In this article, I will open your eyes to a simple truth: why Bitcoin is so expensive and why it will be even more valuable in the future. I'll start by touching on the distant years of 1840-1860 - but what does that distant time have to do with Bitcoin at all?
Let's recall the words of BlackRock CEO Larry Fink - Bitcoin is the new digital gold. This was a hint for us on which direction to look and how to understand his words.
In 1846, California officially became part of the United States. The population was small, about a few tens of thousands of people - the main occupation of people in this state was hunting. There was no infrastructure, and the state consisted of small villages. Even the population of San Francisco at that time was about 500 people - it was hard to call it a city. But everything changed drastically after the news spread that gold had been found in the state, practically lying underfoot. By 1850, more than 200,000 people had moved to California to live and work. It was at this time that the people who first took the niche of gold mining began to get rich - there was a lot of it in the surface layers of the soil. It was mined simply by washing the soil, just taking and washing - no technology was needed for this, even a pot could be used as a sieve to wash the ground. It was clear that after people saw an easy way to get rich, even just working for someone who owned the land where gold was mined, they could earn 20 times more than people working at average jobs, and the influx of people to this state was incredible. This was the beginning of the Gold Rush.
Of course, after a while, the surface gold deposits began to deplete - this forced miners to search for new gold deposits in California. During the Gold Rush, gold worth 50 billion dollars (in today's money) was mined.
It may not seem like much to you, but actually, the most money was earned by those who serviced the entire gold mining business.
Among such people were those involved in logistics and built the railway, through which logistics to California was established - at that time, a passenger ticket to this state cost the equivalent of hundreds of dollars today. People paid such insane amounts at that time to go to this Eldorado and get rich. Entrepreneurs who sold clothing and other basic necessities for the working class also earned money. The creator of jeans, Levi Strauss, also made his first capital during the Gold Rush. He sewed pants for miners from coarse canvas, which turned out to be the most necessary thing for people working in the ground - comfortable and durable.
But the most money was made by those who timely understood that the biggest money could be made on the tools for gold mining - picks and the like. At that time, the demand for work equipment was incredibly high - that's why monopolists appeared, who held the tools for mining in one hand and set incredibly high margins on these tools, but they were still bought because everyone lived with the dream of getting rich from this. The euphoria was further fueled by the story of one miner who managed to find a nugget weighing almost 100 kilograms.
While reading this article, did you not notice the analogies with Bitcoin (and the Gold Rush) on this asset?
It is no coincidence that Nvidia became the top company by capitalization in the world because they sell people the tools for mining digital gold. They are the largest producer of capacities for mining Bitcoin and other cryptocurrencies. Have you ever noticed how much the prices of video cards and PCs in general increase when Bitcoin is at market highs and how prices sharply drop when Bitcoin is in a bear market phase? Similarly, exchanges are like logistics companies providing access to tools for earning on the crypto market. There are many analogies, but I don't see the point in bringing them all up. Anyone who understands crypto even a little will understand the essence I want to convey in this article. Indeed, what is happening now with crypto has many echoes and logic from the past years, the past (Eldorado).
Now let's move specifically to cryptocurrency and the rush for digital gold, but before that, a little background on how the cryptocurrency market appeared.
The situations are very similar, but in the Bitcoin rush, there was an evolution that distinguishes it from the gold rush.
In 2008, one of the most significant banking crises occurred. In mid-September 2008, a two-day meeting was held behind closed doors at the Federal Reserve Bank (FRB) of New York to try to prevent a financial catastrophe. In addition to the head of the FRB, Timothy Geithner, the then-US Treasury Secretary Henry Paulson, and the heads of the largest investment banks in the country - Goldman Sachs, Morgan Stanley, Merrill Lynch, and Lehman Brothers, which were on the verge of bankruptcy - attended the meeting. In the evening of September 14, it was decided: Merrill Lynch would be sold to Bank of America.
A financial tsunami was approaching Wall Street.
"We know we have hard work ahead of us, but it's in such work that we have succeeded. We can make the best purchase in the world and create the best financial institution in the world," said Bank of America chairman Ken Lewis at a press conference following the meeting. However, Lewis's efforts were in vain. Everyone understood that a financial tsunami was approaching Wall Street. That same night, it became known that Lehman Brothers could no longer avoid bankruptcy. And in the morning of September 15, before the start of trading, the Dow Jones index fell immediately by 300 points. News reported that on September 15, 2008, with Lehman Brothers' announcement of its bankruptcy, the 158-year history of a bank that had survived the industrial revolution and two world wars ended. The crisis on Wall Street caused a collapse of markets worldwide. "I never thought this could happen. Over one weekend, both Lehman Brothers and Merrill Lynch fell. This is a historic event," said Alan Valdes, who had worked as a broker for 20 years, in an interview with an American TV channel.
Free market capitalism ceased to exist.
But why did Washington allow Lehman Brothers, the fourth-largest investment bank in the US, to go bankrupt? Just six months before, it had decided to help a slightly smaller bank, Bear Stearns. Experts are still looking for the answer to this question. According to Wall Street broker Jason Weisberg, the US administration "started choosing which banks to help and which not. By that moment, free market capitalism had ceased to exist, and this was no longer a natural development of the situation. Now several powerful forces influenced the development, deciding whom to help and whom to leave aside. They helped Bear Stearns and did nothing for Lehman Brothers."
Insiders on Wall Street have their unofficial version of what happened: in the summer of 2008, US Treasury Secretary Paulson allegedly gave Lehman Brothers head Richard Fuld a series of recommendations on how to avoid bankruptcy, but Fuld sharply rejected these proposals, stating that he had been running Lehman for 15 years and did not need advice. Paulson took offense, and the fate of the bank was practically decided in advance.
Own housing - own debts - own auction.
Meanwhile, one of the main causes of the crisis has roots in the 90s: then US President Bill Clinton promised that every American would have their own home. The second important reason was the cheap money policy conducted by Federal Reserve Chairman Alan Greenspan. For two years, the floating mortgage rate was very low, but then it sharply rose. Hundreds of thousands of homeowners, unable to repay their debt, were forced to sell their homes at auction.
The results of the first year of the financial crisis look shocking: in the United States alone, the deepest recession in the last 80 years led to the loss of almost seven million jobs. Worldwide, over 26 trillion dollars in savings disappeared without a trace in stock markets, and taxpayers in the US and Europe had to spend almost the same amount to avoid a new, larger catastrophe.
Imagine the scale of the pain on the market back then. People suffered a total loss of 26 TRILLION dollars!
And after all these shocking events, an anonymous person under the pseudonym Satoshi Nakamoto created the pill for all financial market woes.
Satoshi Nakamoto created Bitcoin for several main reasons, as outlined in the documentation (white paper):
1. Decentralization of the financial system: One of the main reasons was to create an alternative financial system independent of central banks and governments. This avoids the risks associated with centralized financial institutions, such as bankruptcies or abuse of power.
2. Protection against inflation: Bitcoin has a limited number of coins (21 million), which prevents the currency from devaluing due to inflation often caused by excessive money printing by governments.
3. Transparency and security: Using blockchain technology ensures transaction transparency and high security, as each transaction is recorded in a public ledger, making it impossible to forge or destroy.
4. Reduction of transaction costs: Bitcoin allows transactions without intermediaries, significantly reducing the cost of money transfers, especially international ones, where traditional bank fees can be very high.
5. Privacy: Bitcoin allows transactions without the need to disclose personal information, protecting user privacy.
These factors made Bitcoin an attractive tool for those seeking an alternative to traditional financial systems and ways of storing value.
Initially, anyone with a PC could mine Bitcoins, and they mined them on a large scale. Most of the Bitcoins that can exist were mined before 2015, when there was no mass adoption of crypto. But due to the halving process, which involves doubling the difficulty of mining a block, it becomes increasingly difficult to mine over time. Also, due to the increase in hash rate (mining block difficulty), more powerful tools are required for this activity.
Article author: Vladyslav Zadorozhnyi
Co-owner Crypto Crew