Sep 3, 2022 3 min read

Unit Bias: One Hundred Million Reasons

Unit bias is faulty reasoning that assumes a single unit must be the appropriate amount from which to make assessments and comparisons. 

Bitcoin as a Unit of Account

Criticisms of bitcoin in regards to being too expensive or unaffordable are often grounded in misunderstanding as it relates to bitcoin's scarcity. Think of the common phrase-

There will only ever be 21 million bitcoin.

Now, the average person can be forgiven for interpreting this to mean 21 million individual units upon first glance. The analogy of digital gold also contributes to this confusion–that each coin is mined as a whole unit.

Framing bitcoin's unit price alongside a bunch of shitcoins on cable news is similarly unhelpful.

In reality, bitcoin is desirable as money partly due to its divisibility.

A single bitcoin can currently be divided into 100,000,000 satoshis (sub-units), expressing eight decimal points (1.00000000 btc). This enables a level of granularity that fiat currencies cannot match.

When combined with the additional capabilities of the Lightning Network, each satoshi can be divided further into one thousand millisatoshis.

This opens up new markets for commerce and entirely new business models, previously uneconomical under the traditional fiat system and fee structure of payment processors.

You can buy a fraction of a fraction of a bitcoin.

Bitcoin as an Asset Class

The next hurdle to overcome relates to bitcoin as a portfolio allocation. While seasoned bitcoiners will understand that bitcoin is savings (and not an investment), the perils of ignoring bitcoin entirely due to its unit price has left many allocators suffering from regret.

Assessing bitcoin as an investment based on unit price is illogical as it fails to account for overall market capitalization (total units x unit price). When pondering bitcoin's future potential as a digitally-scarce store of value, one has to take into account the magnitude of the total addressable market.

At bitcoin's current unit price (USD$19,728) and current circulating supply (19,140,192 BTC), its total market cap is USD$377.6B.

This is a drop in the bucket when compared to the size of other monetary goods and asset classes:

US Corporate Bonds (outstanding): $10T

Gold (above-ground world reserves): $11.5T

US Residential Real Estate (2021): $43.4T

And rolling 4-yr returns against major asset classes make a similarly strong case.

Bitcoin as an Asymmetric Bet

When all these considerations are taken into account it becomes abundantly clear that it's still very early in bitcoin's adoption cycle.

Any long-term asymmetric payoff requires understanding the fundamentals before the majority. And if the pervasiveness of unit bias is any indicator, it's safe to say it's still incredibly early.

Unit Bias: One Hundred Million Reasons

Unit bias is faulty reasoning that assumes a single unit must be the appropriate amount from which to make assessments and comparisons.

Bitcoin as a Unit of Account

Bitcoin as an Asset Class

Bitcoin as an Asymmetric Bet

Further Reading

Bitcoin Fallacies eBook