[0:00]That's right, the number one crypto hater on YouTube has returned, and for those of you who don't know me, about six months ago, I made a video breaking down how MicroStrategy had essentially turned itself into a giant leveraged bet on Bitcoin.
[0:13]My argument was simple, Michael Sailor had turned MicroStrategy from a dying software company into a leveraged time bomb, and that the whole thing only worked if Bitcoin's price kept going up forever.
[0:24]And at the time, this was a pretty unpopular take. The general consensus in the comments was that I didn't understand what Michael Saylor was building, that this video was going to age poorly, and that I was apparently a dumb ass.
[0:36]But I'll have you know that since I made that video, MicroStrategy has lost nearly a hundred billion in market cap, and their stock price is down more than 50%.
[0:44]So then fast forward a few months after the MicroStrategy video, and I uploaded another crypto video. This time, it was about the broader crypto industry.
[0:52]It was about how the industry was much more fragile than people realized. And once again, this video was not exactly popular with the crypto community.
[1:00]And since that second video was published, the global cryptocurrency market has lost well over a trillion dollars in market value, and the total market is down over 30%.
[1:09]But let me be clear. I'm not bringing this up to take some victory lap over the people who bullied me in the comments, even though I should be.
[1:16]I'm bringing this up to highlight the fact that both of these videos were built off of the same idea. The idea that underneath the narratives, parts of the crypto ecosystem are much more fragile than people are admitting.
[1:28]And that underneath all the narratives, there are real issues with the crypto industry.
[1:32]Which leads us to the obvious follow-up question: What about Bitcoin? And that's because Bitcoin isn't just another crypto project. It's the foundation the entire industry is built on.
[1:42]It's the bottom block in a very tall, very unstable game of Jenga. And that's what I'm going to be talking about today, because Bitcoin's price is driven by the same false narratives.
[1:52]Narratives that say Bitcoin is digital gold, that it's the future of money, and that it's a hedge against inflation and corruption. And if you've spent any time in the crypto industry, you've heard these same arguments a thousand times.
[2:03]But here's the problem. When you actually start testing these narratives, when you stop looking at the story and start looking at the data, what you start to see is something very different.
[2:13]You start to see a pattern where the story keeps changing every time the technology fails to deliver on previous promises. But to understand Bitcoin's real value, we have to start with a much simpler question.
[2:24]What is Bitcoin actually supposed to do? And when Satoshi Nakamoto introduced Bitcoin in the original 2008 white paper, the idea was extremely clear.
[2:35]Bitcoin was described as a peer-to-peer electronic cash system. In other words, Bitcoin was supposed to function as digital money, a decentralized alternative to banks and governments where people could send payments directly to each other without intermediaries.
[2:48]And if Bitcoin actually accomplished this, it would have been revolutionary, but there's a problem. It didn't. It wasn't even close.
[2:55]Because economists generally define money using three basic criteria. First, it has to function as a medium of exchange. Basically, people need to widely accept it as a form of payment.
[3:06]Second, it has to function as a store of value. Something you can hold today and spend later without massive swings in purchasing power.
[3:13]And third, it has to function as a unit of account, meaning it must serve as a standard measure for pricing goods and services so it can allow people to compare their value.
[3:22]And when you start evaluating Bitcoin using these tests, it doesn't just fall short. It fails all of them. And I can prove it to you.
[3:29]Because as a medium of exchange, Bitcoin is slow, expensive, and inefficient. The Bitcoin network processes roughly half a million transactions per day, and if you think that sounds like a lot, it's not.
[3:41]Because if you compare that to something like Visa, well, Visa processes roughly 65,000 transactions every single second, which means Bitcoin's entire daily transaction volume could be cleared by the Visa network in under eight seconds.
[3:55]And it doesn't stop there because a single Bitcoin transaction has a carbon footprint equivalent to roughly 1.5 million visa transactions. And in terms of energy use, a single Bitcoin transaction consumes roughly the same amount of electricity as the average American household uses over 43 days.
[4:11]Which explains why Bitcoin hasn't become a widely adopted payment system yet, because it isn't a good one.
[4:17]So what about using Bitcoin as a store of value then? And at first glance, the argument seems reasonable.
[4:22]It has a fixed supply, and historically, assets with limited supply, like gold, have often been used as a store of value. And to that I say, no. And there's two reasons why.
[4:32]The first, stability. A store of value needs to reliably preserve purchasing power. And Bitcoin has historically been one of the most volatile assets in the world.
[4:42]Which is exactly why you don't see anyone dumping their entire net worth into Bitcoin, because an asset that can swing 20% in a single month isn't reliable.
[4:51]That's a level of volatility where businesses, households, and individuals start to treat it as a speculative investment, rather than a true store of value.
[5:00]And the second issue that rarely gets discussed with Bitcoin, ownership, because despite the narratives you read online about Bitcoin being decentralized, the actual distribution is extremely concentrated.
[5:12]Because roughly 2% of addresses control 95% of the supply. And when ownership is this top heavy, price movements can easily be manipulated by a relatively small group of large holders.
[5:23]Like the recent Jane Street incident. Because right now, Jane Street is currently being sued for allegedly helping trigger the 2022 crypto winter and wiping out 40 billion in market value.
[5:33]And the fact something like this is even possible isn't exactly the kind of foundation you want for a stable store of value.
[5:40]So, uh, what about the third requirement, Bitcoin as a unit of account? Well, let's just say this one doesn't exactly knock it out of the park either.
[5:47]Because even businesses that accept Bitcoin as a form of payment don't actually price things in Bitcoin. They price everything in dollars, and then convert the amount into Bitcoin at the moment of payment.
[5:57]Which means Bitcoin isn't actually acting as an economic measurement. It's just temporarily passing through the transaction. And even after laying out the specific reasons why Bitcoin fails each of the three basic functions of money, I already know the response that's coming from the Bitcoin crowd.
[6:12]Um, well, we haven't given it a fair shot yet.
[6:15]And to that I say, well, we actually did. Because if you want to see what Bitcoin actually looks like when people try to use it as a real currency, you don't have to speculate anymore.
[6:26]Because we already ran that experiment, because back in 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender. The government launched a national wallet called Chivo.
[6:35]They required businesses to accept it as a payment, and even gave every citizen $30 worth of free Bitcoin as an incentive for people to try it.
[6:43]It was finally time. This was Bitcoin's Magnum Opus moment, the moment where Bitcoin finally showed the world it could function as a real monetary system.
[6:51]And the results, well, it was a huge failure. Because according to IMF data, Bitcoin accounted for less than 2% of El Salvador's remittances.
[7:00]So after years of government promotion, legal tender status, and even a monetary bribe, 98% of people still chose to send money internationally through a traditional financial system.
[7:10]Which is a huge deal, because remittances were supposed to be Bitcoin's magical use case, that it would allow people to send money across borders without banks, fees, and without friction.
[7:22]And when people actually had the option to use Bitcoin to do so, nobody did it. And it gets worse because when the Chivo wallet launched, millions of people signed up immediately.
[7:31]But data from the National Bureau of Economic Research shows that 60% of users downloaded Chivo to cash the $30 bribe and never made another transaction on the app, meaning they just downloaded it for the free money and bounced.
[7:44]And fast forward to today and reports show that 66% of El Salvador's population considers Bitcoin a failed project, and 77% believe that further public funds should not be used to support Bitcoin.
[7:57]Which brings us to the harsh reality of Bitcoin, because if it doesn't function well as a medium of exchange, it doesn't function well as a store of value, and it doesn't function well as a unit of account.
[8:07]Then we're left with a very obvious question: Where does the value of Bitcoin actually come from? And the answer to this question lies at the foundation of Bitcoin.
[8:15]Because once you strip away all the narratives, remove all the marketing, and ignore the memes, the only thing left is a very old concept in finance.
[8:25]Something economists call the greater fool theory. And this theory says that the price of an asset doesn't necessarily have to be justified by its underlying value.
[8:34]As long as there's a greater fool willing to buy it from you later on for a higher price. And when you start to look at not only Bitcoin, but the entire crypto market through this lens, it becomes a lot more clear.
[8:45]Because Bitcoin doesn't generate cash flows like a stock does. It doesn't produce goods like a commodity. And in reality, it has pretty much no widespread utility.
[8:54]The price is entirely dependent on the belief that a greater fool will buy it later for more money. And that belief creates demand, and then that demand drives the price higher. And then the price going higher attracts more buyers, and the cycle repeats again and again.
[9:07]So every narrative you hear about Bitcoin serves a very specific purpose. Whether it's the digital gold argument, the future of money argument, or the hedge against inflation argument, these stories are crafted to create new buyers.
[9:20]Because the moment new buyers stop entering the market, the entire machine breaks. And that's the uncomfortable reality of Bitcoin. It's entirely supported by hope, and its value comes from people believing someone else will buy it for a higher price later on.
[9:33]Because the truth is, it's not any of those narratives you hear online. It's just the largest real-time experiment in the greater fool theory the world has ever seen.
[9:43]And it might not be today, and it might not even be tomorrow, but eventually, you will run out of greater fools.
