The Fifth Phase

“those rich whose wealth survived the “transition” live in isolated gated cities called Citadels” Luka Magnotta (source 1)

The Phases

“which indeed is the least of all the seeds; but when it is grown it is greater than the herbs and becomes a tree, so that the birds of the air come and nest in its branches” Matthew 13:32

The psudoanonymous Bitcoin model maker Plan B has proposed that following our Second Halvening in 2016 we have seen Bitcoin enter the Fourth Phase (source 2).

Plan B explains that like an element has different characteristics in different states, an asset can also act differently across its life whilst still being the same thing. Insomuch as water acts differently when in liquid, gas, solid or ionised states (or phases) it is just as the Dollar is not comparable during its Gold redeemable, Dollar Standard and Fiat stages despite still being a Dollar. Having phases, stages or states of being is virtually a universal truth: our seasons, elements, technological advances and adoption, even our own lives have phases with each phase different enough from other phases for a layman to identify.

Bitcoin’s phases are associated with narratives connected to both price and adoption:

“Proof of concept” -> after Bitcoin white paper

“Payments” -> after USD parity (1BTC = $1)

“E-Gold” -> after 1st halving, almost gold parity (1BTC = 1 ounce of gold)

“Financial asset” -> after 2nd halving ($1B transactions per day milestone, legal clarity in Japan and Australia, futures markets at CME and Bakkt)

(Source 2)

S2FX

“It will have geopolitical consequences… if the model is successful it will not be a pretty picture, it will be nasty… maybe war” — Plan B (Source 3)

The Stock to Flow Cross Asset model put forward by Mr Plan B justifies it’s results to the insertion of Silver and Gold as assets along side and against Bitcoin as it is in Phase 1, Phase 2, Phase 3 and Phase 4. As with all of Plan B’s work the community has acted quickly to attempt to falsify, test and add further comment and thought (this post not withstanding). Pete Harrigan of Grey Swan Digital has already added San Francisco real estate to the model with correlated and corroborated results (source 4).

As an aside to the model, and its prediction of a S2FX value of $288,000 usd/btc after the 2020 Halvening, Plan B identifies an issue that the community needs to be aware of and work toward addressing… What will the world do when Bitcoin enters it Fifth Phase?

The Fifth Phase — Thucydides Trap

“…join with me in introducing a bill to outlaw cryptocurrency — the purchases by Americans — so that we nip this in the bud in part because an awful lot of our international power comes from the fact that the dollar is the standard unit of international finance and transactions.” Congressman Brad Sheman (Source 6)

The Fifth Phase is when Bitcoin moves from Financial Asset (Phase 4) to an emerging challenger for a Global Reserve Currency (The Fifth Phase).

In the Fifth Phase Bitcoin’s Stock to Flow will hit 56 which allows the model to show a value of $288,000 usd/btc and a Market Capitalisation of $5.5T (USD). There is a significant issue with both numbers in that a Bitcoin value of that level would then out-compete the United States Dollar which has a Money Supply (M0) of circa $3.9T (Source 5).

Global Reserve Currencies have tended to change every 80 to 100 years. Whilst the official swap from the Great British Pound (Sterling) to the US Dollar was at Bretton Woods in 1944, many believe it started as early as 1920, just after the later helped finance the former through the crippling Great War (the Second World War was the final nail in the coffin for Sterling as the Reserve Currency). Whilst in this case the transition of the Global Reserve Currency had the agreement of other Nations (Great Britain included) it hasn’t always been the case. In all cases the Nation to lose the status has gone into general decline and the Nation that gained the status accrued significant economic advantage across the world (or maybe they gained the status because of their significant economic advantage across the world!).

I do not think that war debt and economic ruin aside Great Britain would have given up Global Currency Sovereignty willingly despite being allies. This is a rare case of clean and peaceful transfer (despite the war with other participants). You’ll note the significant amount written in the press and literature about the “The Thucydides Trap” of conflict between the rising power of China against the incumbent USA. Will Bitcoin escape Thucydides Trap?

The best case is that our present Covid related Depression weakens the world Nation states (along with the IMF et al) to be powerless to fight against Bitcoin’s rise to a Global Reserve Currency (please forgive me for saying the depression is a best case, it isn't good in any way but for this thought exercise). The worst case is that they stop laughing and start fighting. The potential for conflict is high and given that it would be Nation state/s and/or International Body/s vs for the most part Individuals it would appear to be very one sided. If we have a fight on our hands we are very ill equipped to defend ourselves, let alone advance our position. Many of us are doxxed, used centralised on ramps with KYC, do not mix or coinjoin, do not run our own nodes, do not mine, or have the ability to settle in a friendly jurisdiction. We are incredibly vulnerable to a “Order 6102”-esque challenge from a Government or a simple outlaw. Are we ready for increased character assassination, attempts at malicious code injection, state sponsored exchange hacks, attempts to break the back of the market on the scale of the Black Wednesday attack on the Pound, banks (or others) manipulation the price as they have been caught with the $7T Gold market? You might conclude that a lot of the above has been tried and failed, “honey badger don’t care”, but I don’t think our adversaries have even begun to take the threat seriously.

Bitcoin needs you

Complacency of our adversary cannot result in our complacency. Just because the IMF, US Federal Government (Treasury, DoD etc), EU Commission et al have only just started to consider the rise of Bitcoin and have taken very little action cannot lull us into a state of complacency ourselves. We must equip, we must plan, we must bring together further thought leaders in to the space to help us prepare.

We are a decentralised community but we must listen to and take heed of best practice. Otherwise we may end up as part of a grand failed experiment, taken out by a ferocious foe with almost limitless resource, just at the moment we are on the cusp of changing the world for the better.

— — —

This is Part 1 of my thoughts on the Fifth Phase. The Fifth Phase has the potential to be the most painful phase in Bitcoin’s past and future and as such we need to spend time tackling the issues that could arise.

I intend to work on the following and welcome your thoughts:

1. The study and explanation of each Global Reserve Currency transition. What happened, why, what could have been done differently and the friction points. What can we learn from this as we push for Bitcoin to become the next Global Reserve Currency.
2. A deep dive into how I think Bitcoin will be attacked. What tools have Governments and bad actors implemented before to break currencies? Will they work on Bitcoin? What work have various Nations done already to track, control or monitor Bitcoin that would allow a crack down? What actions have the US Government in particular taken when faced with challenger currencies/systems. Civil War, the fight between those pro Bitcoin Regulation/Bitcoin Holder registration and those pro freedom and privacy.
3. What we need.

A call to arms has been made. What action do we each need to take to safeguard ourselves, our families and the economic prosperity of the Globe. Citadels, nomads, hiding/moving. The accrual of our knowledge and team — “We are understaffed for this battle”.

Sources

1. Luka Magnotta Reddit https://www.reddit.com/user/Luka_Magnotta
2. Plan B Stock to Flow Cross Asset Model https://medium.com/@100trillionUSD/bitcoin-stock-to-flow-cross-asset-model-50d260feed12
3. Stephan Livera Podcast 171 Plan B and Saifedean Ammous — Bitcoin S2FX, S2F, and Evolution From Colletible to Financial Asset
4. Bitcoin Stock-to-Flow Cross Asset Model Works Well on Housing — https://medium.com/greyswandigital/testing-plan-s-cross-asset-stock-to-flow-model-on-housing-c84889304ddf
5. USD M0 money supply https://tradingeconomics.com/united-states/money-supply-m0
6. Brad Sherman comments on Bitcoin challenging the US hegemony https://dailyhodl.com/2019/05/09/bitcoin-critic-and-us-congressman-brad-sherman-calls-for-bill-to-ban-crypto/