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Bitcoin investors find themselves in a uniquely disadvantageous position compared to all investors in history. They hold something that has no endpoint or external resolution that would give them leverage over people. What does this mean? Let’s take oil investors. Like everything in the market, oil circulates from buyer to buyer, from investor to investor, and at the end of the chain stands someone who must burn it to heat a house or power a vehicle or factory.
This means that oil has an external resolution; that is, it culminates in something that other people necessarily need for their lives, business, or survival. That is why these ‘other people’ are motivated, even forced, to negotiate, pay, or adapt in order to reach that completion.
Whichever asset we examine, each has a resolution, even the most banal physical object, such as a collectible card, a Beanie Baby doll, or a tulip bulb. All three possess tangible, sensory, and experiential qualities that allow them to exit the market through use or enjoyment. They can be seen, touched, handled, displayed, collected, and physically possessed. A collector may derive visual pleasure or aesthetic satisfaction from owning them, whether by admiring a printed card, displaying a plush toy, or cultivating and viewing a rare flower. That final point of enjoyment constitutes a resolution, and with it comes leverage. However small or trivial it may seem, that leverage exists for all three.
Stockholders have stronger leverage because the companies they own have resolution in products and services that a large number of people need every day, such as food, clothing, mobile phones, and household appliances.
Investors in fiat money have even stronger leverage. That money is created as debt recorded on bank balance sheets and is erased as loans are repaid, meaning it has a resolution in that repayment. This possibility of resolution gives investors in fiat money leverage over everyone who owes the banks, even over the banks themselves. Billions of individuals have taken out mortgage or auto loans from the banks, and they desperately need fiat money to save their vehicles, land, and homes from foreclosure. Hundreds of millions of businesses that have borrowed from the same banks or rely on ongoing credit lines need that money to survive and avoid bankruptcy, while the governments need it to repay its bonds and avoid sovereign default. The banks themselves need it to close unpaid loans and avoid capital impairment and bankruptcy.
That is stronger leverage than investing in stocks because a debtor threatened by a bank with the loss of their home will secure money to repay the loan before buying a new mobile phone or clothes.
Holders of casino tokens, or balances on Revolut and PayPal, also possess leverage. They hold power over the issuers, who are legally obligated to redeem those instruments for fiat money on demand.
Bitcoin, however, represents an exception. It is the first market instrument without resolution. It is a token of self-reference that gives investors no leverage over others. It is a loop without an exit.
When a bitcoin is created (by rewarding mining), it is a reward for computational work that serves exclusively to maintain a distributed ledger whose only content is the history of bitcoin ownership. Therefore, bitcoin is issued to preserve the record of bitcoins.
When bitcoin is transferred from one address to another, the transaction updates that same ledger: only the record of who owns bitcoin changes. The economic outcome of the transaction is exclusively a new entry in the same ledger. Nothing happens outside the ledger; there is no completion. Bitcoin never disappears through an external resolution, as fiat money does through its deletion from a bank balance sheet as loans are repaid, or oil through burning; nor does it persist through such resolution, as gold does by resisting corrosion and conducting electricity. It merely records ownership: ‘Bob owns me; now Alice owns me; now Charlie owns me’, and so on in an endless chain of ownership flips.
Bitcoin is pure self-reference: a token that exists solely to record the transfer of tokens that themselves exist to record their transfer. Its meaning is entirely internal, directed at its own system, with no resolution or completion outside that circle. It is the first instrument in the history of economics without external resolution.
Why is this fatal for Bitcoin investors?
The first reason is the impossibility of exerting pressure. To be an investor historically means to possess something that others need. An investor’s power stems from the fact that they hold a resource necessary for someone else to complete a physical or legal process, such as producing energy, securing housing, or settling a debt. A Bitcoin investor holds something that no one needs for any external operation. Because they have no leverage over other people, the investor is trapped in a passive position. They are merely a supplicant hoping a new buyer will appear. They are begging for a price rather than dictating one.
In every other asset, the resolution party pays because at the point of resolution they receive a benefit greater than the price. In Bitcoin, because there is no resolution benefit, there is nothing to dictate and nothing to negotiate. This perspective demystifies the nebulous concept of value that Bitcoin supporters use to obscure the system’s nature. In a rational economy, value is an estimate of the benefit a resolution party extracts when the asset finally exits the market. Because Bitcoin never exits and only circulates, it contains no extractable benefit. It is a battery that can be charged with investor capital but has no terminals to ever discharge that energy into the real world.
Under this framework, value is not a subjective feeling or a social agreement. It is a calculation of necessity. The value of oil is the benefit of the work performed, such as moving a truck five hundred miles. The value of fiat is the benefit of avoiding ruin, such as not having your house seized by the bank. The value of gold is the benefit of having a rust-free, chemically inactive material. Bitcoin value is nonexistent because there is no endpoint benefit to extract. Without a terminal for resolution there’s only a price fueled by the temporary influx of capital.
The second reason for Bitcoin’s inevitable failure is the entropy of a closed system. Bitcoin is the economic equivalent of a machine that consumes vast amounts of real energy (electricity) to produce exclusively proof of its own work. This demystifies Bitcoin as a ‘store of value’ and exposes it as a parasitic system in a state of constant entropy.
When we say a system is self-referential and closed, it sounds abstract. But when we introduce the physical cost of maintaining that closed loop into the equation, we get mathematical confirmation of why this is fatal for investors.
The Bitcoin network is not free or self-sustaining in a vacuum. To maintain that famous ledger (the blockchain), miners must consume huge amounts of electricity and buy expensive hardware. Miners do not receive electricity in Bitcoin; they pay electricity and hardware bills in fiat money (dollars, euros). To cover these massive costs, they are forced to sell newly created bitcoins on the market. Who pays those bills? The investors. Every dollar miners spend on electricity to maintain the ledger is a dollar that investors put into the system, which has permanently left the system and ended up with energy companies.
In classic investing, cost is resolved through resolution. In Bitcoin, since there is no external resolution, the total amount of value investors can extract is always less than the amount they invested.
The system behaves like a pool that is constantly leaking. In order for the water level (price) to remain the same, investors must constantly pour in new water just to compensate for what has leaked out to maintain the self-referential loop.
Here we reach the height of absurdity: the computational work serves exclusively to protect the record of that same work. In economics, work is usually converted into a product that has an external resolution (for example, a worker makes a table that someone needs).
In Bitcoin, work (mining) is converted into security. But security of what? The security of a record of possessing tokens whose only purpose is to be securely recorded.
That is the definition of circular logic that consumes resources. Investors are actually financing the most expensive security system in the world for a vault containing nothing but a confirmation that the vault is locked.
Why does this lead to ruin?
Because the system has a built-in expiration date dictated by economic exhaustion. As soon as the influx of new investors (new water in the pool) becomes smaller than the speed at which the system consumes resources to maintain the loop (the pool leak), the system begins to consume itself. Since there is no external leverage by which investors could force someone to pay them (as with assets with resolution), there is no way to stop this capital drain.
A Bitcoin investor is not the owner of an asset; they are a voluntary financier of the process of their own devaluation, paying for the maintenance of a system that gives them no power over the outside world.