Make a list of the richest people on earth. Behind their wealth are large organizations comprised of hundred of thousands of people who make stuff that millions of others want to use in their lives. Hundreds of thousands of Amazon employees deliver goods to customers the next day. Hundreds of thousands of Google employees make searching the infinite possibilities of the internet possible. Hundreds of thousands of workers working hundreds of thousands of hours are behind Tesla, shipping companies, real estate empires, and oil fields. The value of wealth must be maintained.

Behind bitcoin wealth there is nothing. It is naked wealth. There are a few people who on a lucky day long ago spent a half hour to purchase some tokens. That is all the time they ever spent — a few minutes! Their wealth requires very little to sustain it. Which why in part it is so volatile. Because it is naked wealth it can disappear easily.

My premise is that wealth must be maintained. Wealth has to be supported by continual work.

One might argue that the wealth of bitcoin is actually maintained by the hundreds of thousands of CPU cycles that are used to mine new coins. That might be true. It is unclear how much value new coins bring today, which is an important question because the number of bitcoins is limited and at some date, there won’t be any new coins. But let’s imagine bitcoins are like gold. (Although I have never heard of anyone making a billion dollars from buying gold.) The historical price of gold is roughly correlated — to the nearest order of magnitude — to the price of mining gold. These days the cost of mining gold is roughly $1,200 “all-in” which includes the cost of  equipment, permits, transport, marketing, etc.  That is the same order of magnitude as the price of gold today.

The cost of mining a bitcoin today “all-in” (includes the cost of the hardware, shelter, support) is $15-20K.  If my premise is true — that wealth must be maintained by work — then over time the price of bitcoin should highly correlate with the cost of mining bitcoins.