How does it feel to have something that is regarded as a scarce commodity? How does it feel to own, for example, an ounce of pure gold? It feels good; it makes us feel secure. Why? We know that gold can be exchanged for other goods quite easily.
Precious metals, such as gold and silver, have intrinsic value – gold and silver can be used as a means of payment, for jewelry, for industrial purposes, etc. That’s the reason why gold and silver was used for payments during the history and why currency was backed by precious metals.
$100 from 1971: How Much Will It Buy You Today?
No country backs its currency with gold, silver or any other commodity anymore. The official U.S. gold price was at $19.75 per troy ounce in 1792, which was raised to $20.67 in 1834, and to $35 in 1934, which stayed that way until August 15, 1971, when the link between the dollar and gold was completely cut off. (Note: The price of gold as of May 2020 is around $1,700 per troy ounce.) Since then, the US dollar is “legal tender,” susceptible to inflation or state intervention.
The numbers speak for themselves because the inflation rate in the USA between 1971 and 2020 was 546.44%. This means that $1.00 in 1971 is equivalent to $6.46 ($1.00 + $5.46 = $6.46) in 2020. In other words, the same thing that would cost $100 in 1971, will cost you $646 in 2020. Conversely, if you had saved $100 in 1971 and put it aside, this sum will buy you only $15.47 worth of goods today. Sad to say; those that save are losers.
It is also a known fact that huge amounts of new US dollars have been created “out of thin air” since 1971. The Euro and other currencies follow a similar pattern. How much money is there in the world? It is very difficult to arrive at a definite number. The number “M0” for the USA, which is essentially the number of notes and coins in circulation, is around $4.8 trillion. We need to add the so-called “broad money” to this number – checking accounts, savings accounts, money-market accounts — the number has been steadily rising since 1971 and today is over $16 trillion.
Trillions of USD vs. Millions of BTC
Compared to all these trillions of dollars, there are only 21,000,000 Bitcoins. This amount is final since it is not possible to create new Bitcoins “out of thin air.” Bitcoin can be used for peer-to-peer payments with no central authority or intermediary. The transaction can be transparently seen on the blockchain; a sort of public ledger. You can own private keys to your Bitcoins, which means that it is only you who can decide what to do with your cryptocurrency. All these reasons make many crypto enthusiasts bullish, believing that in the long run, Bitcoin will be used more and more which will make its price go up.
On the other hand, Bitcoin has no intrinsic value, such as gold or silver. The value of Bitcoin cannot be guaranteed and is decided solely by the free market. The maximum value is the amount that the buyers are willing to pay.
How Many Bitcoins Can Each of Us Own?
Because of its scarcity (21,000,000 units only), Bitcoin is sometimes described as digital gold.
Let’s see how many Bitcoins there are for each human on Earth:
There will ever be only 21 million Bitcoins available.
There are about 7.5 billion people on Earth.
The calculation is as follows:
21,000,000 BTC / 7,500,000,000 people = 0.0028 BTC per head
So, there are only 0.0028 BTC for each human on the planet.
If you have:
- 0.028 BTC, you are among 10% of holders.
- 0.28 BTC, you are among 1% of holders.
- 0.56 BTC, you are among 0.5% of holders.
- 1.12 BTC, you are among 0.25% of holders.
In other words, if you have 0.28 BTC, no more than 1% of the current world’s population can ever have more BTC than you. This way, you are in the “1% club”, referring to Bitcoin. Of course, this doesn’t put you automatically into the top 1% wealth.
So, how many Bitcoins can you now buy for your USD?
As of May 2020, the price of Bitcoin is around $10,000:
- $100 gets you around 0.01 BTC.
- $300 gets you around 0.03 BTC (putting you among 10% of holders).
- $500 gets you around 0.05 BTC.
- $1,000 gets you around 0.1 BTC (putting you among 0.25% of holders).
On December 17, 2017, the price of Bitcoin spiked to its record high of $20,089. If the price of BTC gets back to this ATH (all-time high), you will have doubled your profit. If BTC goes even higher, let’s say to $100,000 – the profit will be tenfold.
Some bullish (positive) crypto fans expect the Bitcoin to go much higher. In case the Bitcoin replaces the US dollar as the major currency, the price of 1 BTC can even be $1,000,000. This might sound like a bit of a stretch, but we are talking about a situation where instead of trillions of US dollars, there will be only 21,000,000 BTC.
Win or Lose?
All this sounds fine and dandy. But what if something else comes to the scene instead of Bitcoin? Some means of payment that people will want to use more than anything else? In such an unlikely case, the price of Bitcoin can fall. And if Bitcoin drops, you might lose whatever you have put into this digital currency. But the same holds true for the “legal tender.” We have seen above how much purchasing power the US dollar has lost between 1971 and 2020 (546.44%).
When talking about cryptocurrencies, we should also bear in mind that Bitcoin is not the only one. Currently, many describe Bitcoin as digital gold, and Litecoin (with 84,000,000 coins, four times as many units as Bitcoin) as digital silver. But as of May 2020, as many as 5,400 cryptocurrencies are being traded, with a total market capitalisation of $201bn. It is apparent that this field is developing extremely fast, and that it is very attractive for all kinds of players. Many cryptocurrencies have already vanished from the scene and many more will disappear. Some new cryptos are being used, for example, the DEXFIN token (DFX) that offers several interesting features. In the end, the market will decide what will stay, what will be used, and what will be discarded and forgotten. Bitcoin has an enormous advantage – it is the very first cryptocurrency, which has been used since its very beginning in 2009 when its blockchain was unleashed.
Rather than putting all your eggs into just one basket, a prudent approach is to diversify. It should also be added that what has been described here is just one way of looking at things since the same data and numbers can be viewed from all kinds of angles. Also, the information presented here is for general informational purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.