The social consequences of Bitcoin at a million dollars (and at 10 million)/3

Let’s continue our imaginary journey into the world of Bitcoin at 1 million (whether dollars or euros makes little difference) and its social consequences.

We left off at a hypothetical figure of (at least) 40k new millionaires aged between 20 and 60. We can build some further reasoning on this number.

First of all, 40k out of 28 million works out at roughly 1 new millionaire for every 700 people (and let’s leave aside here the fact that, as we said in the first installment, most of them would be men). But let’s bring this 1/700 figure down to earth, because it’s a really significant number.

Sociologists  distinguish between a) intimate friends, b) best friends and c) good friends, and beyond these just friends and acquaintances, with the following rules:

a ≤5

a+b≤15

a+b+c≤50

With a bit of averages math (the square root of 700 is about 26, well below the good-friends threshold) we can see that, on average, we would know a new (at least) millionaire either directly or indirectly, through someone we trust (good friends), or even trust a great deal (intimate and best friends). In other words, it would no longer be just something we read about in the papers or on Google News, but something we’d hear about from someone with first-hand knowledge, or even experience, of it. It would also mean, for example, that there would be a new (at least) millionaire on every street in a big city with more than a hundred or so house numbers. Not bad at all.

But let’s see what these millions and these new millionaires would look like.

First of all, they would be liquid millions. Oh yes, because there’s a big difference between being a millionaire because, say, you own the house you live in and being one in Bitcoin. Bitcoin is liquid and can be divided down to the hundred-millionth part; the house you own can’t. If I sell it, where do I sleep? And I can hardly sell just one room, can I?

In the same way, having a million in Bitcoin because you had a lucky hunch a few years earlier is very different from having a million built up over years and generations by adding up mortgages, inheritances and pension funds. The ethics of work and saving come into play. And here the taxaholics, and not only Italian ones, will already be licking their lips. But maybe we’ll talk about that another time. It’s clear, then, that the first group, the (new)(at least) millionaires, would have both liquidity and a propensity to spend that are vastly different (greater) from the second group, the (old) millionaires. A Lamborghini on every fairly long street. Rolex Daytonas raining down. And so on.

And at this point, from a social point of view, the emulation effect would come heavily into play: FOMO, to use the inevitable anglicism, or the “parco buoi” (literally the “cattle pen” of small investors), to dig up an old-fashioned bit of Italian stock market slang. How many would rush in, trying to ride the wave of easy money at the last minute? Probably a lot.

And here’s one last aspect. As we’ve said many times on this blog, sticking once again with Bitcoin, though the argument isn’t very different for  other cryptos, Bitcoin is deflationary. Without going into technical details, remember that the theoretical supply of Bitcoin now grows very slowly, while the actual supply probably shrinks a little, so, conservatively, we can assume that the supply, that is, the number of Bitcoins available on the market, remains constant over time. That’s quite different from other stores of value, such as precious metals, works of art and hard currencies, which are all produced continuously.

What happens in a market with a fixed supply? Those who want to get in buy from those who already have them, who will only sell the toy that made them rich if they see a chance of getting even richer .. that’s how the animal spirits are unleashed. But if we remember what we said about the profile of the crypto investor, it also means a transfer of real wealth from the lower end of the social distribution towards the middle/upper end. At least, though, the younger social groups would be rewarded. Economic history is there to bear witness to similar cases, how they developed and what they led to. All the more predictable in an inherently unstructured context like crypto. It has happened before, but on a much smaller scale. The not-so-young (or more seasoned) among you will remember the .com (dotcom) boom at the turn of the millennium. But everything was more complicated and, ultimately, elitist. You needed a securities account, you had to go to the bank in person and face the stern or ironic gaze of the bank clerk. Very different from being able to do it today from your smartphone at any hour of the day or night, public holidays included.

The reflections made in these three installments, inevitably rough given the space and time available,  were based on data that are uncertain by nature. In some cases, the only structured analyses are published by organizations that cannot be considered entirely impartial and disinterested. That is, organizations that probably benefit from a growing market and have every interest in painting a rosy picture of it.

But even if the data were off by an order of magnitude, that is, ten times smaller (or larger), to what extent would the reflections be affected? Perhaps not that much. If, for example, there were 4,000 new millionaires instead of 40,000, how much would the reasoning change? Probably very little. Most likely, the timing would change. The stampede of the herd would be slower, but still very likely headed for the abyss.

Anyway, thanks to all of you who made it through all three installments. In any case, no need to worry: it seems we really have been on a dream journey, given the weakness crypto has shown since we started it. Today Bitcoin and all the rest are trading about 20% below their January highs