Scarcity is a basic concept in economic analysis. More than ever, the specter of shortages hangs over our heads. What if, rather than betting on Bitcoin (BTC), you bet on gold, its eternal competitor, or even on oil given the current geopolitical context?
Thomas Malthus this anti-Bitcoin
Who has never heard of the impending depletion of oil resources or the coming famines linked to overpopulation? Our population has grown from barely 1 billion people in the 1800s after 8 billion today.
It may appear quite intuitive that a growing demographics leads a scarcity of natural resources (food, oil, water, copper, etc.). This is in particular the thesis defended by a certain Thomas Malthus and which has never ceased to be emulated among the heirs of the current derived from its name: Malthusianism.
Figure 1 – Portrait of Thomas Malthus
In his book published in 1798, he claimed (among other things) that repeated famines would appear in the United Kingdom because of the country’s population growth. Forecast failure. Many other intellectuals, economists or politicians have broken their teeth on this kind of apocalyptic forecasts.
Figure 2 – Thomas Malthus model
In 1865, Stanley Jevons asserted that the coal would run out. In 1914, the United States Bureau of Mines announced this time that American oil reserves would last only 10 more years.
In 1939 and in 1951, it was this time the United States Department of the Interior who estimated them at 13 years maximum at each recovery. In 1972, the eminent “Club of Rome” (author of the Meadow report) got it wrong on oil, natural gas, silver, tin, uranium, aluminum, copper, lead and zinc.
The famous bet that will reconcile you with the bear market
The idea of scarcity leading to higher prices is so ingrained in people’s minds that in 1980, ecologist Paul Ehrlich accepted a bet with a certain Julian Simon.
Simon offered to choose 5 metals the price of which, according to him, should increase. If on the agreed date, the inflation-adjusted price of these metals had actually increased, Simon agreed to pay the combined difference. Otherwise, it would be up to Ehrlich to pay.
Ehrlich chooses copper, chromium, nickel, tin and tungsten. On the fateful date, in 1990, it appeared that the price of the five resources had gone down over the decade. Having lost the bet, Ehrlich sent a check for $576.07 to Simon.
Paul Ehrlich’s best-selling book, the P-Bomb, is proving, nearly fifty years after its publication, to be one of the most flawed scientific forecasting books ever published.
Bitcoin is often compared to gold. The precious metal is no exception to the rule: its price has fallen since 1980 by nearly 40% if adjusted for US dollar inflation. The fall is relatively obvious over the period 1980 -2010.
Figure 3 – Inflation-adjusted gold price graph (1970-2015)
The Simon Abundance Index: the only technical analysis that has worked for 40 years
In homage to Simon, the ” Simon Abundance Index was created in 1980. The goal was then to evaluate the evolution of the accessibility of resources for humanity by calculating the evolution of the average labor time required to purchase a particular unit of resource on a global scale.
Thus, the prices of some fifty basic products referenced by the World Bank were examined to find out whether they were now more accessible for all of humanity.
On average, the price of the 50 natural resources listed in working time had fallen by 72.34%. This means that an individual could, in 2020, afford 4.03 times more units of resources than in 1980 for the same amount of work.
Why ? Because human societies are not fixed systems and/or incapable of innovating. The scarcity of a material increases its price which encourages producers to find more sophisticated techniques of production and extraction of the resource or substitutes.
Expensiveness regulates consumption, encourages its conservation, recycling and invites people to turn to substitutes. Additionally, growing demographics increase the size of the market and competition.
It also increases the quality of the international division of labor and of industry specialization.
Figure 4 – Variation in the price and abundance of the 50 basic resources (referenced by the World Bank) from 1980 to 2020
Bitcoin: the mathematical and economic exception?
The parallel to be made with Bitcoin begins with the evocation of a quantity of work to be provided. One might think that through the adaptability of the network depending on the hashing power available, Satoshi Nakamoto had taken the time to learn about Simon’s point of view.
Nothing seems to waver an increase in its rarity: no additional resources, no division of labor. Regardless of the size of the market and the competition: block rewards are fixed and known from the beginning (division by 2 approximately every 4 years with the halving), and the mining difficulty adapts if there are too many or too few miners.
The emission regime of the #bitcoin is explicit, simple, automatic, predictable, immutable, disinflationary (quite the opposite of fiat regimes).
It includes an ingenious mining difficulty adjustment mechanism, with astonishing monetary consequenceshttps://t.co/neTzqOb8jX pic.twitter.com/bNZm84ZCys
— Yorick de Mombynes (@ydemombynes) May 12, 2022
The extraction method appears intangible by its ingenuity and by its anchoring in the initial philosophy of the project. What other resource can boast of being so limited?
If we take the example of oil, it is estimated that over the past 20 years, its proven reserves increased by 52%. No surprise for Bitcoin: the issuance of BTC is limited to 21 million units, a limit set in the software version 0.1 code released on January 8, 2009.
Figure 5: Evolution of oil reserves by geographical area in 1994, 2004 and 2014
We even find apocalyptic forecasts equivalent to Malthus in his time through Mr. De Vries, founder of Digiconomist who predicted in 2017 that by 2020, Bitcoin would consume as much energy as the entire planet…
In view of the elements that you can no longer pretend to ignore now… What are you waiting for to take the “bet” on the price of Bitcoin in 10 years?
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