The Ten-Year Project: Update #8
Eric Foster, CFP®, CPA
Wow. Time really does fly. I made the decision to start a blog about Bitcoin back in December of 2016. It’s hard to believe that it’s been almost ten years. The price of Bitcoin was $774.48 when I released the blog’s first issue on December 7, 2016. Bitcoin trades for around $105,000 in January 2025 (www.coinmarketcap.com, so it’s increased in value by roughly 135 times since this blog started. Just amazing. If you want to catch up, you can find my first 7 articles here. This blog is not a recommendation to buy or sell Bitcoin or other cryptocurrencies but has been my public learning experiment since 2016. Previous blog posts delve deeper into the mechanics of how Bitcoin works, the role of the Bitcoin whitepaper, and past regulatory events that help shape the state of the industry today. Of course, investment volatility continually reminds us that “past performance is not indicative of future results.” So what happens next?
Of course, the honest answer is that I have no idea what will happen next. However, it can be fun and intellectually stimulating to ponder it, so that’s my hope for this update.
I’m going to theme this issue around the character of John Wick. He’s an assassin played by Keanu Reeves who debuted in the first John Wick movie back in 2014. (BTW, please don’t take this as a movie recommendation, as the movies are incredibly violent and qualify as the type of movie that you’d be careful about telling people that you’ve seen them.) It’s a story about revenge. The central narrative around the movies (there are several) is whether John is a bad person who became good or a good person who has done bad things, and can he be redeemed? Let’s flip that theme on Bitcoin and see what comes out of it.
Is Bitcoin good or bad?
If we agree that Bitcoin is money, then we’d have to wonder aloud – what is the point of money? A pretty acceptable definition of money is that it is a medium of exchange that allows people to buy and sell goods and services AND it serves as a unit of account. While I don’t think Bitcoin will be used as a transactional currency for everyday purchases (buy groceries or gas), the “serves as a unit of account” aspect is relevant. One of Bitcoin’s key characteristics is that it has a limited supply. According to a real-time tracker on the Bitbo website there are a total of 19,934,568.75 Bitcoin in existence. The Bitcoin whitepaper established that the total supply is capped at 21 million, therefore 94.927% of the total have been issued. That’s it. I think the finite supply of Bitcoin provides tremendous advantages over other things that function as money (dollars, yen, Euros, etc.). Modern day governments use sophisticated monetary policy to manipulate their economies. Governments can increase or decrease the supply of money and issue debt to fund spending when government outflows are greater than inflows. For fiscal year 2024 (defined as October 1, 2023 to September 30, 2024), the US collected $4.92 trillion in revenue and spent $6.75 trillion (www.fiscaldata.treasury.gov).
Back when Bitcoin was first created at the end of 2008, total US debt was about $10 trillion. As of January 10, 2025, we now stand at $36.17 trillion. If you want to know one factor that may make Bitcoin relevant, look no further. Bitcoin proponents argue that the continued lack of fiscal discipline by the US and other key global economies has created a place for Bitcoin as an alternative asset class. Another key factor in thinking about Bitcoin is that unlike the US government, there is no central authority to change the rules of the protocol. Only a consensus vote by the Bitcoin network could do that. Elected (or unelected) officials of the US government can decide to increase the debt ceiling, approve additional deficit spending, or run another quantitative easing program. Think of it as a hard cap (Bitcoin) versus a very soft cap (government currency).
However, it’s also crucial to acknowledge the potential downsides. Bitcoin’s price volatility remains a significant concern. Wild price swings can lead to substantial losses for investors, and this volatility makes it difficult for businesses to adopt Bitcoin as a stable medium of exchange. Additionally, the environmental impact of Bitcoin mining, due to its energy-intensive nature, raises ethical questions about its long-term sustainability. Finally, the use of Bitcoin in illicit activities, while decreasing, is still a factor that can’t be ignored.
In the end, it’s hard to say whether any money is good or bad. What is the right question about Bitcoin? I think the most relevant fact around Bitcoin is that it is still just…new. Historians credit the barter system of trading practical things for other practical things to around 6,000 B.C. between Mesopotamian tribes (www.squareup.com). We have records of regulated metal coins during the reign of King Alyattes around 610 B.C. Paper money likely originated in China around 1,000 A.D. and spread to other parts of the world in the 1600’s – 1800’s. So over roughly 8,000 years money has evolved from bartering to physical (metal and paper) to virtual. We just happen to be alive at what may be the next point of monetary evolution (physical to virtual). That’s pretty wild. The internet paved the way for something like Bitcoin, and I believe that without the internet Bitcoin could not exist. How do they connect? The internet severed the requirement that something had to be tangible to be valuable.
I’m not sure we can really settle on whether John Wick is deep down a good guy or whether Bitcoin is good or bad. I think it depends on too many other factors. Do we continue running trillion-dollar deficits in the US and around the world in the other major economic centers? Does inflation run hot around the world for a period? Does something else come along that people believe better protects their money, leaving Bitcoin as a thing of the past? Like John Wick, Bitcoin has managed to survive and remain relevant through various obstacles and ups and downs. And while the future application of Bitcoin remains unsure and the heightened risk and volatility of Bitcoin is a constant, one thing remains clear thus far: Bitcoin endures. As a new asset class, unknown threats will likely keep coming to Bitcoin just as they relentlessly do to John Wick. In enduring, Bitcoin proponents might argue that Bitcoin has already adopted a famous line from the movies:
“Winston… tell them… Tell them all… Whoever comes, whoever it is… I’ll kill them. I’ll kill them all.”
2024 Recap
Two important events occurred in 2024 and the effect of both are likely to be felt looking forward. First on January 10, 2024, the Securities and Exchange Commission approved several Bitcoin Exchange-Traded Funds (ETFs). This was largely anticipated as the public flow of information and applications hinted that approval was going to happen. The ETFs have unleashed a new wave of adoption into Bitcoin. As of January 11, 2025 the net inflows into the new Bitcoin ETFs stood at roughly $36 billion. BlackRock’s iShares Bitcoin Trust (IBIT) smashed the record for the least amount of time for an ETF to reach $50 billion in assets by over 1,000 days. It did it in just 227 days (https://www.investopedia.com). How do you get a fund with $50 billion and net inflows of only $36 billion? The Grayscale Bitcoin Trust is the missing link. Grayscale launched the first Bitcoin investment fund in 2013 to private investors and then to the public in 2015. As an older generation product under a trust format, this fund has suffered significant defections in favor of the 2024 approved ETFs who offer a simple and inexpensive alternative. Another interesting development came in late February, when BlackRock announced they were adding Bitcoin exposure to two of their target allocation funds. This is a small change today that could open the door to other multi-asset funds following suit in the future. You can read more about that in a Forbes article here.
Secondly, Donald Trump was re-elected this past November. The 2024 presidential election saw a few new details that haven’t been present in past elections. We saw the emergence of online prediction/betting markets (ex. Polymarket) which told you by the summer that Trump would win in convincing fashion. They were heavily disputed as manipulated by traditional media sources but ended up being more accurate sources of information than traditional polling has been in years. We also saw politicians begin to pander for the votes of the crypto community. There is now enough money and power for Bitcoin to have a lobby behind it, and that will for sure draw the attention of politicians. President Trump has been clear that he wants the United States to be a leader in the Bitcoin arena and government officials have even floated the idea of a US Strategic Bitcoin Reserve. In researching the history of strategic government reserves, I learned that the US has the Strategic Petroleum Reserve (SPR), Strategic National Stockpile (SNS a reserve of medical supplies), and participates in the Svalbard Global Seed Vault (Norway). My Google AI assistant is also telling me that the US has a Cheese stockpile and has since the 1970’s. I have no idea of the relevance of this, but it makes me feel better for some reason.
What Happens Next?
My closing comment in my last blog post was, “I think it’s possible that you see a 2000-style tech market advance in Bitcoin over the next 2 years. Several factors would have to line up in order for that to occur, so odds would say it probably won’t happen. I think it will be interesting to watch for sure.” I’d like to spend some time fleshing this comment out, as I would put the odds of this occurring at a higher confidence level than last year. Let’s start by discussing the power of narratives.
A narrative is a story that you write or tell someone. Narratives play a major role in what happens to companies, stock markets, and commodities. There is the actual buying and selling pressure that influences prices, but what people think will happen in the future (before it does or doesn’t happen) will also have considerable influence over asset prices. To illustrate, let’s go back to one of the great narratives of the tech bubble.
A company called Webvan was a pioneer in the online grocery store/delivery business. It was founded by Louis Borders (the same guy who founded the Borders bookstore). Here is a YouTube link to one of the company’s commercials from back in the day. By the way, watching old commercials is a shocking reminder of how much things change and how quickly. The company went public and raised about a billion dollars from investors and in late 1999 Webvan was valued at $8 billion. 19 months later it filed for bankruptcy. The narrative was that the internet would usher in a new breed of company (correct), and that new technology would make delivery services more accessible (correct). While the internet did massively alter the way consumers consume products and services, it didn’t happen quickly enough for Webvan. But the narrative was a powerful force and led investors to overlook the hurdles to adoption in favor of the growth potential. So, what is the narrative around Bitcoin in early 2025?
Two things stand out to me: 1) Investors love a growth story, and 2) how does the 2024 election and less hostile regulatory environment influence Bitcoin? Investors have been attracted to the growth potential of Bitcoin for years. The following chart will illustrate the growth of Bitcoin versus other major asset classes (US stocks, gold, oil, and government bonds).
The chart was updated in mid-December 2024 and I pulled it from this link. It tells a pretty staggering story over the different time frames illustrated. I’m not suggesting that Bitcoin is really comparable with US stocks, gold, oil, or government bonds. However, these are the primary asset classes available to investors today. To determine whether to participate in cryptocurrency investing, investors should ask themselves whether the opportunity is worth the risk and volatility. Bitcoin’s growth over the past 10 years has been unlike anything seen in traditional assets, but whether this trend will continue is uncertain. What does that mean looking forward? Of course, not much, but that won’t stop the anticipation of this narrative to continue.
You can potentially see how a pro-Bitcoin president, talk of the US buying Bitcoin directly, a less contentious regulatory environment, continued massive government deficit spending, the emergence of low-cost Bitcoin ETFs, and historic past growth rates could create a powerful narrative around Bitcoin in 2025. Do I think the US will buy Bitcoin? Not anytime soon, but on March 5, 2025, that online prediction market mentioned earlier has the odds at 64% that the US establish a US National Bitcoin (www.polymarket.com). It’s important to remember that narratives can drive short-term price movements, but long-term value depends on underlying fundamentals. We saw prices spike up near $109,000 back on January 19th and then in true Bitcoin fashion, we saw significant volatility and a drop back under $80,000 on the last day of February. Remember, when things start to look easy, the market tends to come for some of your gains and seek revenge. John Wick knows a thing or two about that.
Current Bitcoin Price $88,692.67 as of March 5, 2025, at 10:15 am
Past performance is no guarantee of future results.
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