Why Did the Algorithm Theory from 8 Years Ago Fail Today? The Deep Collision Between Bitcoin Standard and Silver Reality

Published in 2018, “The Bitcoin Standard” attracted global attention with a grand theoretical proposition: a true “hard asset” must have extremely low supply elasticity. This theory is woven into a complete framework — the author named it stock-to-flow, to explain why certain assets can serve as a store of value, while others are destined to become speculative tools. Eight years later, this theory faces an awkward reality: the price of silver has reached historic highs, while according to this logic, it should have collapsed long ago.

Those who have deeply engaged in the cryptocurrency community may remember that MicroStrategy founder Michael Saylor decided to spend $425 million to purchase Bitcoin after reading this work. This move brought the book to the center stage of the market, where it is hailed as the “Bible of Bitcoin believers,” translated into 39 languages and selling over 1 million copies. However, the argument presented in the third chapter—about why silver can never become a global store of value—is now being tested by the market.

A Classic Case of Supply Elasticity Theory: Lessons from the Hunt Brothers’ Failure

To understand why the author’s judgment on silver appears so absolute, we need to trace back to a landmark historical event. In the late 1970s, the Texas oil tycoon Hunt family made a bold decision: they began to hoard large amounts of silver and futures contracts in an attempt to drive up prices, even at one point raising silver from $6 to $50—setting a historical record at the time.

In theory, according to the supply-to-flow logic, this should have succeeded. But reality is much harsher. Silver miners immediately launched large-scale production increase plans, exchanges raised margin requirements, and market liquidity suddenly disappeared. What was the result? The price of silver collapsed instantly, and the Hunt brothers ultimately lost over $1 billion and fell into bankruptcy. This case became the core argument in the book “The Bitcoin Standard” — the easy expandability of asset supply determines whether it can truly serve as a store of value.

The author’s conclusion seems impeccable: since miners can easily increase production to respond to price increases, silver is destined to experience periodic bubble collapses. Every time capital flows into the silver market, the rising prices stimulate increased production, ultimately leading to price declines and the evaporation of stored wealth. This logic appeared unassailable in 2018 when silver prices hovered around $15, and no one saw it as a serious threat.

From Scarcity to Setback: Why the Stock-to-Flow Theory Applies to Bitcoin and Not Silver

The core tension of this theory lies in its understanding of the nature of supply constraints. Bitcoin has achieved an absolute supply hard cap—totaling 21 million coins, anchored by algorithms, and halved every four years, with no one able to change this rule. This algorithm-based approach can be considered the strongest form of supply rigidity. In contrast, while gold also has a limited supply (with a total global reserve of about 200,000 tons and an annual production of less than 3,500 tons), theoretically, miners can always respond to higher price signals.

Silver is classified as the weakest category within this framework—it is seen as an asset that is easy to increase production of, thus lacking long-term store of value properties. The story of the Hunt brothers seems to serve as ironclad evidence. However, this theory faced an unexpected shock in 2025-2026.

An Unexpected Turnaround: Structural Changes in the Silver Supply Chain Break the Old Logic

The real change comes from a neglected detail: The production structure of silver has undergone a fundamental transformation.

Data shows that global silver production peaked in 2016 at approximately 900 million ounces. By 2025, this figure is expected to decline to 835 million ounces—a decrease of 7%. Meanwhile, prices have risen sevenfold. According to traditional theory, this should not have happened. More critically, there are constraints on the supply side: about 75% of silver production comes from the by-product mining of other non-ferrous metals such as copper, zinc, and lead.

What does this mean? The mining companies’ extraction decisions are entirely driven by the prices of base metals, rather than the price of silver. Even if the price of silver doubles, if the price of copper does not change, mining companies will not increase extraction. New mining projects take 8 to 12 years from exploration to production — this means that even if new projects are started today, new silver supply will not be available until around 2030.

The result is a continuous supply deficit for five consecutive years. According to data from the Silver Institute, the global cumulative silver deficit from 2021 to 2025 is expected to reach 8.2 billion ounces, nearly equivalent to the annual global silver production. The inventory indicator from the London Bullion Market Association is even more shocking—the available silver reserves have fallen to 155 million ounces, a historic low. The silver leasing rate has skyrocketed from the usual 0.3-0.5% to 8%, indicating that market participants are willing to pay an annualized cost of 8% to ensure they obtain physical silver.

In addition, starting from January 2026, China has implemented new restrictions on refined silver exports—only state-owned enterprises with an annual output of over 80 tons can obtain export licenses, while small and medium-sized exporters are directly excluded. The game rules that allowed the Hunt brothers to lower prices through increased production and inventory sell-offs may no longer apply this time.

The Real Driving Force: How Industrial Demand is Changing the Silver Fundamentals

From the supply side alone, the rise in silver prices has merely become a story of inventory depletion. But the dramatic changes on the demand side are the real force rewriting the script.

According to the 2025 World Silver Survey, industrial demand for silver is expected to reach a record 680.5 million ounces in 2024, accounting for over 60% of global total demand. This is no longer a game for speculators, but rather real economic activity driving it. Where does silver consumption come from?

The photovoltaic industry is the largest single source of demand. Each solar panel requires silver paste to establish a conductive layer. The International Energy Agency predicts that by 2030, global solar installed capacity will quadruple. The solar industry has become the world’s largest buyer of silver.

The demand in the electric vehicle sector is also growing rapidly. Traditional fuel vehicles use 15-28 grams of silver, while electric vehicles require 25-50 grams, with higher-end models needing even more. The application of silver covers the entire chain, including battery management systems, motor controllers, charging interfaces, and more.

Artificial intelligence and data centers have brought about a third wave of demand. Servers, chips, and high-frequency connectors have introduced new dependencies on the conductivity and thermal conductivity of silver. Starting in 2024, this demand begins to accelerate, and the Silver Institute even specifically listed a demand category for “AI-related applications” in its report. The U.S. Department of State has included silver in the “critical minerals” list in 2025, which is a clear signal—this metal has upgraded from a commodity to a strategic resource.

High prices do indeed create a “conservational usage” effect, and some solar panel manufacturers have begun to reduce the amount of silver paste used per panel. However, forecasts from the Silver Institute indicate that even considering this conservation effect, industrial demand will remain at historically high levels in the next 1-2 years. This is hard demand, not speculative demand.

When Belief Meets Reality: The Theoretical Crisis and Market Anxiety of the Bitcoin Community

Finally, there is one more aspect that needs to be faced honestly. In recent years, the narrative of “digital gold” has clearly lost ground when confronted with physical gold and silver. By 2025, the market formed a new consensus—“Debasement Trade”: a weaker dollar, rising inflation expectations, and geopolitical tensions, all of which have driven funds into hard assets. However, this capital has flowed into gold and silver, rather than Bitcoin.

For loyal followers of Bitcoin, this creates a psychological dilemma. Thus, digging out a book from 8 years ago and extracting the conclusion that silver is bound to collapse has become a narrative of self-rescue. The logic is as follows: the rapid rise of silver now is due to a bubble, and the bubble will definitely burst, at which point we can prove our theory is correct. Does this conclusion have internal consistency? Completely consistent. Can it be falsified? Almost not, because you can always say “the time is not long enough”.

But the real world will not wait. Those holding Bitcoin and other crypto assets are experiencing real anxiety. A theoretical work written 8 years ago cannot automatically change a reality that cannot be fulfilled on time - Bitcoin did not rise as expected in this round. Silver is still running, wishing Bitcoin good luck.