It feels good to be back home in Brooklyn after spending 3 months on the road.
Starting in late March, the family and I have been on an extended road trip to Houston (Texas) and Raleigh (North Carolina). The goal was for Jackson (who was almost 4 months at the start of the trip) to spend a meaningful amount of time with both sets of grandparents.
When Jackson was born, COVID vaccines were not available yet, meaning that it wasn’t feasible for the grandparents to come up to New York to meet him. On top of that, our apartment is less than 800 square feet with only 1 bathroom…which would be a tough setup for 4 adults and 1 baby to spend an extended period of time together.
And yet, it was important for us that Jackson be able to spend quality time with his grandparents. That’s why early on, Tiffany and I made plans for this once-in-a-lifetime trip.
It wasn’t easy.
It took us a week to drive 1,600 miles to Houston (where Tiffany’s parents live). Along the way, we had to start each day at 3am (so that Jackson would be asleep and I could drive a long stretch). There were many diaper changes in the backseat while parked at sketchy gas stations when the bathroom was either too dirty or lacked a changing station. And to top it off, we had a daily ritual of frantically searching for a last minute hotel once Jackson started screaming and made it clear he was done sitting in his car seat for the day.
Even when we got to Houston (and later Raleigh), it wasn’t easy. We lived out of a suit case the whole time. And Jackson had to get used to new environments while going through developmental leaps and regressions.
However, even with all the obstacles, it was 100% worth it.
The grandparents were able to see Jackson roll over, learn how to nap on his own, eat solid foods for the first time, take a dip in the pool, etc. And just seeing them bond and hang out and laugh together was so special.
If you really think about it, there aren’t too many opportunities in life to spend 3 months on the road when you have a baby. And I feel like it only gets harder as Jackson grows up due to upcoming school schedules, activities, classes, etc.
Time is scarce.
I’m really starting to understand this. And the more I do, the more I appreciate the limited time available.
Like time, we place value on things that are scarce. Put another way, things that are (a) scarce AND (b) in demand have intrinsic value.
And connecting these dots led to an “ah ha” moment about how the scarcity of 21 million coins gives bitcoin value.
My take on scarcity
Scarcity operates on a spectrum. On one end are things that I’ll call “fake scarce” while on the other end are things that I’ll call “truly scarce”.
To appreciate true scarcity, let’s first explore fake scarcity.
Starting off at one end of the spectrum are fake scarce things. Most things in life that appear to be scarce (like “limited time only” McRib sandwiches or rare Air Jordan shoes) are not. In actuality, there is nothing stopping these companies from producing more.
Moving along to the middle of the scarcity spectrum could be things like concert tickets. They are scarce in the sense that the musician might only be playing at that venue for one night. But it’s not truly scarce because likely the musician will be playing at other venues, or you might be able to live stream it, or even watch a recorded version later.
Now, approaching the other end of the scarcity spectrum, we get to gold. Before bitcoin was invented, gold was one of the closest “truly scarce” things around. That is because year after year, gold miners are only able to add 1-2% new gold supply. And without getting into the details of history and human psychology, let’s just establish that there is demand for gold. Globally. Throughout history. Due to the scarcity of gold, plus demand for it, results in that shiny metal being worth a lot ($1800 / oz right now).
Finally, if we keep moving along the scarcity spectrum to “truly scarce” territory, we get to bitcoin. That’s because there is a hard limit of 21 million bitcoin that will ever exist. This limit cannot be changed and anyone can verify the open source code to make sure. What this really means is that no matter what, there will not be any more created. And there is no way to counterfeit it either.
Understanding this hard limit (ie. the true scarcity) is important. Because then, it makes much more sense why the price of bitcoin keeps going up (to the tune of 200% per year).
To elaborate, let’s look at a simple supply and demand graph from an Econ 101 class. This graph shows the relationship between supply, demand, and the price as any of those variables change.
Generally speaking, if you have a “thing” (ie. whether it be baseball cards, a gallon of milk, etc) where the demand and supply are not changing, the price of said item will be where the two lines cross on the graph. That means the price should not move up or down very much.
Now, if you have a situation where demand for this “thing” increases (and assuming supply stays the same), in the short term, the price will need to go up. It will rise until more of the “thing” is produced. And when that happens, the price will start to come back down until a new equilibrium is re-established.
Following so far? Good, because here is where it gets interesting.
Question: what happens if the supply of an item is fixed and there is NO way to increase / decrease it…like the hard limit of 21 million bitcoin? And specifically, what happens if demand keeps rising?
Answer: the price has to go up.
Just think about it. Let’s say there is a one-of-a-kind scarce piece of artwork. And let’s say the artist is dead and no more originals exist. Now, let’s imagine demand rising for it. At first, maybe only 100 people want it. But then over time, it becomes 1,000. And then, 10,000. Then 100,000. Then 1 million…
Hopefully you can infer how this plays out. The price will go up for that one-of-a-kind piece. How far up is unknown. That will be determined by the number of people who want it (ie. demand), and how much they are willing to pay.
It’s the same with bitcoin. There will only ever be 21 million coins. And while this might seem like a lot, for comparison, there are 56 million people in the world who have a net worth of at least $1 million (ie. they are considered “millionaires”). That means, not even every millionaire in the world can own 1 bitcoin. There just aren’t enough to go around. And this doesn’t even take into account some of the big buyers who already own billions of dollars worth of bitcoin and are still buying as fast as they can.
Based on upcoming demand, Ark Invest models indicate that we’ll see $500,000 bitcoin in the next few years. And some even crazier ones predict $100 million per bitcoin within our lifetime!
Truth be told, no one knows just how high it can go. But what is clear to bitcoiners is that demand is rising.
Already, companies like Tesla, Square, and MicroStrategy own bitcoin. Retail investors are talking about and buying bitcoin. Recently, legendary fund managers like Paul Tudor Jones, Stanley Drunkenmiller, and Ray Dalio have publicly stated they now own bitcoin. And countries are even getting into the mix – in June 2021, El Salvador made bitcoin legal tender (which will undoubtably increase the demand for bitcoin).
Slowly but surely, more people, companies, and countries will own bitcoin. And a big reason for that is the realization that bitcoin is truly scarce AND in demand.
And not to beat a dead horse, but when a thing is scarce AND in demand, it will be valuable.
I know you are thinking, “but bitcoin just recently dropped more than 50% from $64k down to $30k!”. Yes, that is true. In the short term, there is volatility in the price. But as you zoom out, you’ll see bitcoin has had an annual growth rate of 200% for the past 10 years. And each year, there is more and more demand for it.
That is why the price will trend up in the near term, medium term, and long term.
The 21 million fixed supply is genius. As bitcoin demand increases, the scarcity of bitcoin will keep creating pressure on the price to move up. As a new dad who owns bitcoin, all I have to do is sit back, HODL, and keep an eye out whether more people, companies, and countries buy bitcoin. As long as they do, I am confident the value of my bitcoin will continue to rise!