Schrodinger's Bitcoin

Bull v Bear

Good Morning Team.

‘And there's a million of us just like me
Who cuss like me; who just don't give a fuck like me
Who dress like me; walk, talk and act like me
It just might be the next best thing but not quite me!’

I defy you to read those lyrics without hearing the rapper behind them.

Eminem may be the Rap God, but Bitcoin is the King of Cryptocurrency, and it’s not even close. It sports a $1.76 trillion market capitalisation; second place Ethereum comes in at $300 billion, while Tether comes in third $142 billion.

With Bitcoin falling below $90,000 and into a bear market yesterday, I wanted to take a few moments of your time to consider the alternative asset from the perspective of both the proponent and the detractor.

I’ve written both points of view below and you can pick which narrative to believe:

To The Moon!

From Bitcoin’s invention by pseudonym Satoshi Nakamoto in 2009, to the mass adoption of the 2030s, cryptocurrency has gone from an unknown to the only store of value worth investing in.

Proponents argue it is the asset class for the 21^st century, and that gold is a archaic relic to be consigned to the dustbin of history.

In one sense, crypto sceptics have a point. Anybody can create a cryptocurrency, and there are thousands in circulation. But only a handful of these are serious contenders to becomes currencies, and of these, even fewer are secure or consistently upgraded.

But this is perhaps a misdirection. Taking a step back, what gives any currency value? The US Dollar, backed by the US government, is currently the world’s reserve currency. But it isn’t tied to any gold standard, any other currency, or backed by any physical asset. Instead, it holds value because consumers globally accept that it does, as they value the credibility of the US government.

Cowrie shells, cacao beans, and cattle have all been used as forms of money through history. Multiple agricultural products are still important traded commodities to this day. Yet they all have problems as currencies.

This is because all money (in general) utilises six tangible, physical assets. It must be durable, portable, divisible, fungible, scarce, and accepted by the masses. And — absolutely critical — money becomes more widely adopted the better it fulfils these criteria.

For example, gold is relatively portable in smaller amounts. It’s fungible, in that one kilogram of gold is chemically very similar to another. It’s certainly scarce enough, and expensive to get out of the ground. And it has been accepted for millennia as a form of payment, despite issues with fakes.

It is on the other hand tricky to divide. This made the old gold standard a necessary evil, where issued currency is backed by physically deposited gold at central bank locations. Eventually the gold standard was abandoned altogether, to be replaced with ‘fiat’ or currency based on faith in the issuer.

And the key argument is that cryptocurrency will one day eclipse the current fiat systems of pound, dollar, and euro, because it offers advantages across the six money-defining categories.

Let’s consider Bitcoin, because again, it’s by far the most valuable and well-known cryptocurrency.

It’s more durable than fiat currency. It cannot be destroyed as long as its blockchain is maintained on even one computer. And it has gone well over a decade now without an outage. For context, the Federal Reserve money transfer system cut out for several hours in February 2021. And unlike a fiat currency, Bitcoin will not end, for example, if there’s a war or economic collapse.

It’s as portable as fiat. It can be sent anywhere with an internet connection in seconds, and unlike a bank account, a user needs only memorise their private key to access it anywhere in the world. Further, it’s usually cheaper to send internationally.

It’s divisible, as one Bitcoin consists of 100 million Satoshis, far more than is found in most fiat.

It’s fungible. One Bitcoin is identical to another. And unlike gold or fiat, it cannot be counterfeited as it runs on blockchain technology.

It’s scarce. There can only ever be 21 million Bitcoins, meaning it will ultimately be deflationary. And anyone can check the Bitcoin protocol code to confirm this limit. To change it would require the vast majority of nodes to act against their own economic self-interest.

Inflationary fiat currencies can by contrast experience crisis.

The only true problem Bitcoin has is acceptability. While hundreds of millions of people use the currency, most use it as an investment rather than as a payments system. But through regulatory change and institutional investment, this is changing rapidly.

Most importantly, it has credibility as its open source, decentralised nature has stood the test of time since its inception.

Of course, there are no guarantees in crypto investing. Bitcoin could become the Yahoos of tomorrow. Detractors could also be right, and crypto itself may collapse in the coming global recession.

But the immutable advantages of crypto over fiat makes this unlikely in the long run. However, on the road to acceptability, extreme volatility will be par for the course.

So to summarise:

Bitcoin operates on a decentralised network, meaning no single entity (government, corporation, or central bank) can control or shut it down. This makes it resistant to censorship and inflationary monetary policies.

Unlike fiat currencies, Bitcoin has a hard-capped supply of 21 million coins, making it a scarce asset often compared to digital gold. This scarcity can protect against inflation and preserve value over time.

Bitcoin enables anyone, anywhere to send and receive money without relying on intermediaries like banks. This is particularly beneficial in regions with unstable financial systems - or anyone fleeing a war.

Or simply wanting to use their own money without interrogation by the banking system.

As central banks continue to print money, Bitcoin provides an alternative financial system where purchasing power isn’t eroded by inflation. Countries like Argentina and Turkey, facing severe inflation, have seen Bitcoin adoption rise significantly.

Major companies including Tesla alongside financial institutions such as BlackRock and Fidelity have started integrating Bitcoin into their portfolios, legitimising it as a serious asset class. The approval of Bitcoin ETFs is also expanding access for institutional investors.

Bitcoin’s proof-of-work mining system makes it highly secure against attacks. Its adoption continues to grow with improved infrastructure, regulatory clarity, and increasing Lightning Network usage for scalability.

Beyond serving as an inflation hedge, Bitcoin is becoming a financial lifeline in economies suffering from severe currency devaluation and capital controls. Countries like Nigeria, Lebanon, and Venezuela have seen Bitcoin adoption surge as citizens seek alternatives to unstable national currencies.

Bitcoin’s ecosystem is also evolving beyond simple transactions. The rise of Bitcoin Ordinals (essentially NFTs on the Bitcoin network) and BRC-20 tokens has introduced new use cases that extend Bitcoin’s relevance.

Meanwhile, Layer 2 scaling solutions such as the Lightning Network, Stacks, RSK, and Liquid Network are addressing Bitcoin’s transaction speed and cost issues, making it far more viable for everyday payments. These developments suggest Bitcoin’s utility is expanding beyond its original role as ‘digital gold’ and into the realm of global currency.

El Salvador made Bitcoin legal tender in 2021, and while the experiment has been met with mixed results, it has paved the way for other countries to consider similar moves. Argentina’s new pro-Bitcoin president, Javier Milei, has hinted at broader crypto adoption, while some African nations are exploring Bitcoin-backed financial solutions.

Even the idea of central banks holding Bitcoin as part of their reserves is beginning to gain traction, particularly as confidence in traditional fiat systems wanes.

While the recent dip might be nerve-wracking, the trajectory is only going one way. Fiat currencies will keep printing - but there will only ever be 21 million BTC.

It’s the future of money.

Bitcoin is the ultimate grift! Run!

What is Bitcoin, really? What is stopping someone from recreating the exact same code and calling it BetterBitcoin?

Nothing.

Nothing at all.

Unlike gold, which exists in a physical sense, BTC is simply a string of code within a computer. And it only has worth as long as people believe it has worth. It has no nation state backing its value - while fiat currencies do rely on ‘faith’ in the issuing country, BTC is backed by nothing at all.

In recent years, if NASDAQ goes up, BTC goes up. If BTC goes down, so does the NASDAQ. It’s not a store of value, but instead a leveraged play on tech and cheap money. I want to see what happens when the western world goes through a real recession, where the vast majority of people have no excess income to invest in speculative garbage.

Beyond this, the virtuous idea of Bitcoin breaking the masses free from the control of the elite is for the birds.

The top 100 wallets collectively hold approximately 3,418,340 BTC, representing about 19.18% of the total Bitcoin supply. Market manipulation is entirely possible. If just a few large holders were to sell off their positions, it could trigger dramatic price swings, undermining Bitcoin’s stability as a financial asset.

And then we come to Strategy, Saylor and the ETFs. The whole point of Bitcoin was to ensure individuals could keep control of their own money - but now most people’s BTC is kept by ETFs, or else individuals invest in companies that hold BTC.

And Strategy's last 13 Bitcoin purchases are now all in the red. What happens when this game is up?

Not your keys, not your BTC right?

Then you have the sector collapses: Celsius and more recently FTX - which was by some measures the second-largest crypto exchange in the world - and lost $32 billion in value in the space of a day, amid a ‘bank run’ which has left more than 1 million depositors losing capital and all of the gains in the market since 2022.

Even as each exchange promises they hold assets to back up customer deposits, customers still cannot trust this information. Crypto is almost entirely unregulated. In the US, the SEC spent forever and a day attempting to prove XRP was a security - it’s not - and the Commodity Futures Trading Commission has no power either - because it’s not a commodity.

FTX allegedly had built-in ‘back-door’ protocols to enable management to withdraw assets without the company’s compliance team noticing. If you think this can’t happen elsewhere, you’re delusional.

Bitcoin is meant to be held in cold wallets. Few remember, but one key purpose of the original cryptocurrency was to take the power of money out of the centralised hands of banks and instead decentralise it by allowing each owner to retain control themselves.

To understand this, consider the development of fiat currency.

Originally, gold was traded as money by individuals, but because this was too onerous, people began depositing most of their gold with banks. Over time, fiat currency was developed by states, backed by physical gold (the gold standard). Before the days of credit cards, people then kept most of their fiat with a bank and kept only small amounts of cash on their person.

The problem of course is that banks and states could use both the gold and fiat deposits in irregular ways, leading to problems including risky investments and bank runs. To combat this, regulators such as the SEC and FCA were designed to combat bank fraud and give depositors peace of mind that their money was protected.

Of course, this is not a fool proof safety measure, as regulators ultimately answer to states, and usually source employees predominantly from banks. And this is where Bitcoin, and by extension, all other altcoins come in.

The concept was to design an alternative to fiat currency, which by 2009 had long done away with the gold standard. This alternative, named Bitcoin, could be kept within an investor’s offline cold wallet, using blockchain technology that made changing the ownership essentially impossible without consent.

However, using offline cold wallets is a hassle for most people. And as crypto went mainstream, crypto exchanges launched, just like banks, offering to help investors to use fiat to buy crypto and store it with the exchange in an internet-connected hot wallet.

In essence, sacrificing security for convenience.

But of course, the opportunity to abuse billions of dollars’ worth of crypto funds held within an exchange’s hot wallets proved too tempting for some to ignore. 1 million FTX depositors found out why banks became regulated in the first place.

And until quality, defined regulation is enforced, any deposit held within a hot wallet is at risk from the FTX contagion. This includes all companies and ETFs.

But even if you hold your BTC in a cold wallet…

You now have investors effectively begging Trump to set up a strategic Bitcoin reserve - pumping BTC to get a USD return. Who knows? After the Trump and Dump fiasco, perhaps he will set his sights higher - but the key factoid is that BTC was always marketed as freedom from centralisation, whereas now owners want BTC to be centralised.

And in a world where Fartcoin is worth hundreds of millions, and memecoins return billions, doesn’t it just show BTC is itself a scam on a wider level?

Detractors believe crypto is little more than a Ponzi Scheme, destined for eventual collapse. Exchanges are not secure, and even if you are in the minority owning BTC in a cold wallet, you can’t escape the collapse of the hot wallets.

North Korea just stolen $1.5 billion in cryptocurrency in a single heist, making it the largest crypto hack on record, from the world’s second-largest exchange, Bybit.

And while still a distant concern, advances in quantum computing pose a theoretical risk to Bitcoin’s cryptographic security.

Bitcoin’s encryption relies on mathematical problems that are currently impossible for traditional computers to solve, but quantum computers could eventually break these cryptographic protections, compromising Bitcoin’s entire security model. While developers are working on quantum-resistant solutions, this remains a long-term existential risk.

Ya can’t hack gold.

And although Bitcoin remains the most valuable cryptocurrency - even if you believe crypto is the way forward - its dominance over the total crypto market cap has been gradually decreasing. In past cycles, Bitcoin made up over 80% of the total crypto market, but today, that number is closer to 50%. As newer blockchain projects such as Ethereum, Solana, and Avalanche develop faster, cheaper, and more versatile solutions, Bitcoin’s role as the undisputed market leader is not guaranteed.

Then there’s the classic ‘resistance to government control.’ Law enforcement agencies have repeatedly proven that they can track, seize, and regulate Bitcoin transactions when necessary.

The US government has seized billions in Bitcoin from criminal enterprises including the Silk Road and the Bitfinex hack, showing that Bitcoin isn’t as censorship-resistant as some claim. Additionally, the IRS and European regulators are increasing efforts to track transactions and enforce taxation, further complicating Bitcoin’s use as an anonymous financial tool.

But there’s more/

Bitcoin’s transaction speed (7TPS) and high fees during peak times make it impractical for day-to-day transactions compared to centralised payment systems like Visa or even newer blockchain networks. The Lightning Network is improving things, but adoption remains uneven.

Governments may introduce strict regulations or outright bans, especially as central bank digital currencies (CBDCs) emerge. Countries like China have banned Bitcoin mining, and the US continues to debate crypto regulations. If the US issues its won cryptocurrency, then BTC can say goodnight.

And we all know that Bitcoin’s price can swing wildly, making it unreliable as a stable store of value for short-term transactions. And don’t even get me stated on the energy costs.

3 million Bitcoin are currently sitting at a loss, the highest amount since 2018 bear market.

It’s going to collapse.