing the global reserve currency.
\ As the issuer of the world reserve currency, the U.S. has a distinct advantage over other nations. In contrast, a neutral money like bitcoin puts every country on a more equal playing field. This helps explain why El Salvador made bitcoin legal tender, rather than just relying on using the U.S. dollar as their local currency.
7. Money printing
The total U.S. M2 measure of the money supply in 1971 was around $600 billion, while today it is in excess of $12 trillion, growing at an average annual rate of 6.7%.
Is the price of bitcoin going up, or is the value of the dollar going down? While many investors believe it’s a mix of both, the question highlights that excessive money printing can push the nominal price of assets much higher than they otherwise would be.
Will bitcoin keep going up forever? The future of bitcoin
While the price of bitcoin has been the fastest-growing asset class of the past decade, the price of bitcoin cannot rise at this pace forever. However, given that bitcoin’s market cap is still only a fraction of that of gold, many investors believe bitcoin’s price appreciation has a long way to go.
Here’s how Saifedean Ammous summarised the future growth of bitcoin:
As long as Bitcoin is growing, its token price will behave like that of a stock of a start-up achieving very fast growth. Should Bitcoin’s growth stop and stabilize, it would stop attracting high-risk investment flows, and become just a normal monetary asset.
Ultimately, as bitcoin adoption continues and becomes more integrated into our everyday lives, it could become the practical monetary tool it was created to be. While the price may keep going up at a sharp pace in the short term, many investors believe it will eventually become a more stable asset that gradually appreciates in value over time.
Disclaimer: Information provided is for educational purposes and does not constitute financial product advice. You should obtain independent advice from an Australian financial services licensee before making any financial decisions.