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Hey everybody. Welcome back to TCB for another TCB short For the short. Today we're gonna be answering the question, what determines Bitcoin's price? So Bitcoin isn't just a digital asset, it's really a monetary revolution. So the question is, how should that be priced and why does Bitcoin's price fluctuate so dramatically. So we're gonna go over a few drivers of the Bitcoin price, including supply and demand. Network adoption, monetary debasement, the fact that it's priced at the margin, and then we're gonna go to the potential upside if Bitcoin is to fulfill its, its destiny here. So, what determines anything's price? Anything's price is determined by supply and demand. So with Bitcoin, the supply is known. The code is gonna hold the supply of Bitcoin at 21 million. Bitcoin. So we know that there's a having event every four years that cuts the supply in half, but the overall issuance of Bitcoin is known and we know that It just kind of asymptotically approaches absolute scarcity. So the supply is known. The demand is not known. So the demand is, comes from retail, it comes from institutional investors, it comes from potential nation state, central bank allocations. So the scarcity of Bitcoin kind of sets the floor. It's the known commodity, but the price is determined by kind of the convergence of supply and demand. So we know the supply, uh, but the price is determined by this competing demand, and that demand is. Unknown. So, Bitcoin is a, it's a network. So Bitcoin's value grows as the network grows in size, as it increases in users and wallets and nodes and transactional activity. So Metcalf's law tells us that the value of a network is proportional to the square of the number of its users. It's kind of a nerdy way to say, like, think of a telecommunications network like a Verizon, or back in the day, like an AT&T the more people that use that network, it becomes kind of exponentially more valuable to those using it because if I could only call one person. Minimal value, if I could call 8 billion people much more valuable, connects much more people together. So networks kind of grow exponentially and bitcoin's at its early adoption phase of a growing network. So, right now it's being in that early phase, it's. Prone to speculation. It's kind of the price is driven by these speculative traders and it kind of resembles the same volatility as like a tech stock, even though I'll make the argument that it really should not be viewed that way. But that's how the market views it at present. So over time, I believe the volatility of Bitcoin should compress as adoption becomes more widespread because increasing adoption will lead the more long term. Price stability. So on one side you have this growing network adoption, kind of tech stock, like adoption effects. And on the other side you have monetary debasement. So those that kind of understand Bitcoin as an inflation hedge, and since the price kind of violently fluctuates, some people argue this point that it's not really a an inflation hedge, but it really meets the parameters of money. Perfectly, its absolute scarcity. Places it the position, it's properly understood to be a hedge against monetary debasement. So if you look around at all the central banks all over the world, they're all debasing their currencies. They're kind of in a debt insolvent position that forces them to debase their currencies. So even if Bitcoin were not to be adopted by a single other user, just the fact that it's a fixed denominator because it's a fixed supply asset. As the other currencies get debased and more of their monetary units are entered into the system, Bitcoin's price will inevitably go up when priced in those currencies because as the supply of those currencies increases versus a fixed denominator, that price will increase. Uh, so Global M2 is going up and it's a mathematical certainty, given the global debt position, that it will continue to go up. So just as an example, in the United States, we're about $38.7 trillion in debt. The interest we pay on that debt is just over a trillion dollars a year. It's larger than the United States military budget, and this interest payment alone is over $35,000 a second. So you just think. $35,000 every single second just to service that debt. So that money has to come from somewhere and we're not alone when it comes to being in an insolvent debt position. If you look at the overall global debt position. The global debt, totals $350 trillion. So this is a global debt to GDP ratio of 235%. It's about 125% in the United States, but what this means is total debt is over twice the size of the world's annual economic output. Basically, meaning that. We could give everything towards this debt and it still would take you two years to pay it off, meaning we're falling behind, we're falling further behind, and the debasement is mathematically certain to continue. So when it comes to Bitcoin, the price doesn't rise only from its scarcity or to adoption, but also from the weakening of all the fiat, fiat alternatives that it is. Priced in. So if you price it in dollars, the price should increase. If you price it in yen, the price should increase Euros, et cetera. The price should increase because the volume of those currencies that are put into the system are increasing across the board. So when it comes to the actual, any price at any given moment of Bitcoin, what determines Bitcoin's price? So there's a lot of people that hold Bitcoin, understand Bitcoin for the long term. Do view it as that inflation hedge because it has superior monetary parameters. Kind of like a gold 2.0. It's gold. It does what gold does, but it does it better, faster, um, better, faster, stronger. So some people understand that and they hold it for the long term. They know that the debasement is going to continue and they're just waiting to allow math to run its course and. Protect them against that coming accelerating debasement. But there's also those that don't fully understand Bitcoin, and these are kind of the short term traders. And the point here is that the given price of Bitcoin, the price of Bitcoin is just the price that the last Bitcoin changed hands. It doesn't really. Necessarily take into account how everybody that holds Bitcoin values Bitcoin or what they think the value proposition of Bitcoin is. It's just the last trade, whichever marginal trade happened at, at what price that sets the market price, for Bitcoin. So you have a lot of holders that think Bitcoin is far more valuable and undervalued at present. And you have a lot of people that are speculative traders in Bitcoin that don't necessarily understand what the price should be, and they're just momentum trading or leveraged trading, and that really determines the price it's priced at the margin, the price at which the last Bitcoin last changed hands. So it's heavily influenced by that marginal participant, which is not necessarily indicative of your average long-term. Holder. So, basically meaning the price is kind of highly influenced by those that understand Bitcoin the least and are kind of just viewing it as a trade or speculative trade. So this causes it to kind of violently chop around, which is similar to what we see. In tech stocks, they're volatile, they're speculative, they're kind of adoption driven at any given point. It's similar behavior. So particularly recently we've seen Bitcoin really trade almost in lockstep with tech stocks. And tech stocks have taken a real dip lately because their margins are compressing. Tech stocks had this beautiful day in the sun where they were basically just printing cash. They were making a lot of money, bringing in a lot of revenue. Didn't require a lot of capital expenditure to continue running. So because cash is a liability, if you leave cash on your balance sheet, it'll continue to get debased away. It'll continue to get eaten. They had to put their money into something. Cash is a liability for companies, so they either have to reinvest it and in a software case, they were just buying back their stock, bidding up the price of their stock. But now kind of AI is changing the tech landscape a little bit where. These software companies can no longer just kind of print cash and buy their stock back. Now they have to invest that, that revenue into capital expenditure to acquire or to compete in this kind of AI revolution and not fall behind. Because AI takes a lot of capital expenditure. It takes a lot of energy, it takes a lot of compute. They have to build out data centers so suddenly where they were just bringing in money and were able just to buy back their stock and bid up their stock price. Suddenly they have to redirect some of those earnings. They have to compress those margins. They're not as profitable in kind of the traditional sense where they could just kind of let that profit accrue to their stock price. They're investing for the future, and that is very expensive in the AI space. So they've taken a hit, they've compressed their margins recently, and if you kinda look at Bitcoin in relation to all of these tech stocks, it's basically traded with them lockstep. It followed them down. So it shows you that the market is treating Bitcoin kind of like a technology, not necessarily a monetary debasement hedge at present, but I do think that probably is coming. At some point there will be a future phase where Bitcoin should trade like gold. It should be kind of a non-correlated asset. It'll have a low correlation to equities including tech stocks. It'll be basically a store of value asset that's kind of anti inflation and will absorb the monetary premium of other inferior assets. It's just we need to get to that point that everybody understands it that way. And because you have a couple different. Um, different groups of people investing in Bitcoin for different reasons. It's difficult to kind of, project price moving forward because it currently acts, acts as both a risk on asset for some and a risk off asset for others that understand it that way. So depending on the subjective valuation of the economic actor in question that's making the determination, they're kind of pricing Bitcoin very differently. So it makes. It makes the price kind of jump around pretty violently depending on which group chooses to hold it at which time. So where is this all going? If the price, is kind of chopping violently that makes people very nervous, but where does the potential upside, like where does the potential upside as Bitcoin network adoption grows, the monetary debasement continues, et cetera. So the potential upside is much higher than. A tech stock. So think of even the high flag tech stocks like an Nvidia is about a $4 trillion asset. Bitcoin at present is about a $1.3 trillion asset, but I would make the argument that Bitcoin went properly understood should go much, much higher. So as understanding grows, rational economic actors will start to move their wealth where it is treated best. You know, that is where it is safest from this accelerating. Monetary debasement environment we find ourselves in. So the monetary debasement forced their wealth into inferior monetary assets in the first place, and I believe that their understanding will eventually force their wealth into the superior monetary asset, which is Bitcoin. So, looking at just kind of the low hanging fruit, competing with gold, people think, okay, gold is, or Bitcoin is gold 2.0. Kevin Warsh the, new nominee to be the Fed Fed chair. Come may. He basically said that Bitcoin is gold for everybody under 40 years old. So, I think that that kind of sets the floor parody with Gold's market cap should be the floor of Bitcoin because it does everything that gold does and it does it in a superior fashion. So the gold market cap. It's currently about $35 trillion. Like I said, the Bitcoin market cap is about $1.3 trillion, so I think parody is the floor. It's superior to gold in every way. It should start to eat the monetary premium of gold, and if Bitcoin were to just capture gold's market cap, so 35 trillion versus 1.3 trillion, that's an implied Bitcoin price of about $1.75 million per BTC. Given that 21 million fixed supply. But I think that is just the floor. I think there are a lot of assets that people have been forced into that are inferior stores of value. They just put their money there because it was better than currency. Currency is a horrendous store of value. The debt is making it a worse store of value as we move because the debasement is accelerating. So. Uh, when you look at, a lot of us don't even know, know anyone that really owns gold. There's a lot of paper gold out there, et cetera. But if you look at kind of the intent, the, the overall addressable market of what Bitcoin is serving, just being a superior store of value asset. There's 8 billion people in the world that all need Bitcoin. There's 60,000 publicly traded companies in the world. They all need Bitcoin. There's millions of small businesses that all need Bitcoin. There's about 193 nation states at present. They're all going to need Bitcoin. There's about 180 central banks. All will need Bitcoin, when it's all said and done. So, um, if you look at kind of the, the bucket of assets that people have used to store their value, given their money, was not able to store that value. Just breaking down that kind of bucket of investible assets, you have, about $380 trillion of global real estate. It's been argued that about 33% of that is probably a monetary premium that people are investing in real estate just because they cannot save in money. There's about $120 trillion of equity. I think you could argue that because the money's been broken, that their evaluations are very bloated. You look at kind of price earnings ratios today versus, uh, kind of traditional price earnings ratios of the past. They're very inflated because so much money has been forced into equities in order to protect their value. The fixed income market is about 140 trillion. Dollars. So, globally that's, you know, that's about, those are all negative yielding assets. So if you think of, if they're debasing, the monetary, if they're debasing the money about eight to 10% a year, and you're holding a bond that pays you four, four and a half percent, you're basically losing. 5% right off the jump in real purchasing terms. So you're nominally making 4.5%, but if you put it inflation adjusted real terms, you're actually losing 5%. So that's all dead money. That would be, theoretically seeking a better store of value if one was as liquid and. As accessible and Bitcoin offers that once properly. Understood. Uh, there's about $120 trillion of fiat currencies out there, and that's always increasing because as we said, they're always printing money and they have, it's a mathematical certainty that they will continue to print that money. And then you have about 10 to $15 trillion of collectibles, like art and cars, et cetera, that people have used as a store of value. Again, because the money is broken. So total global assets is about 900 trillion to one quadrillion dollars. And Bitcoin today at 1.3 trillion market cap is only about 0.1% share of those global assets. So, it's got a lot of room to run, I guess is what it tells you. That mathematical space that it can move into is very large in Bitcoin's case. So, I guess the key point there is that Bitcoin doesn't need to replace all assets. It only has to absorb a small percentage of assets that are. Suffering from monetary debasement and seizure risk and dilution and poor portability, et cetera. So it doesn't have to replace all real estate, it just has to replace the portion of real estate that people are using, as a store of value as opposed to the utility of living in real estate, for example. So what determines Bitcoin's price? It's basically determined by scarcity. So it's supply. It's fixed supply and then you're kind of figuring out the demand. The demand comes from the growing adoption, the network effect. The more and more people that come to it as a hedge against the accelerating monetary debasement, and then wherever that meets at the margin between the person kind of holding it long term, and the traders speculating on a day to day or week to week or month to month. So early during this early adoption phase, it's moving like a tech stock, just like tech stock trading, but I think you can make the argument that eventually it should trade like gold. It should become much less volatile, much better. Understood. So, once you start to understand that Bitcoin is kind of a, the next evolution in money, it's kind of the next phase in our monetary revolution. It's gonna come for all assets. It's going to eat the monetary premium, locked in all inferior monetary assets. So it doesn't really require a global consensus or a total replacement of the monetary system. It just requires that there will be continued monetary debasement, which is mathematically certain. It requires that rational actors seeking harder money will flow that capital to where it's treated best, which I think over time Bitcoin will prove to be the place where it is treated best, and then it just requires kind of continued marginal reallocation at the edges where markets move on the margin. More and more people start to understand Bitcoin, they start to move it from inferior assets to a superior asset. So the volatility is really just the sound of Bitcoin discovering its true price. So the network is growing, understanding is spreading, global money is expanding, demand is increasing, and that Bitcoin supply is still fixed. So Bitcoin seeking its supply demand equilibrium. And once the money stops moving, once all the people seeking a superior monetary alternative have been satisfied, then Bitcoin's price will be determined. But we are nowhere near that point, and in my opinion, that equilibrium is much higher. So, hope that helps y'all. That's what determines Bitcoin's price. Take care Until next time, and we'll see ya.