Digging into George Soros’ theory of reflexivity reveals what’s happening to Bitcoin right now.
2020’s coming to an end and it seems clear that it’ll be one of the most chaotic years in history when all is said and done. For Bitcoin, however, it just might be the best yet. As Bitcoin rose above $18,000 this morning, I found myself wondering yet again: “why exactly is this time different?”
Yes, institutional adoption is at an all-time high as I’ve pointed out primarily on NBX’s blog here. Still, as Bitcoin and the overall crypto market continue to grow, numerous critics have also resurfaced with same arguments that were most prominent in 2017. “Bitcoin’s merely a bubble.” “It’s too risky to be taken seriously.” These ideas and more are still driving the cases of those who refuse to believe in its rise.
Yet, are things really the same this time?
Consensus would say, no. If you take all of the leading opinions on Bitcoin in 2020, including Raoul Pal’s, Anthony Pompliano’s, Robert Breedlove’s, Jeff Booth’s, and several from outside of the space such as: Mike McGlone, Paul Tudor Jones, and Stanley Druckenmiller, then you get one overarching conclusion. This time, Bitcoin’s being valued fundamentally differently, especially by institutional investors.
For the first time in history, it’s being treated as what it’s always been. Digital gold.
If you’re not familiar with the term, just think “a digital currency with a supply that’s limited forever.” There will only ever be 21 million bitcoins and that can’t ever change because Bitcoin’s code forbids such a change. Since that’s true, it’s the first “digitally scarce” asset ever. While these facts have been shared since its inception, it’s taken 10+ years for institutional capital to expect them. This might seem like a long time for Bitcoin’s fundamental value to begin to be widely accepted, but in reality, it isn’t.
It means that all sorts of high net-worth individuals and companies have been watching Bitcoin, maybe even since it first launched and tracking key metrics like its correlation with other markets as well as its historical volatility. In doing so, what they seem to have concluded is that now is the time to truly test the waters. To quote Raoul Pal, with this new wave of adoption, Bitcoin’s creating “a Soros-style reflective loop of which we’ve never seen before.”
Unpacking this statement fully calls for another dedicated discussion, which will come in my first newsletter post. If you’re interested in that, head here, subscribe, and be the first to dig into the theory of “absolute reflexivity.” Until then, suffice it to say for now that what Pal means is that Bitcoin will continue in a cycle in which adoption is driven by institutions (and people) realizing its fundamentals, which will raise its market cap and price, and will in turn, cause more investors to dive in. If you consider this process as a cycle in which all of the variables push each other up, then you’ve already got the absolute basics of why Bitcoin is now creating a “Soros-style reflective loop.”
Simultaneously, you now understand what’s driving people to it en-masse as 2020 comes to a close. If that’s not enough for you to dig further into Bitcoin yourself, I don’t blame you. It took me a year to fully dive in, which is precisely why I get what it’s like to be a newcomer. With that in mind, I aim to continue my efforts to educate the world about both Bitcoin and the crypto space at-large. Stick around here for posts on all things crypto or if you prefer your content by email, head to the newsletter.
Disclaimer: As a reminder, nothing that I post is direct financial advice. Always do your own research and consider my content as one student sharing his journey through crypto with as many others as he can.