On December 31, 2020, Bitcoin has reached a new all-time high of over $29,000. It is now increasingly being considered as a new asset type. Some researchers have compared bitcoin to other asset types and financial products.
When compared to equity products, bitcoin now has a market cap that exceeds the market cap of all financial companies. These financial companies include JP Morgan, the largest commercial bank in the United States, and Visa, a company that provides global credit card clearing services.
In terms of comparisons to currencies, there are comparisons to the world’s fiat currencies that list it as being in the top 20 of all currencies in the world in terms of market capitalization.
Earlier, there have also been comparisons of bitcoin to gold. All of these analogies describe some of the properties of bitcoin. However, it is difficult to recognize its value when considered from a traditional financial mindset.
Bitcoin is neither backed by an underlying asset, nor backed by the credit of any sovereign, nor does it offer the expectation of future income. But the fact that such a product has developed such a high market cap shows that it is still impossible to fully understand Bitcoin with traditional financial thinking.
In fact, Bitcoin has some of the attributes of a traditional financial product, but it also has very strong religious attributes. It is because of the religious attributes that it has reached the high market capitalization it has today and has a high probability of achieving a much higher market capitalization in the future. This article draws an analogy between Bitcoin and religion to analyze why it has reached the market cap it has today.
It is important to note in particular that the market also has the view that Bitcoin is a cult (cult) and not a religion. However, with Bitcoin now circulating globally, with 460 million user addresses, and a market capitalization that is approaching that of the top 10 publicly traded companies in the world by market capitalization, it is difficult to call such a system a cult.
First, Bitcoin has its own system of thought. Like religion, Bitcoin has its founder, Satoshi Nakamoto. The design of Bitcoin is based on a distributed system of thought and theory that supports electronic cash that can be used anonymously. The generation, acquisition, and circulation of it is not dictated by any individual or organization and is completely free to circulate among users. Such a theoretical system is similar to religion or school of thought.
Second, the value of Bitcoin cannot be falsified. Bitcoin was designed as a type of electronic cash. But it has now become an asset class. Unlike traditional stocks or even currencies, it doesn’t have any underlying assets or promises of future returns to back up its value. Bitcoin itself is its value, which is determined solely by its believers. And such a basis of value cannot be falsified. This is fundamentally different from stocks. If a public company’s revenue does not meet market expectations, then the market’s valuation of it will certainly suffer. But Bitcoin does not promise any future revenue, and its value can never be falsified. In this respect, it is the same as religion.
Third, Bitcoin has its own strong believers. These believers are convinced of the value of bitcoin. Not only do they hold bitcoin for a long time, but they also constantly promote the value of bitcoin. The behavior of these believers is very similar to the behavior of religious believers as well. They all invest money and time into their beliefs, as well as spreading the word to others. While more and more speculators are involved in various activities related to bitcoin today, the community of bitcoin believers is also growing.
Fourth, Bitcoin believers have their own places of worship. These venues include Bitcoin trading exchanges, various media outlets, forums, and social networking applications. In these places, believers inspire each other, defend their beliefs, and “top-up” their beliefs directly with their own funds.
Fifth, the vitality of Bitcoin depends on whether it can meet the needs of the market. Satoshi Nakamoto designed Bitcoin because he was dissatisfied with the existing currency issuance system, and the economic crisis in 2008 led to the creation of Bitcoin. To this day, the current mechanism of currency creation and circulation remains the most fundamental factor affecting bitcoin. Wherever there are problems with fiat currencies, the demand for bitcoin naturally grows in the market. Currency and economic problems in regions such as Lebanon, Argentina and Venezuela have led to an increase in demand for bitcoin, which in turn has led to an increase in the price, and the significant increase in bitcoin in the fourth quarter of 2020 was largely associated with the massive issuance of US dollars. So as long as these issues remain in the market, then the demand for bitcoin will remain too. The two are clearly negatively correlated.
Sixth, there is no alternative to Bitcoin. For a religion to be viable and enduring, it must be clearly distinguishable from other religious ideas and have its own unique value. The Bitcoin product design is similarly unique, and there are no similar competitors in the marketplace. While it is technically very easy to copycat a Bitcoin product, the uniqueness of the Bitcoin brand is hard to replace.
Seventh, there is a process of market acceptance of bitcoin. Bitcoin’s evolution since its introduction in January 2009 has also been a gradual process. It has evolved from its original design as electronic cash to a new asset type today. Its users have also gradually evolved from the initial tech geeks to retail trading users, retail speculators to today’s institutional investors and trading users.
Eighth, Bitcoin has established its influence globally. Religion has the potential to satisfy a need at a certain time and in a certain region, but if it does not spread widely, it cannot form a major religious school. Many religions have emerged throughout human history, and their teachings have had the potential to meet some of the basic spiritual needs of people. But they didn’t spread widely, so they didn’t last. Bitcoin, on the other hand, is now spreading globally due to its product design and widespread trading. From a business perspective, Bitcoin has built up a strong branding effect. So it’s hard for it to be replaced by other copycat products. That’s why Bitcoin still holds about 70% of the share in the crypto-digital currency space.
Ninth, the gradual geographic spread of Bitcoin. As with religion, bitcoin has been accepted differently in different geographic regions. Areas, where crypto-digital currencies are currently active, include South Korea, Singapore, Switzerland and Venezuela. Accordingly, bitcoin will have a higher acceptance level in these regions. In general, local demand for bitcoin rises when a region’s local economy is in trouble and the local fiat currency is devalued.
Tenth, Bitcoin might be able to develop to be recognized by a government. The highest level of acceptance for a religion to develop in a society is to be recognized by a country as its national religion. In the case of Bitcoin, if a central bank uses Bitcoin as its asset reserve, then this could be considered an official endorsement of Bitcoin by the government.
Human religious activity began from very early times. Some religions have now become profoundly influential on a global scale, with large numbers of believers. Since religious systems that rely entirely on people’s beliefs can grow and be sustainable over the long term, Bitcoin is equally likely to be around for the long term and is just as likely to attract large amounts of money.
Article from Gu Yanxi, Founder of Liyan Consulting
Translated by Yang(Mengyan Finance)