The fourth halving is coming up in just under two weeks. And Bitcoiners are as happy as children at Advent. Rightly so, because in the past the price of BTC rose rapidly in the period afterwards. But halving is also extremely important for long-term adoption. Vijay Boyapati was there early on as a convinced Bitcoiner. In his essay “The Bullish Case for Bitcoin” he wrote back in 2018 that Bitcoin can become a global money like gold was in the 19th century. Today he is convinced that Bitcoin can replace gold as a store of value in four to five years and climb to more than $500,000. In an interview with BTC-ECHO, he explains why the halving is so important. And also: Why Bitcoin spot ETFs have changed the dynamics of cycles forever.
BTC-ECHO: Vijay, the Bitcoin halving is coming up in a few weeks. How important is this event in your opinion? Can we expect a supply shock?
Vijay Boyapati: In fact, I think the halvings are the ultimate reason for the four-year cycles and therefore an internal cause of Bitcoin market dynamics. Of course there are also external factors. For example, the US Federal Reserve’s policies influence Bitcoin just as much as gold. The halving plays a big role because it shakes the supply and demand balance of Bitcoin.
By halving the supply side, the price rises slowly but surely to reach a new equilibrium. At a certain threshold, the Madness of Crowds phenomenon occurs: When people see that the Bitcoin price is continuously rising, they really pounce on it. As a result, the price continues to rise, more and more people are getting on board, and there is tremendous enthusiasm. If there are no more new buyers in the respective cycle, we will experience a market crash.
What happens then?
The price finds its new equilibrium when it falls enough for people to buy Bitcoin again with real conviction. These are often private investors who use savings plans and accumulate Bitcoin over time. What is interesting is that a larger group of people can be reached in each cycle. The first cycle consisted only of cypherpunks and libertarians, a very small group of people. The next cycle was the vanguard of risk-taking investors, and after that you eventually get to a larger percentage of the population. People who have heard about Bitcoin and been informed by their friends and family.
If we look at the current cycle, for the first time we have already seen a new BTC all-time high before the halving. Do you think spot ETFs have changed the general pattern of cycles?
I assume so because the Bitcoin ETFs make a big difference. The inflow of capital from the various index funds was greater than almost anyone predicted. Inflows are likely to reach $50 billion within the first year, which is unprecedented. If things continue at this pace, then it will be managed Assets of Bitcoin ETFs within a year or two, surpass the assets under management of gold ETFs, even though they have been around for almost 20 years.
The Bitcoin ETFs have accelerated the cycle, especially since they can reach a much larger group of people. The ease with which one can now get into Bitcoin is dramatically greater than ever before. ETFs allow you to completely eliminate all of the technological complexity and therefore a major mental hurdle for buying Bitcoin for the first time. Most people in the US have a brokerage account and today they can buy Bitcoin just as easily as a stock.
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What do you think in general about the SEC’s decision to approve Bitcoin ETFs? Is this exclusively positive or do you see a dark side?
Overall it is a very positive decision. The Bitcoin price level is highly correlated with the size and stability of liquidity channels to Bitcoin from the fiat world. In the first cycles, the fiat channels were still very weak and unreliable. The first real Fiat channel was actually Mt.Gox and it was unstable, poorly managed and very small. Over time, more crypto exchanges like Coinbase and Kraken emerged, fiat channels improved, and the Bitcoin price rose accordingly. And then there were things like GBTC, which gave traditional investors access to Bitcoin for the first time. But the new Bitcoin ETFs are now by far the largest and most reliable liquidity channel. One disadvantage, however, is the custody risk and that many of the ETF issuers use a single company, Coinbase, for custody.
Why is there no more competition in the custody sector? Why does Coinbase have this quasi-monopoly?
The most important factor is that Coinbase is a public company. This increases the trust of ETF issuers because they know that they are a strictly regulated company that cannot simply run off with customers’ Bitcoin. At the same time, the regulations themselves sometimes prevent more competition because the SEC makes it difficult for other companies. For example, there is Galaxy Digital in Canada that would like to be on an American trading floor. But the SEC is currently not allowing any company offering altcoins to go public except Coinbase. A new SEC chair after the US election could change that, giving us more competition on the custody side. We definitely need it because we have to reduce the risk that has arisen from the current concentration.
Currently, we see MicroStrategy as this one crazy company that already owns 1 percent of all Bitcoin. Will more companies soon follow the same strategy and buy as many Bitcoin as possible?
It’s hard to imitate Michael Saylor’s personality. But what I wrote about nation states also applies to companies: it depends on the executive branch. And in certain companies, the founder or CEO has a lot of influence because they hold the majority of the voting shares. Michael Saylor has such strong leadership and he truly believes in Bitcoin. There’s no denying his success, because for twenty years his company had a rather boring business model and a low market capitalization, but suddenly things went through the roof.
Why? Because he is pursuing a Bitcoin strategy that is essentially a speculative attack on the dollar. Saylor believes that publicly traded companies receive an irrational fiat premium that is not justified by real returns. So he raises money by selling stocks and taking on debt to buy an asset that is absolutely scarce. If the BTC price continues to rise and Bitcoin becomes the reserve currency, then that will be awesome.
What developments have surprised you since your essay was first published in 2018? And are there any points where you changed your mind about Bitcoin adoption?
Of course, I couldn’t have foreseen the details. So I never expected Michael Saylor to come out as a Bitcoiner or for El Salvador to suddenly buy Bitcoin. But that’s essentially how I expected the general development. The last sentence of my essay is that Bitcoin will be the global monetary standard in 50 years. But I also had a decade time horizon in mind, during which I thought Bitcoin would catch up with gold and perhaps even surpass it. I still believe that. Today, gold has a market cap in the range of $13 to $16 trillion. If Bitcoin reaches this level, it will result in a Bitcoin price of around $500,000 to $800,000. This is possible in four to five years.
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A truly optimistic forecast. Do you still see serious dangers for Bitcoin? Is there a specific risk that could still prevent BTC from becoming at least a global store of value?
Some of the risks I mentioned in my 2018 essay have disappeared. But Bitcoin’s increasing size could make states much more vigilant and hostile in the future, because at a certain point Bitcoin can influence monetary policy. Former Fed Chairman Alan Greenspan watched gold closely as a barometer of whether his monetary policy was working. When the price of gold started to rise, he became worried. Gold was the ultimate counterpart to the credibility and success of the Federal Reserve. Bitcoin should soon take over this task and become the leading non-governmental store of value.
When BTC reaches the size of gold, a significant portion of the world’s savings will flow into Bitcoin. And these savings cannot be manipulated through monetary policy, which must be scary for central bankers. From this point onwards, we could therefore see a concerted effort to attack Bitcoin and brand it as a harmful technology.
So is Bitcoin threatened by its own success?
On the other hand, Bitcoin’s increasing size could also mean protection. The more people accept him, the harder it becomes to take action against him. There are then voters and politicians who own Bitcoin. In the United States we have a retirement program called 401k and you can’t get rid of that. That is politically impossible because people would riot in the streets. At some point Bitcoin will be so widespread that it can be politically adopted in this positive sense, but it is not that far yet. At the moment there is still a risk of an attack by state actors.
Is there a chance that gold and Bitcoin can just coexist peacefully? Or does it have to happen that Bitcoin eats up gold as a store of value?
Bitcoin is already starting to replace gold, but gold is still an interesting beast. Its market capitalization of around $16 trillion is due in no small part to jewelry demand from India and the Middle East. It won’t go away any time soon. And the other big part is this Demand from central banks. Many people are not aware of this, but ironically this archaic money, hated by central bankers, is primarily in their possession. They own it because they can’t trust each other.
In the case of Russia, the USA confiscated all government bonds owned by Russia against the backdrop of the Ukraine war. Countries around the world have looked at this and realized that they have no real sovereignty if all their savings are in US bonds. This lesson will become increasingly important in the years to come. And this is why central banks continue to hold gold.
To what extent is gold already being replaced?
It is the investment demand from wealthy individuals, small investors and family offices that is already flowing out of gold and shifting to Bitcoin. So gold is already losing some of its demand at the margins. This also explains why gold hasn’t risen as much despite the inflation we’ve seen around the world in recent years. Compared to Bitcoin, gold has not performed particularly well and has not been a particularly good hedge against inflation over the last decade.
If you try to imagine the future of our world in 10 years, what role will Bitcoin play?
It is very difficult to predict the future, especially because our world is changing so quickly now. But I am very confident that Bitcoin will have taken over the role as the main global store of value. Bitcoin will therefore have replaced gold. There are other long-tail events whose future development is still unclear, for example artificial intelligence. Real AIs might prefer Bitcoin as a medium of value transfer because the traditional banking system is not open 24/7, not fully connected and unreliable. Bitcoin, on the other hand, is based on the Internet and is a perfect protocol for the digital transfer of value. But regardless of this AI scenario, even on the more conservative side, I believe that Bitcoin will become digital gold in five to ten years.
Thank you for the interview.
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