Alice in Cryptoland: A Bitcoin-Centric Worldview

Over the past month, during book-sharing events in Taipei, Hong Kong, and London, I touched on the concept of a Bitcoin-centric worldview, which some readers didn’t fully grasp. This article will expand on that concept to help everyone understand.

In the crypto community, when you first meet someone, the most common question is "How do you dive into the rabbit hole?" This reference comes from Lewis Carroll's classic 1865 children's novel, Alice's Adventures in Wonderland, specifically the first chapter ‘Down the Rabbit Hole’. It has since come to symbolize unwittingly falling into a world of reversed logic, leading to a completely different life thereafter.

The "Bitcoin standard" essentially means viewing the world through the lens of Bitcoin. It sounds like I've explained it, yet it may also seem like I've said nothing, merely expanding on the literal meaning, leaving those who didn't understand still in the dark. From personal experience, the complexity of the Bitcoin standard isn't due to the depth of the concept but because it directly contradicts the logic we've internalized over many years, making it feel as unnatural as fighting against one's reflexes. Thus, the deeper one is entrenched in traditional systems, the harder it is to grasp the Bitcoin standard.

Let's revisit this concept through the perspectives of two old friends, Alice, who uses the US dollar as her benchmark, and Bob, who uses Bitcoin. By stepping into their viewpoints on different aspects of investing, we can appreciate the worldview of the Bitcoin standard and understand how Alice, wandering through Wonderland, finds her logic completely reversed after falling into the Bitcoin rabbit hole.

Alice: At the end of each month, her bank statement converts her assets—foreign currencies, mutual funds, stocks — into US dollars, adding the US dollar value of cryptocurrencies like Bitcoin and Ethereum, Alice calculates her total asset value.

Bob: At the end of each month, Bob converts his dollars and limited foreign currency, mutual funds, and stocks into Bitcoin, plus the total of his cryptocurrency assets priced in Bitcoin, to calculate his total asset value.

Adopting the Bitcoin standard means settling in Bitcoin. If one can't even clarify how much of their assets are in Bitcoin, then talking about living by the Bitcoin standard is not feasible.

Alice: For Alice, having assets in dollars means they are idle, not invested. When she sees potential in something, she "buys into it" by exchanging US dollars for that asset. When exiting an investment, she "sells it", converting the asset back into US dollars.

Bob: For Bob, having assets in Bitcoin signifies they are at rest, not invested. If he sees potential in something, he "buys into it" using Bitcoin. When he exits an investment, he "sells it", converting the asset back into Bitcoin.

I once advised in ’Bitcoin Breaks New Highs: Five Things to Remember in a Bull Market’ to buy 0.001 BTC worth of dollars daily. A reader kindly pointed out what they thought was a mistake; however, that was intentional. My recommendation was to use BTC as the unit of account, purchasing dollars daily. This isn't just a play on words. Numerically, it’s no different from selling 0.001 BTC each day, but the mindset is the complete opposite, using logic from the "rabbit hole". From Bob's perspective, the decision isn't to sell because the BTC price is high, but to buy because the dollar price is low, then sell when it appreciates to regain Bitcoin and profit from the exit.

Alice: Alice quotes in US dollars. In her view, 1 BTC equals 70,000 USD, 1 ETH equals 3,500 USD, 1 AAPL  is 169 USD, and a Tesla Model 3 is priced at 40,000 USD. She occasionally uses Coinmarketcap to check cryptocurrency prices and opts to display them in dollars.

Bob: Bob quotes in Bitcoin. To him, 1 USD is 0.000014 BTC, 1 ETH is 0.052 BTC, 1 AAPL is 0.0024 BTC, and a Tesla Model 3 costs 0.557 BTC. Bob regularly uses Coinmarketcap to view cryptocurrency prices, choosing to display them in Bitcoin. Just as Americans look at foreign currency prices in dollars, Bitcoin is Bob's ”base currency”, and altcoins are like foreign currencies to him. Sometimes he exchanges some Bitcoin for altcoins because he sees potential in them or needs to use this “foreign currency” Additionally, Bob uses Fiatmarketcap to check the prices of over a hundred fiat currencies, such as the Chinese dollars, which is valued at 584,862,949 BTC, with 1 RMB currently priced at 195 sats, or 0.00000195 BTC.

One reason why adopting a Bitcoin standard is challenging is that the quoting currency is not individually determined but socially dominated. The US dollar is the mainstream global currency, and living by the Bitcoin standard mentally requires constant conversion, similar to how tourists need to convert prices back to their home currency to understand how much a hamburger costs at McDonald's. Unlike the relatively stable exchange rates between the Hong Kong dollar or the Taiwan dollar and the US dollar, converting prices to Bitcoin often requires a calculator, akin to calculating prices in Vietnam by multiplying by 0.00004 to convert to dollars, significantly raising the mental accounting barrier.

Alice: Alice measures her gains and losses in dollars. "Making money" means that after converting assets into dollars, she has more dollars than before. For example, if Alice bought AAPL shares at $67 four years ago and sold them today at $169, she made a 152% profit. Similarly, if she bought ETH at $173 and sold it today at $3,644, she made a 2000% profit. Although Alice sometimes converts her dollars into other assets, her ultimate goal is to increase her dollar holdings over the long term, so she converts her assets back to dollars when cashing out.

Bob: Bob measures his gains and losses in Bitcoin. "Making money" means that after converting assets into Bitcoin, he has more Bitcoin than before. If Bob made the same investment decisions as Alice, buying AAPL four years ago at 0.0091 BTC and selling it today at 0.0024 BTC, he would suffer a substantial loss of 74%. However, buying ETH four years ago at 0.024 BTC and selling it today at 0.052 BTC would net a slight gain of 116%. Although Bob sometimes converts his Bitcoin into other assets, his goal is to increase his Bitcoin holdings over the long term, so he converts his assets back to Bitcoin when cashing out.

If Bob's logic is hard to grasp, consider the analogy of stock investors who use the Hang Seng Index as a benchmark. Suppose Carol bought shares of China Electric Power at 34.1 HKD during the SARS outbreak in 2003 and sold them today at 62.3 HKD. In terms of Hong Kong dollars, she made an 83% profit (ignoring dividends for simplicity, though they should be considered in real scenarios). However, during the same period, the Hang Seng Index rose from 8,579 points to 16,854 today, an increase of 96%. Therefore, using the Hang Seng Index as a benchmark, Carol's investment shows a loss of 14%.

Alice: In early March, Bitcoin hit a record high, and the prices of cryptocurrencies, led by Bitcoin, significantly increased. By the end of 2023, the BTC price was 40,000 USD. Alice held 1 BTC and 80,000 USD, with a total asset value of 120,000 USD. Now, with BTC priced at 70,000 USD, Alice’s total asset value has risen to 150,000 USD, a 25% gain. Alice regrets not buying more Bitcoin at the end of last year, missing out on the rise in Bitcoin’s value during this period.

Bob: In early March, the dollar hit a historic low, and the prices of fiat currencies, led by the dollar, significantly fell. At the end of 2023, the dollar price was 0.000025 BTC. Bob held 1 BTC and 80,000 USD, totaling an asset value of 3 BTC. Now, with the dollar price fallen to 0.000014 BTC, Bob’s total asset value has dropped to 2.14 BTC, a 29% loss. Bob regrets not selling his dollars at the end of last year to avoid the dollar’s depreciation during this time.

The concept of making losses in a bull market may seem increasingly hard to accept. Think deeper: if you anticipate that cryptocurrencies will enter a bull market in 2024, you are viewing the world from a dollar-centric standpoint. For Bob, who uses the Bitcoin standard, 2024 marks the start of a bear market for fiat currencies. Holding more dollars means greater losses—a straightforward arithmetic fact often overlooked by those who believe holding dollars carries no risk, at most missing out on profit opportunities, because they forget their dollar-centric perspective.

In essence, being under the "X standard" means our entire life is deeply entrenched in "X" without us even realizing it.

Bitcoin is like a rabbit hole—a dizzying plunge into a deep pit that can make you question your life, which is completely normal. Let’s pause here and give Alice some time to digest this new reality. We'll come back later to discuss how Bob has mastered living by the Bitcoin standard.

P.S. A friend knew I had impulsively bought some Badkids NFTs, and wrote to tell me they suddenly became a hot sell, with the floor price jumping to 5,000 dollars. So, on a whim, I put one of my Badkids up for sale, and by the time I woke up, not only had it sold, but it had also increased in value by another 20%. The profit from this unexpected boon seems most fitting to be spent on civic causes.