Bitcoin’s value is about far more than price
By Mitch Kochman, Director of Platform Sales at BitGo
When I tell people I work in Bitcoin, the first thing I’m asked is what went wrong. Once I have the privilege of explaining the fraud of Mr. Bankman-Fried and that it had nothing to do with bitcoin and represents in fact the antithesis of the ethos of decentralization that bitcoin introduced, I’m then asked about the price, when I “got in”, and if we’ll ever see all time highs again.
It’s not their fault. Mainstream media is focused on headlines that drive clicks — the overnight millionaires, the rapid price appreciation and crashes, missing the forest for the trees.
Bitcoin is a financial revolution.
I unequivocally believe Bitcoin will go down as one of the most pivotal innovations in history. In the US, Bitcoin attracts a cross section of people usually consisting of those angered by the 2008 Global Financial Crisis, libertarians, technologists, and grizzled former TradFi professionals. These are people who are fighting for a cause, motivated because they see and understand the cracks in the existing financial system.
But around the world, those who truly need Bitcoin are finding it. As non-sovereign money, Bitcoin represents an escape latch — a transfer of power away from government back to the people when control of the financial system is abused by those in power. Citizens are given the offramp to save their money in a currency that their government does not have the ability to produce more of and is more difficult to seize, a harder money.
A money’s hardness represents our ability to produce more of it. The harder money is, the better chance it has of holding value over time. Gold is a particularly hard money, as it is very difficult and costly to extract more of it than annual global production dictates. For centuries, the world transacted either in gold or in fiat currencies backed by gold.
Today, the majority of economies transact in central bank-backed fiat currencies, where the cost of producing more of it is nothing more than either the paper that it is printed on or adding a row in a database. In the United States, the expansion of the money supply is decided by the Federal Reserve, behind closed doors by unelected officials. When the money supply is inflated to allow the government to spend more, the buying power of existing dollars is devalued. Nobel Prize winner Milton Friedman once said: “Inflation is the only form of taxation that can be levied without any legislation”
The money supply has steadily increased for decades but the pace has accelerated since 2008. Then in 2020, the Covid emergency provided an immense expansion of the money supply. This liquidity injection into markets resulted in the largest monetary expansion in U.S. history. We are witnessing what happens when money is not hard, as the US dollar has rapidly lost purchasing power and costs of everyday goods and services are on the rise. Inflation dominates not just the headlines but decisions made in the grocery store.
This puts citizens in an environment where they’re forced to outpace inflation. A dollar today is worth less than a dollar tomorrow. This forces Americans to be capital allocators and make “their dollar work for them.” They invest and reach further out on the risk curve, risking their savings in effort to maintain or even increase their buying power. Having to maintain a side hustle of investing detracts from their ability to perform their primary job to the best of their abilities, therefore devaluing their contribution to the economy and society.
Even worse, inflation gives incentives for low time preference and spending in the present. With your dollar being worth most in the present, it makes sense to spend rather than save, leading to the consumption-based culture we live in today. With consumers saving a lower percentage of their income each year, we spend more time worrying about the future and how we’ll one day be able to retire.
Bitcoin fixes this.
Compare the fiat system with Bitcoin’s hardcoded monetary policy. Due to the economic incentives placed on actors in the bitcoin ecosystem, there will never be more than 21 million bitcoin issued. New coins are created by the network every 10 minutes as miners confirm transactions. The issuance of coins is cut in half every 4 years and currently 6.25 BTC is issued every block.
The beauty of Bitcoins supply issuance is its relationship with network effects. As Bitcoin adoption grows over time, the demand for BTC increases exponentially with a growing number of users looking to acquire it. At the same time the supply issuance decreases every four years. This supply/demand mismatch brings an increase in bitcoin’s price over time, giving the incentive to save rather than spend. This brings higher time preference amongst adopters, buying only what is needed today, knowing your savings will be worth more in the future. No more second job as a capital allocator trying to outpace inflation as people save more and spend less time worrying about retirement.
And while the mainstream headlines speak doom and gloom, Bitcoin is working. This last month saw all time highs in both mining hash rate and unique addresses being used. The network is becoming more secure and adoption increases despite its price in USD, as more people are coming into the ecosystem.
The people who need Bitcoin most are finding it, as adoption continues to grow exponentially in the Global South, particularly in countries like Turkey and Argentina where inflation has spiraled out of control due to government mismanagement of currency. While we’re far away from bull market highs of Bitcoin priced in USD, month after month it continues to make all time highs when priced in Turkish Liras and Argentinian Pesos. The escape latch is working as designed for those who need it most, giving the ability to protect savings and transact freely when the financial infrastructure around them is crumbling.
I can think of no more worthy cause to spend my career than playing my role in pushing the adoption of this world altering technology. Every day I’m inspired on the front lines, helping the innovators in this space, and I’ve never been more bullish that this world we’re building for will become reality. The rails and infrastructure are being set in place for the next billion adopters and it’s a privilege to be a part of it. Block after block, bitcoin is working.
About BitGo
BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.
Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.
Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.
BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.
Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 700 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.
For more information, please visit www.bitgo.com.
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