Global news on state regulation/adoption of bitcoin could be indicative of a near-future tipping point. From Russia to the US to Japan, cryptocurrency adoption and regulatory infrastructure is growing faster than ever. Mainstream demographics are being exposed to bitcoin and cryptocurrencies more and more through familiar and “verified” sources. In this case “any news is good news”.
According to social dynamics, critical mass refers to “a sufficient number of adopters of an innovation in a social system so that the rate of adoption becomes self-sustaining and creates further growth.” Bitcoin’s rate of adoption is already “self-sustaining” and capable of creating further growth. In our case, we’re looking at bitcoin reaching a critical mass more in the nuclear physics sense, “referring to the amount of substance needed to trigger an [explosive] chain reaction”. Is bitcoin potentially reaching the critical mass required to trigger a hyperbitcoinization event?
Hyperbitcoinization is a term coined by Nakamoto Institute founder, Daniel Krawisz in 2014. It refers to the possibility of “Bitcoin-induced currency demonetization” whereby “the currency will rapidly lose value as Bitcoin supplants it.” In layman terms, it’s the idea that bitcoin’s price grows exponentially in a short period of time while the value of fiat shrinks respectively.
The key tenants of hyperbitcoinization are two-fold:
- It will happen incredibly quickly
- In contrast to hyperinflation which has an inherently destructive effect on people’s savings worlwide, hyperbitcoinization results in a mass switch from a “fundamentally inferior currency [fiat] to a superior one [bitcoin]”.
The concept of hyperbitcoinization as discussed above was still fairly abstract when the piece was published in early 2014. Bitcoin was under 1/10th of its current market cap at $6 billion USD and its price hovered around $450 USD. The reality of such a scenario occurring today is much less a hypothetical and more in the realm of possibility.
Just yesterday, CEO and Co-Founder of Blockstream wrote a post on Reddit titled “how realistic is hyperbitcoinization?” which he describes as “a tipping point where people start a rush to exit fiat for bitcoin in a fiat devaluation event”. To save you some time, his answer that it’s not entirely clear yet, but there is potential.
My own viewpoint is that it could be happening sooner than expected. In line with the first tenant above, when it does happen there will be no time to react if you’re not already holding. Here are some reasons why:
ETFs and Bitcoin
ETFs are “exchange traded funds” which are state-sponsored and trade like a common stock. The Bitcoin Investment Fund claim to be the “first publicly quoted* [Publicly quoted on OTCQX® under the Alternative Reporting Standards] securities solely invested in and deriving value from the price of bitcoin.” Every share into GBTC has 0.09258535 bitcoin backing it, and currently trades at ~$720 USD per share. With bitcoin hovering around $4000 USD currently, that’s about a 55% premium for the sake of having an accredited and regulated institution handling your bitcoins in stock format. But, its popularity in spite of that is what’s significant in terms of mainstream adoption.
The vast majority of you reading this will think it’s absolutely ridiculous to buy into the Bitcoin Investment Fund. You’d be thinking correctly. Attempts to research potential positives to this over buying bitcoin directly reveals incredibly poor reasoning considering the context of why bitcoin is so popular. In fact, some of the perceived advantages such as “supported by a network of trusted service providers” would actually be regarded as major disadvantages and entirely counter-intuitive to bitcoin’s unique selling proposition as a censorship-resistant store of value.
Regardless, the popularity of the bitcoin ETF amongst mainstream demographics is clear. While the concept is redundant at best, and counter-intuitive at worst, it has hugely positive implications for bitcoin’s growth and is another indicator towards impending mainstream adoption.
In contrast to the commonly quoted “no news is good news”, I believe in the context of bitcoin and crypto overall “any news is good news”. Ranging from the China “ban” on bitcoin, to the SEC crackdown on ICOs, they all inevitably acknowledge the presence and inevitably of bitcoin without actually harming it in any tangible way.
Anything short of compromising the integrity of the bitcoin blockchain is entirely ineffective, including any government-issued “ban”. Bitcoin’s censorship resistant nature means that the cost incurred to undermine the network is significantly higher than the reward to be gained in doing so – and this only becomes more true over time with increased adoption. You can read more about this on Elaine Ou’s piece titled “A hundred years of Crypto Anarchy”.
In some ways, the news is like a badge of validity to the public, even condemning news from official sources about bitcoin is exposure and consequently positive. It’s a message saying “this is something that could potentially undermine us”. In a global climate where government-backed currencies are constantly exposed for their shortcomings, and distrust in governance is at an all time high, bitcoin is appearing as an incredibly superior alternative. It has already established itself in places like Venezeula.
Venezuela is now officially bankrupt. Who's next, as history's largest fiat Ponzi implodes? And how many citizens were saved by BTC?
— Andy Hoffman (CryptoGoldCentral.com) (@Andy_Hoffman_CG) September 20, 2017
It could happen in other places just as easily:
Hyperbitcoinization (if it happens) could be ignited by unwind of China's $40tn credit bubble. Fiat music stops, Bitcoin stampede begins.
— Tuur Demeester (@TuurDemeester) September 18, 2017
We are at a point of time where mainstream interest in cryptocurrencies and bitcoin is greater than its ever been. This can be seen qualitatively through the mainstream news: government sources acknowledging cryptocurrencies and bitcoin, positively in Estonia and Russia, or negatively as is the case with China (remember, with bitcoin all news is good news in the long-run). Quantitatively, we can see that people are reading about bitcoin more than ever:
While there are strong cases for a slow and measured bitcoin growth, ultimately it’s the free market that decides. This is not a prediction that bitcoin is reaching a critical mass, or that hyperbitcoinization is upon us. It’s simply acknowledging that bitcoin is getting more worldwide recognition now than it has ever before, and if the rocket takes off, you better be holding.
Featured image from Pexels