What can Bitcoin teach us about marketing

The Year Was 2009

The year after the GFC

The US Government had committed USD$700 Billion to bail out the banks

Bernie Madoff had just confessed to running a $65 Billion Ponzie Scheme

In America 15% of the Wealth was owned by 1% of the population

Bitcoin was invented to solve that problem

Today just 1% of the world’s population have used Bitcoin

In August 2021 the Bitcoin’s market cap peaked at USD$1.27 Trillion

9 Months later almost USD$1 Trillion of value was wiped out

40% of Bitcoin users were underwater, and

90% of the Bitcoins were owned by 1% of the users

Maybe it’s time to ask the most pressing question of 2022…

What can Bitcoin teach us about marketing?

Lesson 1.

Marketing is the Art of Engineering a Social Proof

As Robert Cialdini points out in his 1984 book Influence

People copy the actions of others (in certain situations)

We conform to the rituals and ceremonies of the tribe because we choose to belong

We seek to engage in the shared experience

The objective is to create the illusion everybody is using it before anybody is using it

The obvious question is How? How do we do this?

We tell the world everybody is using it... but it's the world's best kept secret

We'll begin with Facebook. The anti-marketing myth tells us Facebook ignited the collective imaginations of Harvard's student body and went onto become the goto social messaging experience for over a billion people.

The problem with this story is it doesn't account for Facebook receiving national press coverage in the New York Times and on CNBC while it was still just a fledgling Harvard start-up back in April 2004.

Facebook Subscriber Growth vs Press Coverage

Let's try another - Snapchat. The Snapchat viral growth story didn't ignite until the New York Times ran a piece on teenage sexting habits. The "killer app" facilitating this new found promiscuity? You guessed it. Snapchat.

Whatsapp received similar treatment in the Wall St Journal. Only after that did the "SMS disruptor" ignited the market. Instagram was covered by the New York Times within weeks of its launch and both the New York Times and the Washington Post amplified the AirBnb story back in November 2009. Meanwhile Twitter was proclaimed by the New York Times and mainstream US media as the breakout hit of SXSW in early 2007.

Roll back a decade and you'll find Google, Amazon, eBay and Yahoo! benefited from the same "Network Effects" courtesy of America's mass media.

You see, despite all the social media hype of how we can all share and be saved, there is nothing like a well executed PR campaign, and the accompanying popularist media commentary, to change hearts and minds at scale.

Bitcoin is no exception

Scan the American media over the past 13 years and you'll find it is full of the unlimited potential of Bitcoin, Blockchain and Crypto innovations like Tokens, DeFi, NFTs and DAOs

Bitcoin Trends

There have been a number of attempts to launch a social proof for bitcoin

The 2010 10,000 Bitcoin for 2 Pizzas PR stunt to prove the value of Bitcoin as a currency of exchange is now legendary.

It is celebrated every year by the faithful

Bitcoin Early Trends

By 2012 Bitcoin was the well publised currency of choice for those seeking to trade on the dark web

By 2016 the terms Bitcoin and Ransomware had become synonomous

Bitcoin was touted as being trustless, anonymous & secure

The FBI and the many hackers have subsequently proven 1 out of 3 ain't bad...

However - despite the hype and the generous press coverage - Bitcoin adoption remains one of the slowest for any financial innovation in over a milenia

Bitcoin Social Proofs

But that isn't to say the many social proofs that have been tried over the years haven't had any impact

Each time they've changed the story. They've also changed the game.

and the price goes up...

The question is why?

The answer is...

Lesson 2.

Marketing is the Art of Engineering Scarcity in Abundance

Today 90% of Bitcoins have been mined

But only 1% of the world's population use Bitcoins

Boosters would say it's early days. But in truth Bitcoin adoption has been slow and continues to be weak

However ~1% Users Own 95% of the BitCoins

So although adoption is weak. The amount of Bitcoins in circulation is very small

Those in the know would say 'supply is artificially constricted'

This means bitcoins in the wild are scarce. But the good news is - assuming you can generate demand - this artificial constraint means the price for Bitcoin can rapidly inflate

What's more this scarcity by design has a flow on effect

Because, as every economist knows, the free market is very good at responding to a shortage

That's why today we have a glut of new crypto currencies

and with each new wave of crypto currencies the social proof, and ultimately the price people are willing to pay for Bitcoin, is validated

Lesson 3.

Marketing is the Art of Framing Choice

The explosion in crypto curremcies means the prospect is faced with abundant choice

Just how do you choose a winner? Where do you place a bet or two?

The answer to that question can be found by examining the choices facing investors in the 'old fashioned' stock market

Here are the probabilities of you chosing a stock capable of beating the market index

Framing Choice

The odds are - given no information... other than the ability to make a random guess - you will fail to bet investing in the market index

Framing Choice

But let's frame the choices

What happens to your ability to beat the market index if you limit your choices to popular consumer brands?

Take a look at this collection of logos and - before you scroll down any further - choose 3 for your investment portfolio

Now scroll down

Did you beat the market index?

Framing Choice

In all probability you beat it comfortably

You also beat 95% of professional money managers and VCs

As to the question of why? The answer is you placed a bet on the extrinsic value of the brand

Framing Choice

People invest in Bitcoin because the success of the brand frames their choices vs the overwhelming number of alternatives in the crypto space

The increasing number of crypto brands validates the sector

Bitcoin is the leading brand

The choice - as they say - is simples

... and this leads us into the broader question of how do we evaluate our social proof?

Lesson 4.

Marketing is the Art of Engineering Extrinsic Value

Marketing, or more accurately advertising and promotions, is a game of logic + emotion

Allow the prospect the luxury of evaluating your product or service logically and you end up with a debate about price and value

Guide the prospect towards the pleasures of indulging in the 7 deadly sins and you end up defeating logic with emotion

Logic + Emotion

When we discuss the product or service in Logical terms we are describing and measuring its Intrinsic Value

When we discuss the product or service in Emotional terms we are describing and measuring its Extrinsic Value

To help you understand this idea here are some examples comparing the intrinsic and extrinsic value of 3 popular consumer products

Basically the extrinsic value is the premium the brand generates over the cost of goods

You could say it's the proof the social proof is working

Now let's take a look at Bitcoin

We'll begin with the observation Bitcoin is an arbitrage on the cost it takes to create/find a Bitcoin

We'll also note that the cost increases as Bitcoins become harder to find and most of the time mining operations are underwater

This means Bitcoining only becomes profitable when the price goes up

Mapped over time we discover - even during the peak of the bubbles - the Extrinsic value of Bitcoin was far richer in the earlier days than what it is today

Basically Bitcoin is a game for very early adopters

This is why so much effort has been expended since 2014 engineering new collections of crypto coins (e.g. Ethereum)

and this observation leads us gently into our last law of Bitcoin marketing

Lesson 5.

Marketing is the Art of Engineering Anchors

At the crux of the Bitcoin story is the power of anchoring

Bitcoin is a financial product

Its success or failure is anchored to the performance of other financial products

Let me show you how it works

This is a snapshot of the Australian economy

If you owned a house or invested in digging holes in the ground somewhere you'd feel pretty good about yourself

In the post GFC boom you have doubled your wealth

Step back and throw your pension scheme into the mix you'd be feeling even better

Your Super Fund has probably tripled in value over the same period

Life as they say... is good!

Things start to look a little disappointing when you spread your gaze across the pacific

Investing in the passive tech index in America has delivered 10x over the same period

Basically American tech investors have outperformed the "Houses 'n Holes" investor by a factor of 5 since the GFC

Spread your gaze over the world of Bitcoin and the crypto and suddenly your are looking at a moonshoot and you have missed the ride

The returns are in a word... logarithmic

This is where FoMo kicks in. The Fear of Missing out.

There is a ravenous hunger. Arguably all 7 of the deadly sins are whipped up into frenzy. The crowd must feast until its appetite for a digital future is sated

And this is where people get emotional and jump in

The madness of the crowd is a wonder to behold

Ladies and gentlemen. Boys and girls. I give you the Bitcoin story

A wonderous tale of how digital reality of Zero Cost of Entry morphed into the illusion of Artificial Scarcity

They changed the story (many times). But they didn't change the game.

They just leveraged the basics of marketing to motivate enough people to join the secret tribe and play a new game they have constructed on their terms

Closing thoughts?

I want to thank Leonard Lee for posing the question: What is the Intrinsic Value of Bitcoin?

It was by any measure a question worth exploring

If only as a closing chapter to the Metacryptoverse

To be honest 6 months on. Now the bubble has popped. The question seems somewhat moot

Did I nail the answer?

I leave that up to you to decide

At least until next time

Originally Published Winter 2022. What are we talking about today? Follow us on Twitter
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