November 19, 2013
In the last week, Chinese state run TV news programs have been producing short segments about the rise of Bitcoins in the country. Many have concluded that to some degree this is an endorsement by the government. This will continue to have a profound impact on just how far Bitcoin could raise as more and more average Chinese become acquainted to Bitcoin.
In China as I write, Bitcoin is becoming an investment and savings account for just few thousand people. This rather small number of Bitcoin buyers has had the effect of raising the cost of a single Bitcoin to above $600 by November 18th, 2013. This makes Bitcoin clearly an investment and wealth preservation system rather then an actually currency.
If one were to run the numbers of just 2% of the population in China owning some fraction of Bitcoin, this could raise the single Bitcoin price to above $10,000. China has the highest personal savings rate in the world at 52%.
Over 4,000 Years Of Culture Impacts Savings Percentage
The Chinese saving more and spending less stems in part from tradition from government policies that discourage consumption. There is also a very long term mindset that goes back over 4,000 years. Some people older than 50, actually save more than 60 percent of their income and recall a period of economic hardship and political chaos. Called the bitter years of the Great Famine, from 1958 to 1961, and the violence of the Cultural Revolution, from 1966 to 1976.
All of this will have a very long term impact on the movement of Bitcoin prices. This means that it would be a rather high possibility that as not just thousands but millions of Chinese present some of their savings in Bitcoin they would be long term holders. This means that the chances of major retirements of Bitcoin prices will be less likely.
The Rocket Scientists In My Mastermind Group Fell Back Into Their Seats
This past weekend I worked with my some of my rocket science mastermind group (I am the only one that does not have a PhD in Physics) and we have built a few computer models that represent how a buy and hold investment by not just China but also India would impact single Bitcoin prices. The models are quite cutting edge and take into account a number of behaviors. Although the work we are doing is for two very large VCs in the Silicon Valley and is confidential at this point, I wanted to present the very real history of savings in China and India and how this will impact Bitcoin.
One model shows a rather shocking result, single Bitcoin values could reach above $10,000 if just 2% of Chinese and Indians buy and hold just a fraction of the Bitcoins that will be in final circulation. If this number passes the 10% mark there would be a rapid spiral upwards with a staggering result. We all fell back into our seats by what the models showed.
Bitcoin Is Gold To Litecoin’s Silver
This opens up the possibility of the potential success of Litecoin. In my view Bitcoin will become Gold, to Litecoin’s silver ($7 US currently) and silver always has been a more desirable form of trading currency. The big secret is what will become the copper to the gold and silver.
Long Term Thinking, Long Term Savings
It is clear that many that are trying to understand Bitcoin and what the value truly is, have not accounted for the history of the long term thinking and the long term savings that are a hallmark of Chinese culture.
History shows the Chinese always have been long term thinkers. They are thinking about Bitcoin. This will have a profound impact on the future of what we think of as currency and wealth preservation.
The value of Bitcoin rose to $802 today (Nov 19th 2013).