The Great Compression: Why Everything Trends to Zero in Bitcoin Terms

A #web3Wednesday article on the "real value" of risk-on investments in the decade ahead.

Oct 16, 2024

In a recent beautifully articulated insight shared by Cole Walmsley on X, the implications of measuring investment returns in Bitcoin terms were highlighted, bringing attention to a fundamental truth about Bitcoin’s fixed supply of 21 million. When we consider the valuation of giants like Nvidia, Apple, and Tesla in Bitcoin versus $USD, an intriguing pattern emerges: the price of everything trends toward zero in BTC terms.

Here's why this concept is reshaping our understanding of value and long-term investment.

Understanding the Finite Bitcoin Universe

The total number of Bitcoins that will ever exist is capped at 21 million—an unchangeable feature of Bitcoin’s design. This scarcity means that as global productivity grows and new innovations emerge, they must find a place within the existing 21 million Bitcoins. Today, valuations of leading companies might seem astronomical in dollar terms, but when translated into BTC, they paint a different picture.

Video Chart Source: From the post by @cole_walmsley on X

For instance, as Cole wisely laid out in his post:

- Nvidia’s current market cap is worth 46,361,000 BTC today, but with only 21 million Bitcoins in total supply, this valuation cannot fit.

- Apple’s market cap is valued at 55,246,000 BTC, a figure that is more than double the entire Bitcoin supply.

- Tesla, at 12,874,000 BTC, theoretically fits, but is it realistic for Tesla to represent over 60% of all Bitcoin’s value?

Now consider that the quantified market cap in dollars today of the U.S. Residential Real Estate market sits at $50+ Trillion (which would be valued as 776,119,403 Bitcoin (roughly 37x the amount that will ever exist.

Bitcoin is sound money. A decentralized commodity without an issuer and that is nobody else’s IOU. The inevitable conclusion is that, over time, these valuations must compress to fit within Bitcoin’s fixed limits. This process means that as new innovations arise, the relative value of assets priced in BTC will have to adjust downward.

Why Everything Trends to Zero in BTC Terms

The real game-changer here is the ongoing cycle of innovation and productivity growth. Each new breakthrough—be it in AI, biotechnology, clean energy, or digital finance—demands a portion of the total Bitcoin supply to be assigned to it. As new entrants emerge, existing valuations must make room. This means that the relative value of established assets, when measured against Bitcoin, trends downward over time.

In simpler terms, the fixed supply of Bitcoin means there’s a limited pie to share, and each new slice reduces the relative size of the others. As a result, even the largest companies and assets are not immune from this downward pressure in BTC terms.

What This Means for Investors

Investors who recognize this dynamic may realize that the price of stocks, real estate, and other traditional assets could trend toward zero in Bitcoin terms over the long run. While these assets may continue to appreciate in fiat currencies, their BTC value could decline as Bitcoin’s scarcity forces a reallocation of value.

This Has Profound Implications for Investment Strategies:

- Diversification into Bitcoin: Investors might consider holding a portion of their portfolios in Bitcoin, treating it as a hedge against the devaluation of other assets in BTC terms.

- Long-term Perspective: Understanding that relative valuations must adjust over time allows investors to take a long-term perspective on how value is stored and transferred.

- New Metrics of Wealth: As more assets are valued in BTC terms, a shift away from traditional metrics of wealth (like USD valuations) may become more prominent, aligning with Bitcoin’s deflationary nature.

Lower Prices, Greater Prosperity, and a More Abundant Future

The concept that “everything trends toward zero in BTC terms” may sound like a negative forecast, but it suggests a future where life becomes more affordable. As productivity grows and the relative price of goods, services, and assets decreases in Bitcoin terms, it creates a world where more people can access these benefits. This dynamic leads to greater abundance and prosperity for humanity, enabled by the hard cap of Bitcoin’s supply.

In the end, this vision suggests a radical transformation in how we perceive value and investment returns. It’s a shift that rewards those who recognize the role of Bitcoin in the global economy and understand its implications for a future where innovation, productivity, and scarcity co-exist in a delicate balance. As new ideas and technologies continue to emerge, the fixed 21 million Bitcoins remain a constant, providing a yardstick by which all value is measured—and ultimately compressed.

Final Takeaway:

The fixed supply of Bitcoin isn’t just a number; it’s a fundamental principle that forces a reevaluation of how wealth is stored, measured, and distributed in a rapidly changing world. Understanding this is key to navigating the new economic realities of the 21st century.