Bitcoin favors early adopters, and this incentivizes adoption by individuals, business, and countries.
Bitcoin was created in 2009, and in the early years one bitcoin could be purchased for less than a dollar. Fast forward a few years, and it was a hundreds of dollars per coin – and then a few thousands, and then tens of thousands.
History has shown that the earlier you got in, the more bitcoin you could have afforded. As long as you buy and hold for the long term, there has never been a 4-year period where bitcoin has been unprofitable.
Additionally, bitcoin’s compounded annual growth rate has been 200% over the past decade. This means that if you bought and held, your investment was not just profitable, it was insanely profitable.
Early vs Late Adopters
A minimum wage worker would have been able to accumulate more bitcoin in 2010, then a millionaire could have afforded to buy ten years later in 2020.
In 2010, the price of bitcoin went from .0025 cents per coin, up to about 50 cents per coin towards the end of the year. If at some point during that year a person invested $100, they would have ended up with a minimum of 50 bitcoin, and up to several thousand (or more) depending on how early in the year they made their purchase.
Even a minimum wage worker could have afforded this $100 investment in 2010. Let’s compare this to a millionaire buying bitcoin ten years later.
Individuals with a net worth around $1 Million tend to have a disproportionate amount of their wealth tied up in illiquid assets like real estate, and in ‘untouchable’ assets like their retirement accounts.
Because of this, it’s unlikely that an average millionaire would be willing and able to make a $100,000 investment in bitcoin, but let’s just assume they find a way to make it happen.
Throughout most of 2020, bitcoin traded between $9,000 – $12,000 per coin, and then the price quickly headed up toward $30,000 by the end of the year. Assuming our millionaire made their $100,000 investment sometime earlier in the year, their cost basis would have been around $10,000 per coin. This means they would have purchased 10 bitcoins.
In this example, early adopter favoritism enabled a minimum wage earner to acquire five times more bitcoin than a millionaire – all because they were an early adopter.
This same concept is just as true for business, and countries, as it is for individuals.
Bitcoin For Companies
Michael Saylor, the CEO of MicroStrategy, famously adopted bitcoin as a treasury reserve asset for his corporation in 2020. This decision was driven by the negative real yield created by a combination of inflation, and extremely low yields.
MicroStrategy had approximately $100M in cash and cash equivalents that was gradually losing its purchasing power to inflation. After adopting bitcoin as a treasury reserve asset, MicroStrategy converted their pile of cash, into bitcoin. But they didn’t stop there. They purchased nearly $3 Billion worth of bitcoin though corporate debt and stock issuance.
As of 2021, MicroStrategy owns over 100,000 bitcoin. Time will tell, but this could prove to be the single greatest investment in world history!
There is a growing list of 40+ known companies that have purchased bitcoin. A few of the most notable companies are: MicroStrategy, Tesla, Square, Coinbase Global, Voyager, Galaxy Digital, and so many more.
If one FAANG company (Facebook, Apple, Amazon, Netflix, and Google/Alphabet) announces they are adopting bitcoin as a treasury reserve asset, things will get interesting quickly.
I hypothesis that the price of bitcoin would double almost instantly, and continue on a 10X run in record time. This is one of the reasons why I believe it is important to have at least some exposure to bitcoin.
Bitcoin For Countries
El Salvador is a tiny country with a population of only 6.4 million people. They became the first country in the world to adopt bitcoin as legal tender in September of 2021. At this time, El Salvador created a $150 Million dollar fund to buy bitcoin and invest in bitcoin infrastructure. At the time, this was enough money to purchase roughly 3,000 bitcoins.
As bitcoin goes up in price over time, acquiring large quantities coins will become much harder, and exponentially more expensive. Several years in the future, a larger country with way more money, might only be able to acquire a few hundred bitcoin, instead of a few thousand.
This early adoption favoritism creates a large incentive to get in as early as possible, and it makes it much more likely that other countries will adopt bitcoin.
Attracting Bitcoin Wealth
El Salvador will benefit from being an early adopter, and holding bitcoin. However, the potential advantages don’t stop there. Because El Salvador also passed favorable tax laws, individuals who own lots of bitcoin are now incentivized to bring their wealth into the country, and support the local economy.
These trends seems likely to continue. As the market cap of bitcoin grows, the incentive to embracing bitcoin also increases proportionally. Game theory suggests that other countries are highly incentivized to become early adopters alongside El Salvador, as quickly as possible.
By this I mean that nation states have more and more to gain by adopting bitcoin, and taking advantage of the early adaption favoritism. Getting in early means they will be better off than the next country that follows in their footsteps.
How to Get Started With Bitcoin
Before you dive in headfirst, I recommend learning as much as you possibly can about bitcoin! A great place to start is: What Is Bitcoin? This article goes over all the basics and answers questions like: Why was bitcoin created? What makes it valuable? and Why is bitcoin so special?
Check out all my other articles here.
Thanks for reading along. Please leave any questions and comments down below.