Unit bias in Bitcoin

One of the most common things that you’ll hear about Bitcoin is that it’s too expensive now. ‘One Bitcoin is $45,000?? How can anyone afford that?!’

This is what is known as unit bias. While one Bitcoin may look expensive, the per-unit price of Bitcoin does not matter.

The reason why one Bitcoin looks so expensive is that there are only 18 million Bitcoin circulating. Given that the network as a whole is worth about $800 billion, that leads to a per 1.0 BTC cost of around $45,000.

This is the point that you need to understand – the only reason Bitcoin looks expensive is because there are so few units (though remember, 1 Bitcoin is divisible to the hundred-millionth of a BTC).

To understand this, you need to look at the market capitalization, which is the value of the entire network.

The calculation for market cap is – Unit Price x Supply = Market Cap.

So – in which below scenario does $1,000 buy you the most Bitcoin?

  • 18 million Bitcoin supply at $45,000/BTC
  • 180 million supply at $4,500/BTC
  • 1.8 billion supply at $450/BTC

The answer is that $1,000 buys you the same amount of Bitcoin in all three scenarios.

What you are buying with $1,000 is a percentage of the overall Bitcoin supply, which does not change in any of the above scenarios. You buy the same percent of the Bitcoin supply in choice C as in choice A.

Bitcoin is not more expensive in choice A at all, the only difference is psychological. Understand this point. The difference is only in your head. It’s not real. The feeling that ‘one whole Bitcoin is too expensive’ is just our brain playing tricks on us.

To illustrate this further – 17 billion shares of Apple have been issued, nearly 100x more than the circulating amount of BTC. Apple’s current share price is $136 and its market cap is $2.2 trillion. If there were only 18 million shares of Apple, like there are units of BTC, each Apple share would be worth $122,000.

$136 AAPL out of 17 billion and $122,000 AAPL out of 18 million are the same thing. What matters is that the market cap, Apple’s actual value, is 2.2 trillion. $1,000 buys you the same amount of Apple each way. Again, there is no actual difference. Only psychological.

Making the units/shares the same in the opposite direction is true as well, $45,000 BTC is equivalent to $47 APPL.

This is how unit bias works. We see things that look ‘cheap’ and we think that they are a good deal. When we see something ‘expensive’ we get hesitant. This is not correct, however. It’s all just a function of the circulating supply.

The sooner you understand this, the better. $45,000/BTC is not as expensive as you think it is.

Leave a Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s