The Breakdown - Why $20,000 Bitcoin Matters

Episode Date: December 16, 2020

After weeks of flirting with all-time highs, bitcoin has broken through the most significant psychological barrier: $20,000.  In today’s episode of The Breakdown, NLW looks at why the moment is so significant, arguing: Bitcoin is an incentive design system where price drives more benefits than financial gain  The validation of retail traders and more recent institutional investors creates an even stronger group of evangelists  The psychological price barrier is likely to increase FOMO among those on the sidelines The Breakdown is produced and distributed by CoinDesk.com   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

We're officially closing one chapter and opening a new one. This does not mean that we won't go back under 20K. Who knows we could spend some serious time there. What it means is that the promised return has been achieved. This trough of toil has been waded through. In other words, this 20,000 is a new beginning. And like all new beginnings, it is at once based on everything that came before, and at the same time, totally open and full of new possibility.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com and nexo.io and produced and distributed by CoinDess. What's going on, guys? It is Wednesday, December 16th, and lock this day into your memories forever because there it is. After weeks of flirting, nudging, bumping and grinding, Bitcoin is back over 20,000, 20,558 and 92 cents at the time of recording. This will be all anyone is talking about today, very rightly so. So I wanted to take a stab on why it matters.

First, let's discuss why $20,000 Bitcoin is so much more impactful and resonant than just all-time highs, which obviously we've achieved over the last couple weeks. In the 2017 run-up, Bitcoin touched $20,000 on specific exchanges, but it was never the officially cited number. The official all-time high, depending on where you look and who you ask, was somewhere between $19,600 or so and $19,800. We were following that run-up like crazy, though. Remember, it happened unbelievably fast. At Thanksgiving 2017, Bitcoin was under 10K. It hit those all-time highs less than three weeks later around December 17th. By the way, almost three years ago to the day. Everything was shorthand then,

because in some ways, these numbers were almost meaningless. It was just this incredible scoreboard that was racing up every day on CNBC and Bloomberg and wherever you were watching. But that 20,000 roundup really left a huge psychological imprint. For the three years since those highs, the question has not been when Bitcoin will achieve a precise all-time high based on the Wikipedia entry of 19,673 or whatever. It has been, when do we reclaim 20,000? Second, let's talk in general about why price matters.

There is a temptation to downplay the significance of price in Bitcoin. And it's understandable in a lot of ways, because there are so many things that Bitcoin enables that are almost completely independent of price. In many ways, this was at the root of the argument that Alex Gladstein presented yesterday in the conversation with Ben Hunt about whether Wall Street will or even can, and ruin Bitcoin. The question was whether the traditional system will allow the censorship-resistant, permissionless side of Bitcoin to persist. There is a fear among some that there will be a cleaving almost, where we get to keep the sound money in limited supply, but we don't get the

permissionless on and off-ramps. Everything will be regulated and fed through the traditional U.S. system. Alex's point was effectively, if there does become a version of Wall Street sanguineized Bitcoin, that is entirely permissioned, users will just move to a more true Bitcoin that has a premium because it is censorship-resistant. What's more, for the users who need it most, those trying to preserve their wealth or move resources to their families while living under authoritarian systems, which by the way represents a huge part of the world, they don't need Bitcoin to be some big wealth-creation asset. They need it to be something that is not confiscatable and not debasable. and that happens at $1,000 per Bitcoin or $100,000 per Bitcoin.

This is, I think, an incredibly important point and something we should keep in mind when we discuss the Bitcoin system. But I believe we can also acknowledge that price is, in fact, an integral part of the design of the overall Bitcoin system. In fact, one can look at Bitcoin as much in terms of incentive design as in terms of technology. Everything about Bitcoin from a security system that relies on minor greed and can accommodate fluctuations even in the market price to recapture that greed via difficulty adjustments to the ritual

around issuance reduction, which drives more demand through the very ceremony of it, is designed with incentives in mind. I've said it before, this is an asset that gets more appealing to people the more expensive it is. Dan McArdle, the co-founder of Masari and now the founder of the case for Bitcoin website, basically always has a thread from 2017 or 2018 about anything that we talk about now, and this is no exception. On November 1st, 2018, he wrote this. Price is actually the most interesting thing about Bitcoin. People like to say otherwise, but that's just trying to downplay a primarily monetary revolution as a primarily technological one. Let's not lose sight of what's really

going on here. This is a once-in-a-century sea change in how people think about money and value. It is incredible that a digital ledger has gone from nothing to $100 billion in 10 years. The fact that a critical mass of people understand Bitcoin as money and as a functional super set of gold, just 10 years in, is amazing. Just seven years ago, a few tens of thousands of people thought maybe this could one day happen, but it still seemed like fantasy. Now, millions of people have internalized Bitcoin as digital gold and a store of value. Crossing that chasm was the most important hurdle. In 10 years, this thing nobody can physically hold is valued at 1.4% of the total capitalization of gold, a bedrock of human monetary dynamics for much of the last few

thousand years. Please appreciate how amazing this all is. The fact that a better form of money, entirely digital, fit for our electronic global times, not controlled by any government, can exist and now thrive is fascinating. And price is how we measure it. It is directly proportional to impact. Higher means it's more systemically important and validates that this is a unique moment and we're building something that matters.

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that has to do with validation. First, let's talk about retail traders. There are a lot of people that got in around the crazy moves of 2017. Many of them fell deeper and deeper down the rabbit hole, even as the price fell deeper and deeper in a hole. The conviction they had to continue advocating, talking to friends and family, in many cases trying to make their careers in this new sector,

that conviction has now been validated. I asked people about this online this morning, and here are some tweets. When it clicked, wrote, so many of us came in 2017 and saw that 20K mark come and go, only to have to wait three years of being told we were wrong. This not only marks a significant price point, but a psychological point that vindicates our pain of the last three years. Tonight we celebrate. Pako writes, I feel so fucking emboldened that I've spent the last 3.5 years busting my ass to study and invest in Bitcoin, and it's paying off. I think it's a remarkable thing that right now there is not a single person on earth whose Bitcoin is worth less than when they bought it.

But there's another group to note here as well when it comes to validation. This has, as we've talked about so much on this show, been the year of institutional money flooding into the space. Paul Tudor Jones made a vocal and full-throated call for Bitcoin in May. Stanley Druckin-Miller, Bill Miller, Black Rocks Rick Reader, and Larry Fink. All of these guys have made arguments for why Bitcoin is getting more interesting over the last few months. And of course, there's Michael Saylor and Micro Strategy, which has been the headline Bitcoin acquirer of the year. All of these folks were proven right while we were still paying attention. And what I mean by that is the narrative hadn't shifted off of Bitcoin before these guys were proven right. You can't write off

their bet as taking too long to mature so you can undermine it with opportunity cost comparisons. Delphi Digital actually wrote about this exact psychology here saying, many skeptics have publicly denounced Bitcoin for failing to reach a new high despite such a favorable macro backdrop, so a strong move north of 20,000 would be yet another testament to Bitcoin's staying power. And just look at the numbers. Micro Strategies, 475 million in Bitcoins have made them an estimated 322 million in a matter of weeks. Now, of course, that can go the other way in a moment so we might be wary, but markets are obviously, watching this. So the question becomes, what is the net result of the validation, both of the retail hoddlers who have been laying the foundations in terms of narrative and in terms of price

floors, as well as these institutional investors who are creating a new demand source? Massive fombo. Over the past 24 hours, there have been conflicting news reports that a $20 billion U.K. asset manager put 2.5% of its funds into Bitcoin. Except it wasn't. clear if that was 2.5% of a specific fund or 2.5% of all AUM, and this was for rougher. This morning they clarified, it was not the $15 million worth of the one fund. It was 2.5% of everything, 550 million British pounds worth more than 700 million USD value in Bitcoin. The timing couldn't be more appropriate. This will be the last big institutional announcement made before the price hit 20K. From here on out, everyone is chasing. Everyone that got in before, especially those

folks who are looked at as career examples in the traditional financial sector, everyone that got in before this 20K looks brilliant. Everyone that follows now looks like they're racing to catch up, but they still have to do it. By the way, meanwhile, gray scales assets under management have gone from $7.6 billion on November 1st to $13 billion now, so in about six weeks. So, There is so much happening here that you can't expect anything other than massive increase in FOMO. Expect the news stories to rev up, expect the text from friends to rev up, and really what it comes down to for me is this. We're officially closing one chapter and opening a new one. This does not mean that we won't go back under 20K.

Who knows we could spend some serious time there. What it means is that the promised return has been achieved. this trough of toil has been waded through. In other words, this 20,000 is a new beginning. And like all new beginnings, it is at once based on everything that came before, and at the same time, totally open and full of new possibility. Congrats everyone. I'm really excited to be here with you.

Until tomorrow, have fun staying rich and take care of each other. Peace.