The War between Tech Deflation & Monetary Inflation ⚔️ Puts This Guardian on the Map 🛡️

We live in fascinating times. Turn on the news, and it often feels like the world is on a downward spiral. Stock markets wavering, geo-political tensions, and the looming specter of inflation. But let me let you in on a secret: there’s a significant mismatch between perception and reality.

The Rise and Rise of Tech

You, like me, may have noticed that this year has been nothing short of revolutionary in the realm of technology. While headlines scream gloom, breakthroughs in AI and technology are lighting up the horizon. Our model, ChatGPT, stands as testament. Then there’s the open-source wonder, Llama, and the innovative multi-modal transformer models.

Did you know that in recent years, AI training costs have been declined at an average rate of 70% annually? Astonishing, right?

“AI training cost declines continued at an annual rate of 70%, the cost to train a large language model to GPT-3 level performance collapsing from $4.6 million in 2020 to $450,000 in 2022. We expect cost declines to continue at a 70% rate through 2030.” — ARK Research

We’re evolving into a sophisticated cyberbiological organism, with machines seamlessly integrating into our daily lives. If our collective intelligence and data processing capability increases even by a whopping 15% in a year, shouldn’t our productivity mirror that?

And while GDP growth is often seen as a barometer for productivity, it’s an imperfect one. The reason being, many valuable services today come for free or at a fraction of the cost they used to. Remember when you had to fork out hundreds for basic graphic designs or beginner-level coding services? Not anymore. Now, that’s progress.

The Duel: Technological Deflation vs Monetary Inflation

This massive technological growth comes with a deflationary impact. For the uninitiated, Moore’s Law posits that the number of transistors on a microchip doubles every two years, though the cost of computers is halved.

And Wright’s Law suggests a consistent reduction in costs in various tech domains. Essentially, as technology becomes more sophisticated, it becomes cheaper.

On the flip side, we have inflation. Every year, monetary systems pump more money into the system, which in simple terms means more money chasing fewer goods.

This is the official data for monetary debasement by US FED:

Here’s how the purchasing power of the strongest currency in the world, USD, has eroded over the decades:

Enter Bitcoin: The Game Changer

So, where does one put their money to ensure it doesn’t erode in value? Traditional fiat currencies, be it USD, EUR, or CNY, continually inflate. For instance, the USD has been inflating at around 23.9% over just over 3 years, according to Truflation.

However, Bitcoin offers a refreshing alternative. Its magic lies in its fixed supply of 21 million units. Even if Bitcoin remains the choice of just 0.1% of the population, its value is intrinsically tied to the productivity of that group. Say, for example, global productivity rises tenfold over a decade due to tech advancements. That means, theoretically, the purchasing power of Bitcoin users would mirror that increase.

To break it down, here’s a simple formula that outlines Bitcoin’s potential growth trajectory:

BTC Annual Growth Rate ≈ Productivity Growth + Debasement Rate + Adoption Growth

For instance, if productivity surges by 10%, monetary debasement is at 5%, and Bitcoin adoption grows by another 10%, we’re looking at a 25% rise in Bitcoin’s intrinsic value in just one year.

Bottom Line

It’s straightforward. If you, like me, believe in the forward march of technology and the inevitability of inflation, parking some of your assets in Bitcoin could be a wise choice.

All we need to assume is that Bitcoin maintains or increases its current level of importance and adoption. Given its performance and resilience so far, I’d say that’s a bet many of us can take.