Why Bitcoin's value is on a perpetual upswing

Stumbled upon a gem yesterday – user u/DatBuridansAss casually dropped the most humble, simple but still concise take on why Bitcoin's value is on a perpetual upswing (it was a 4th level sub-thread of a random comment somewhere in this sub). I believe their reasoning deserves some attention, so here I am sharing it with you.

Are BTC whales a system risk?

The only way large holders can continue to be large holders is to continue to provide value. Michael Saylor and his companies will not be able to sit back and get richer in Bitcoin terms. Eventually they will have to start spending bitcoin to cover expenses. If they are able to earn net income in Bitcoin that can only mean they are providing value to the system, which means that no they aren't a systemic risk.

Contrast that with the current USD shitcoin proof of stake system, in which cantillionaires get to continually change the rules to benefit themselves and need provide nothing of value to maintain their protected position. They only have to kiss the ring and uphold the cathedral (so to speak). That is far more of a risk.

Bitcoin is a fair and open system, meaning anyone can participate without needing permission, and no one can change the rules. But that doesn't mean everyone must have an equal share. Life doesn't work that way. So Michael Saylor and Nayib Bukele are taking massive reputational and capital risks with their Bitcoin plays. If things work out for them, then they will indeed be unimaginably wealthy (Saylor especially). But that doesn't mean they are guaranteed that wealth forever. Eventually they will have to put useful energy back into the system (in Bitcoin terms) if they want to maintain their position. If they don't then they will start to lose sats to others who provide more value.

This is a fair and self-healing system. Fiat is necrotic and cancerous.

The perfect energy storage

Actually I'm somewhat drawing on comments that Michael Saylor has made in the past, being that he has an engineering background. He describes the fiat monetary system as leaky, while the Bitcoin system on the other hand is closed. The supply cap means that energy stored in the Bitcoin system will remain within the system and grow over time, while energy stored in fiat systems will inevitably leak out (really it's siphoned by political vampires via inflation).

So let's set the uber-wealthy aside, and let's imagine instead a blue collar worker like a welder who has 1 BTC to his name. Money can be thought of as potential energy, where the work you do is an expenditure of energy, and the income you make from work is a greater amount of energy (if it's less, then you shouldn't be working that job; you are wasting energy).

If you don't work, you eventually run out of energy and die. The question is, where do you store that surplus potential energy after paying your bills and eating? If you store it in fiat, it does benefit you and other holders of fiat, but it especially benefits the money masters who control fiat. And the value of those savings erodes quickly. If you store it in gold, that benefits other holders of gold. It drives the price up, which gives every other gold holder a slight increase in their monetary energy. The value of gold erodes less quickly, but still about 1.5% a year.

But unlike the above two examples, Bitcoin is an entirely closed system, meaning that aside from the block subsidy, there is absolutely no dilution of the money supply, regardless of demand. Therefore, if you store your energy in Bitcoin, you are providing value to all other holders. If our welder works his welding job every day and stores excess energy in Bitcoin, that is benefiting the system, and sats will flow to him.

So let's imagine the welder has accumulated 1btc, and then at some point in the future, fiat is no more and Bitcoin is the only money people use (this is far fetched, but it's just hypothetical). In that world, the welder would be insanely wealthy, probably to the point that he would no longer need to work to support himself. In that situation, he would be spending his sats, causing monetary energy to flow to whomever he's buying stuff from. And maybe that's his entire life until he dies.

His kids though, or maybe the generation after, they will have to come up with a way to attract monetary energy. They won't be able to live forever off the proceeds of their dad's early Bitcoin investment. Basically, the bitcoin system requires proof of work at all levels, including acquiring and saving sats. If you are not providing value, you will not get sats. It doesn't matter if you're a politically connected princeling or something. You must provide energy to the system if you want energy units to flow to you in the form of Bitcoin.

This makes Bitcoin much fairer. Everyone must find his niche and provide value if he wants a piece of the pie. However, the good news is that the pie itself grows as more people store their energy in the system. If, rather than consuming resources (gluttony/sloth/other vices), you save your Bitcoin, you are freeing up resources for others while increasing the monetary value, the potential energy, embedded within each sat. This means that saving has become worthwhile again. The closed system provides iterative gains to each person who allows the network to steward his energy. And the digital nature of Bitcoin allows these tiny units of energy to flow to where they are most urgently needed, pretty much instantly.

But, as a thought experiment, if everyone tried to sell their BTC at once, it would cause the price to plummet to zero, and it would signal that energy is flowing out of the system into other resources. That won't happen, of course, because nothing comes close to Bitcoin's utility as a value/energy storage network. But the fact that this isn't happening essentially reveals to us that Bitcoin allows people to store their energy for future use.

This is why many people get it wrong when they claim that we need to spend Bitcoin in order to use it. Now I have no problem with spending Bitcoin, especially if it means supporting good Bitcoin companies and growing the network. But it shouldn't be assumed that the only way to use Bitcoin is to spend it. Storing it, as I've tried to argue, is vitally important as a signal to other market participants. If people see Number Go Up, and they start saving 10% of their excess monetary energy in Bitcoin, not only will they themselves benefit from that, but so will the entire network, considering again that it's a closed system and any energy that is deposited into the network will grow over time.

Store as much energy as you can

Well yeah let me add this last thought … I think hodling is a perfectly legitimate and beneficial activity for the system, but if we are positing that one day Bitcoin could be an every day medium of exchange, of course there will be buying and selling. So that's the world I'm envisioning when I think that everyone will have to live by proof of work. If you want a steak, you will need sats. The only way to acquire sats is to mine them, which takes electricity, or to work/trade for them, which requires energy in another form. So it's all energy. This is partly why Michael Saylor sometimes refers to Bitcoin as digital energy.

But for now, since we are still in the early days, I think hodling should be the focus of every Bitcoiner. Sure, you might have a hot wallet with some sats ready to go in case you find a merchant that accepts Bitcoin, but that's secondary. The main project right now is to store as much economic energy in the system, to make number go up, which grows the system exponentially. The medium of exchange phase will come naturally, especially as more people try to acquire more sats in more ways (say your barber and the guy who mows your lawn).