Economists are up in arms, claiming that bitcoinâs 1000% annual growth is faster than anything theyâve ever seen. Because of that, they lash out, calling bitcoin volatile, a bubble, a pyramid scheme, etc. But donât worry, James DâAngelo puts on his VC glasses to compare the 4.5-year-old bitcoin to facebook, twitter, google at the same periods in their growth. The result is that Bitcoinâs growth is as exponential, as volatile and as normal as any enormous tech giant. And just for fun we threw in a little bit about feral rats reproducing on a desert island.
Transcript
Hello. This is James DâAngelo and welcome to the Bitcoin 101 Blackboard series. Today, weâre going to look at the growth rates of rats on islands. Weâre going to look at Facebook and Twitter all to understand this big issue with Bitcoin, its phenomenal growth. So, thereâs no one whoâs a little bit curious about Bitcoin, has heard about Bitcoin and starts to get involved who hasnât heard that Bitcoin has been growing at about a 1000 percent a year and this year itâs getting even more crazy.
So it started the year at around $12 or $13 per Bitcoin and now theyâre worth around $340. Thatâs a growth rate this year of about 3000 percent. And this growth rate is driving people crazy, right? Itâs scaring even the regular people who are investing. Okay. So, theyâve never seen something like this so theyâre saying words like bubbles or some sort of pyramid scheme or a Ponzi scheme or something like that because the only things that theyâre familiar with that have this kind of growth rates are those things. But thereâs an issue with this. Thereâs actually some history with Facebook, Twitter, rats, bacteria and viruses that will help you understand Bitcoinâs growth and put it hopefully in a window of normalcy. Okay.
So, letâs take a look at rats. Okay. So, say youâve got an island, right? And itâs a pretty good island. Itâs got lots of fruit and vegetables and maybe some insects and all that. And on this island, right, you drop two rats. So at this beginning time T sub 0, you drop two rats. Okay. And as time moves, this is our time line and weâre going to look at T sub e, some ending time. Okay. And what happens is as you might expect is the rats land on this island, right? And they do really well. But if T sub end, if we know the end game right? If we know that thereâs 20 million rats on this island at T sub e, at the ending time well, then we can probably draw the growth curve. Okay.
So what happens is the first pair of rats start to reproduce and they go from two to maybe four or eight in a year to maybe 16 or 32, right? But keep in mind compared to 20 million this line is basically on the green line, right? And then slowly it starts to grow exponentially the way populations grow. Okay. And this exponential growth again, because weâre looking at 20 million, doesnât even really appear that big. Okay. So, even though youâre up at about thousand or ten thousand right now itâs really not that significant. But then exponential finally wins and you get up to your first million then immediately up to three four million and you get this amazing period when rats just seem to be reproducing everywhere and going crazy on the island and itâs not vertical but itâs so close to vertical that weâll call this the vertical part of the S-Curve, Vertical.
So, the population increase per month is going up by thousands and thousands. Okay. And then what happens? Well, your islandâs only got so much resources and the rats start to compete with themselves and eating all the resources and all that and then you reach sort of a saturation. Now, itâs clear that maybe theyâll overshoot and this will come down and settle out over here at the beginning maybe there will be some bad weather and then the population will drop near zero then recover and then there will be a good year with fruit, right? This curve weâre drawing you is the smooth curve, right? So, if this is 2000 years youâre going to see lots of bumps in this curve, right? Lots of what people might call bubbles or schemes or whatever, right? Theyâre all happening in this curve. So, if you smooth it out it makes this very famous thing called an S-Curve. Okay. And itâs not an S like you would expect, right? Itâs not an S like this, because this is time over here and you canât have the same population of rats having three different numbers. Okay. So, the S-Curves of population growth always look like that. Okay. And sometimes theyâre steeper and sometimes theyâre much more shallow.
Okay. So, this is an S-Curve that weâre looking at. But the interesting thing is the same S-Curve appears often with bacteria, right? Bacteria in your body, they start off, theyâre multiplying like crazy, multiplying like crazy but then you really notice, right? The difference between one million and two million is a big jump on this because this is not logarithmic, right? This is a linear scale and you see these changes dramatically here even though itâs doubling every year. So, this is an exponential curve that might be doubling every year. Okay. So, bacteria in your body will do the same. Theyâll multiply, multiply, multiply, multiply but youâve only got so many cells in your body and it starts to go like this. Okay, or viruses.
Now, S-Curves arenât the only way populations go, right? Famously the dinosaurs had nice exponential, exponential. Maybe they even saturated for a while and then they were gone. Okay. There is a number of things that can happen. You can start to go into this vertical area of your S-Curve, right? And who knows, say, humans land on and they kill all the rats, right? Or a disease kills all the rats or a flood or a drought. So, there is a number of things that can happen to a growth of a population, but itâs important to realize that this S-Curve not only works in biology but it also works in economics. And weâre going to look at two companies that have exhibited this S-Curve to a T. The first one really making the news, right, is Twitter. Okay. And the second one is Facebook. And weâre going to plot them on the same graph even though their beginning times and their IPO times were different, but weâre going to say here is TO, T original and then weâll plow them up through their IPOâs over here. Okay. And this is important. This moment actually is important for any company, right? When you release your shares to the public. So, this point of time for any company is private and this is public. Okay. And weâre going to refer to that a bunch. And what this means is the public, anyone and any number of people can buy shares and in here the SEC controls how many people and who can buy shares.
Okay. So, letâs take a look at Facebook. So, Time original TO for Facebook was when Mark Zuckerberg starts programming his little baby and heâs doing that in 2004. So, heâs doing here and youâve seen the movie, right? Facebook does pretty well right from the beginning, but pretty well right from the beginning compared to where it is now, right? Who knows theyâve got billions of users and the company was valued at 104 billion at the IPO, right? Means that even though itâs doing well, so here itâs got a thousand users, right? Itâs got 10 thousand, 20 thousand users. It gets released to Stanford, right? Youâve got the first angel investors coming in and trying to give him 12 million dollars, right? And so the value of it is going up but itâs not going up in any exceeding way that you notice, but itâs still going up in terms of percentages. Pretty extreme so Bitcoinâs valuation is increasing a 100 to a 1000 percent a year and maybe more. Okay. So, this is a phenomenal growth rate, even though it sits here looking flat on our little curve, right? Because here itâs worth little more than zero so Time original. I donât know, you might have been able to buy it off Zuckerberg for a coffee. Who knows on that first day though he seemed to have some idea that was worth something? So, it had some initial value. But clearly if you offered him a 104 billion he would have sold it so it was somewhere less.
All right, but heâs not the only one who determines the value of a company. There are other people there are angel investors and VCs that live over here on the private side. So these are â this area is for angels and VCs and over hear is for anyone. These angels and VCs actually look at Facebook every day of the year and try and figure out what the value is and of course Facebook just like the rats on the islands have some ups and downs, right? Theyâll have some legal issues, you know, the Winklevoss, who knows who else was complaining and claiming ownership, who knows what other companies, right? There was Myspace still involved, there was other issues, right? So, again this curves going up and down but for the most part the valuation is doing this and it started in 2004 but around 2008 to 2009 it does this thing where on this graph it looks like itâs going vertical. And whatâs happening. The number of users is just going through the roof. So theyâre adding what? Millions of users a day. Okay. Whereas over here, you know, theyâre waiting for their millionth user for a long time. So, this is the area where Facebook goes vertical and any chart you do a Facebookâs life history youâre going to see this section right and this section happens around 2008/2009. So, this is the vertical time and this is a very special time. This is when everyday things are going crazy. Okay. But itâs also important to note that it starts in 2004 and it takes five years. Even for this great idea that people recognize right away, right, people were willing to buy in right away it takes five years for the public to really understand it, really get it and start to use it in mass, right? And Facebookâs still growing, but itâs not growing at the same rate. So, here itâs growing at who knows 8000 percent a year and it might have been more. Now itâs growing at maybe 30 percent a year. So, thatâs today so letâs put that over here. Right, itâs still growing maybe 30 percent a year. And of course it famously after the IPO the valuation dropped and itâs picked up and who knows what, right, but itâs still growing. But the thing we want to look at is this going vertical. Right?
And so now letâs take a quick look at Twitter. And weâll do Twitter in this kind of bright yellow right here. So, Twitter their TO was February of 2006 when those four guys Williams, Dorsey and two other guys came up with the idea, right? And theyâre bright guys they probably had some idea of what its value was. But when the IPO happened, right? Twitter was valued at 18 billion. So putting them on the same graph 18 billion and Twitter has the same thing, right? Itâs invented here and then they released the website in May. So, the value to any VC now goes up and, you know, then itâs kind of got boring for a while no one was that excited then at the South by Southwest Interactive conference in 2007, right? So a year later they get a little bit of a buzz. They go from 20,000 tweets a day which is absurd now they get about 20,000 a second. They go from 20,000 tweets a day to 60,000.
So in 2007 thereâs a big buzz and thereâs also spike. Then some other issues happened, their value dropped but keep in mind they had still little changes that are phenomenal changes in value especially when youâre going from zero, right? This is zero and then more and more people are adopting Twitter, different people, NBA players are starting to look at blah-blah-blah and then it too has this kind of vertical moment on its graph. And this is natural right, this is exponential. Okay. But its rate of growth here was in the 100 percent a year, 200 percent a year and its rate of growth when it went vertical again is in the thousands of percent right, 3000/4000 percent. And then just like anything itâs going to reach a little bit of saturation. Thereâs only so many people on earth, only so many people that want to use a tweet to go, âHey, Iâm sitting here eating candy cornâ. But Twitterâs a great service, right? Theyâre using it on the front lines for news, etcetera. But the key thing here again is it started in 2006. It had its vertical moment in 2010, even 2011, right? Itâs still increasing pretty dramatically, but itâs also got a gestation time and this is very important of about four to five years.
Okay. So, even though Twitter is a great idea and Facebookâs a great idea and Google ran through the same curve, right? Even though theyâre great ideas they take a number of years to develop and for a tech company it seems like if youâve got an awesome idea it takes four to five years to really explode. But whatâs key here is that if weâre talking about Twitter and Facebook and even if we throw in Google which followed the exact same curve before its IPO in 2004 what weâre seeing is that these are three very, very simple ideas, right? Googleâs just a space right, you type in and you find what you want and that took years for the public to really get used to it and want to use it. Twitter you type in a 140 characters right and you send it to the world itâs as simple as can be. And again even that took years to catch on. Now everybody loves it. These are networks that are being developed, right? You canât receive a Twitter unless you have some Twitter, right? And networks are faddish and theyâre population based and theyâre news based but they take a while to grow. Facebookâs the same. Well, youâre starting to make some analogies to what we mostly talk about which is Bitcoin.
Now, Bitcoin you canât put on the same graph because again if itâs a tech thing itâs only been around four and a half years. So Bitcoin, we can only draw may be up to here. Okay. So, itâs been around four and a half years. It would be unfair to put it out here because itâs had no IPO. Of course itâll never have an IPO or as some people suggested that the IPO was on day one. But Bitcoin started in January of 2009. So what is that? Itâs almost five years. So, itâs about 4.5 to 5 years ago and, you know, if you compare here is 18 billion for Twitter. So, letâs divide that up into six. I donât know. Hereâs three billion which is where Bitcoin is today, right? And Bitcoin is doing pretty much the same thing. Okay. So, when people say that Bitcoinâs curve and its growth is unnatural all they have to do is think about bacteria, rats, Twitter, Google and you start to see that, sure Bitcoin could die tomorrow, right? I donât know what could kill it but something could kill it, some crazy stock manipulation or some government regulation. Okay. If you really understand how Bitcoin works it seems unlikely that itâs going to be killed tomorrow by some simple thing. All right, and itâs a network based thing so the more people that use it the more value it has. But whatâs key here is that Bitcoin is infinitely more complex than these three. It in fact is more complex than all three combined.
So, the learning curve for Bitcoin is enormous for two reasons. One, Bitcoin is just plain more complex. So, itâs possible just because of its complexity maybe weâll see a vertical over here if indeed it ever has a vertical right? Because it is that much more complex, right? Bitcoinâs vertical at six years. But remember, so number one reason why itâs more difficult to grasp is that itâs more complex. Okay. You can do escrows, trust, enormous capability is inside this massive protocol thatâs being compared to http, right? So thereâs an enormous amount of directions that you can go with, but two, itâs also very difficult to grasp because itâs not a company. Because itâs not a company youâve got no one advertising it trying to explain to the customer exactly how it can be done.
Bitcoin indeed waits on regular people to make little videos like ourselves, right, about Bitcoin. This would be done by Apple if they released a new product. This would be done by all these other companies. So, thereâs no support, no internal support. So, itâs more complex much more complex and thereâs no internal support to explain the ideas, but yet the world seems to be get to get, right? The numbers of people is going up every year. Itâs got an exponential adoption curve. Okay. So, just like rats on the island, just like Twitter, just like Google, just like Facebook Bitcoin is doing that and just like all of these things itâs going up and down daily. So, and what this crazy up and down is this insane madness that exists here especially at the beginning of any company is referred to as volatility, right? And as one of the biggest critiques you hear about Bitcoin is insanely volatile, but if youâre an angel or a VC, right? And youâve experienced companies from the beginning, you know that Facebook had a ton of volatility at the beginning, right?
There were people suing, there was trademark regulation stuff, there was Myspace trying to move in and take over their market, there were other companies coming in, right? The valuations of Facebook or Twitter or Google at the beginning were dangerous tasks because some days theyâre really close to zero and they take the breath out of people. People see all their investment being lost. The volatility is at the beginning and because of SEC regulations, which weâll talk about in the next video, you never get to see this volatility, right? This is private. This is information that the public really doesnât know much about. We usually start to talk about a company and its value after it goes public. Well, thatâs after itâs gone vertical. Thatâs after itâs had this insane growing pains, right? And this volatility, the VCs and angels learn to ignore. Okay.
If they see something thatâs growing from zero to $3 billion some sort of an exponential rate they see something that reminds them a lot of Twitter, because Twitter after four and a half years was probably worth, right, around three billion, right? It hadnât gone vertical yet but they saw signs of it, they saw a big adoption curves and thatâs the same with Bitcoin. Remember as we talked about Bitcoinâs complex and maybe this vertical comes a little bit later. But what weâre seeing right now is the standard trend right? Itâs gone from zero to three billion and the rest is all whatâs the upside. And most people will say the upsideâs going to be pretty high.
Okay. For Twitter which is all about, you know, sending your message out to the world. For Facebook which is like sharing with friends and photos, these are great services. Bitcoinâs offering is really groundbreaking, breathtaking services, right? Bitcoin is taking on the market that gold holds as a reserve currency. Bitcoin is taking on credit cards. Bitcoin is offering banking to 3.5 billion people whoâve never had banking. Bitcoin is moving into the space that everyoneâs dreamed of having called micropayments. And Bitcoin seems poised to take on this 500 billion to one trillion dollar market of remittances. And we talk about all five of these in our big five series, but these are five known upsides. And because itâs a protocol, there are going to be other upsides, right? Thereâs a way for it to move in to escrows and trusts and wills and how stocks work and maybe even taking over the entire stock market.
These upsides are so big that VCs and angels right now are already predicting a valuation of well over one trillion dollars. And, if it is valued at one trillion dollars the other thing we know is that we know the number of stocks. There are twenty one million Bitcoins that will ever be in the system. Right now thereâs around 12 million, but there will never be more than 21. So you take one trillion divided by 21 million and you get something a little bit over $46,000 per Bitcoin. And thatâs if it just moves into these places where itâs got enormous upside. Thatâs if it just moves into the nine trillion dollar space for gold. Okay. Or moves into the trillion dollar space for credit cards.
Bitcoinâs got an enormous upside. It seems to be moving just as smoothly as some of these other companies move. Itâs just the first time that we the public get to see it. And weâre going to cover this in our next video why the SEC regulations have made us blind to the normalcy of Bitcoin. But what we want you to understand is that the way Bitcoin is growing is normal. Itâs as normal as any big monster tech company that youâve ever seen. Hope the information helps. Please remember to like, subscribe, comment, do whatever you will do. Weâll check you out in the next video.