Matt Odell had a throw-away remark in this week’s Rabbit hole Recap, #335 (
#808408). It was punchy, it was rah-rah Bitcoiny—and it was completely wrong.
With Marty Bent and Rob Hamilton they discussed the Microsoft shareholder vote (#805429) and reported some hypothetical numbers: how much would Microsoft had earned if they had purchased bitcoin with 1-5-10% of its treasury etc, etc).
And Odell said something like "Microsoft is valued at 32 million bitcoin—a valuation they can't even have in Bitcoin!" A few minutes later he repeated the sentiment again in different words.
The math seems easy: 1 BTC currently trades for 101,500 cuckbucks; Microsoft's market cap (its outstanding number of shares, 7,433 million, times the share price that one share trades at, $447.27) equals about 3.3 trillion. Divide the latter by the former, and we get 32.700,000. Violà, Microsoft trades for more bitcoin than exist! How fishy.
Of course that's absurd. And I'm not bringing it up to take at dig at Odell; maybe he's just joking (and I'm and idiot?), but I've heard this perspective voiced by plenty of Bitcoiners—and I imagine more than one money-curious person has reflected on this. One personal such experience I've had is Knut Svanholm in an impromptu chat at BTC Prague after BTC Sessions on stage had made a similar claim about Canadian truckers having received 1/21-millionth of all the bitcoin there will ever be.
The idea seems to be that all the world's assets will eventually fit inside bitcoin's dollar-exchange rate. Velocity doesn't matter, all the world's bitcoin will sum to the total number of assets in existence.
That's insane. For this, or for any other monetary system we can think of. Money ≠ assets ≠ income.
- income = the flow of earnings for a given time period, say a salary
- money = the physical or digital railways on which we run our economic transactions, and the denomination of said income. (Without money, your income could still be ten fish and two loafs of bread and five blankets instead of 100 dollars, total barter style; I can be paid 1 BTC or 101,500 dollars and my income would be the same, even if the specific nominal units would be vastly different #737272).
- wealth = the money valuation/sum total of all the goods and capital in existence. For divisible assets, this is derived at by multiplying outstanding portions by the unit price of one such portion, i.e., a share: for financial assets, these are "fictional," i.e. they don't exist as a matter of reality, but are a way to conveniently carve up the ownership of a business without interrupting its operation—a principle that goes back to Greek and Roman times.)
Look, as a metric of flow (a little like debt-to-GDP or something), it's elementary math to put anything in bitcoin terms; as a way to express how small bitcoin still is or how ginourmous the pile of world asset is, that's fine.
As some sort of practical wealth cap on asset values of the world, it's nonsense.
The beautiful thing about the financial system—or indeed, including any other asset—is that you can own them, run them, use them, or profit from them without having to take space on the monetary network. The money can be busy fulfilling transaction demands or saving elsewhere. Of course, the fiat network is a little messed up in this regard, where (financial+real estate) assets have become the only way to not disastrously lose purchasing power on your money.
What economists refer to as “velocity” is how many times a unit of currency circulates in the economy over a period of time. With higher velocity, the same amount of money "goes further," economically speaking, by supporting and participating in more economic transactions. Microsoft trades in wealth shares; at no point does the entirety of that wealth pile have to be transacted into money, before it's moved into something else (other assets or consumption).
In fact, a novice observer could look up the number of physical dollar notes and coin in circulation RIGHT NOW and be aghast at the impossibility of Microsoft's valuation—or, indeed, the U.S. annual GDP (~29trn) or U.S. government spending (~7trn)—to fit into the 2.355 trillion USD1 in physical notes outstanding. (Yes, yes, there's a banking system on top and a ton of eurodollar credit outstanding too, but just as illustration—and also, Hal Finney style 2, very possible that bitcoin, too, will build banks on top of it, like was the case under gold.)
In fact, a novice observer could look up the number of physical dollar notes and coin in circulation RIGHT NOW and be aghast at the impossibility of Microsoft's valuation—or, indeed, the U.S. annual GDP (~29trn) or U.S. government spending (~7trn)—to fit into the 2.355 trillion USD1 in physical notes outstanding. (Yes, yes, there's a banking system on top and a ton of eurodollar credit outstanding too, but just as illustration—and also, Hal Finney style 2, very possible that bitcoin, too, will build banks on top of it, like was the case under gold.)
ANALOGY TIME:
"Money serves one singular function for all market participants: to bridge the present to the future” (Parker Lewis, Gradually, Then Suddenly, p. 35)
We can even dig up all our beloved John Maynard Keynes, saying the same thing in The General Theory: “the importance of money essentially flows from its being a link between the present and the future”
This construction/engineering analogy here helps us understand what money does in a world of income flows and assets: A functional bridge connecting two cities doesn’t need capacity for the entire fleet of cars and pedestrians to cross at the same time. It's enough that just some small share of all the cars can fit through: the traffic load matters more for the size of the bridge than the number of cars or houses or trucks in the region.
In Bitcoin’s own blockchain, Bitcoiners intuitively understand this: There’s limited blockspace, and it’s precious and scarce (#798342) so you must bid for access. Nobody (I hope?) would claim that Bitcoin is broken because not all the world’s bitcoin can fit through the next block…?
So yea, stop paying attention to silly ideas like this. What, the world's total amount of capital, real estate, commodities, businesses etc is limited to 21 million bitcoin?
Get outta here!
That's today's little money lesson
Peace
/J