Bitcoin Spreads Like a Virus
papers.ssrn.com
papers.ssrn.com
I'm not a huge believer in monetarism. It pretty much precludes all aspects of monetary policy save growing the money supply to influence the economy. I think Bernanke and the policy of quantitative easing played a crucial role during the 2008 financial crisis, along with TARP and ARRA, and that would not have been possible if the U.S. dollar physically obeyed the properties of Bitcoin.
A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles?
If you don't agree with the federal reserve policy or a politician's short-sightedness, you have an alternative.
This statement strongly implies that the US (and global) monetary situation is headed in a good, positive direction for human flourishing.
With Bitcoin it's much harder to get a loan with near-0 interest rates, as money can't be printed out of thin air. The banks would have a real risk of not getting back their investment when they would be lending, so they would be forced to be much more conservative. The power would shift to angel investors, who use their own money to invest in / lend to businesses.
But a new cryptocurrency can be. The network effect is literally all a specific chain has going for it. Though of course with an 'official' chain that's not the case.
Good luck getting other people to use that currency though :)
The core developer team effectively wields this power, but people still seem to be using their currency.
I'm in the Bitcoin camp, and I think that the Ethereum developers are not careful enough with the changes they make to a multibillion dollar system, but you are right, many people like to use it.
Etherum doesn't have much of a philosophy. They have recently been pivoting away from a "universal computer" rhetoric to one focused on "decentralized finance."
But this is merely a red herring: Ethereum was centralized from day 1 due to their distribution method, and the DAO is just a natural consequence of centralization.
Naturally, you still have to be mindful about whether or not you want to upgrade to software you do not wish to use. Upgrading to the new version and continuing to use it was a conscious decision to continue using that branch of the chain, made by the majority.
The reason the one has value and the other doesn't is pretty much down to brand recognition/network effect.
Though as I also said - in a central bank situation where a single chain is mandated, that's less of a concern.
Infinite blockchains argument is not valid. Blockchains need to be secure and you can't get billions worth of mining power or POS investments from thin air. Certain blockchains have value because of this security and also from network effects. Both of these effects favor existing blockchains, not new ones. Strongest get stronger.
Which is purely down to branding.
>Infinite blockchains argument is not valid.
Because you say so?
> Blockchains need to be secure and you can't get billions worth of mining power or POS investments from thin air.
These follow value, they don't create it.
Those tools seem not just powerful, but at times have had limited side effects that folks who don't like them insist will happen.
I wouldn't go swinging those tools for no reason or for little cause, but they seem effective.
QE backstopped the inflation that already happened during the credit boom.
By supporting housing prices (and other associated bad debt) they essentially prevented a deflationary spiral, which one could think of as an unwinding of inflation.
End result: ever higher housing prices and generally stagnant incomes.
It's a complex topic and a deflationary spiral was probably worse for the economy, but QE did affect inflation.
Similar to how it behaved during the gold-backed dollar era. "Money shortages" were a thing often leading to market corrections during the early 1900s. This book references it several times: https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Opera...
Endless studies could be written about it, since the topic is very complex and outcomes are pretty much impossible to predict. No wonder economists have such a bad reputation about forecasts :D. It's almost a question of religion. My gut feeling is the following:
Outside of an isolated economy, the bitcoin economy would be rapidly buried by other economies that can inflate their money supply at will. Even with boom and bust cycles, the bitcoin economy is unlikely to survive competing with a China like entity who will just fuel their own expansion with debt until the bitcoin economy is in the toilet.
In case of an isolated economy, it would eventually start to stagnate as cash becomes an appreciating asset that is better to hoard than invest. Taken ad absurdum, you'd end up with a completely dead economy with a small handful of hoarders sitting on all the cash. Of course, in the real world there'd have been a revolution long before, since people can't eat coins and eventually people would resort to barter and most likely a new fiat currency would emerge naturally.
You could model it by building a popular MMO around it, I'm sure.
Same thing could be said of questions of software methodology. Most decisions are made on the basis of "gut feelings."
This would also be somewhat similar to Hayek's ideas about competing private currencies.
The same way money has existed for thousands of years but without the kick the can down the road of debt crushing future generations that has been a post WW2 global economic phenomenon?
When the currency collapses or a new currency is put forth, then you will know the power of Bitcoin.
"But MUH bitcoin hodlers who don't have electricity in Venezuela, what good did Bitcoin do them?"
Ask the ones who were 1) smart enough to hold Bitcoin 2) Left Venezuela if they preferred to leave with A) Cash B) Gold or C) Bitcoin when they left.
Terribly.
Bitcoin is by design deflationary, which creates an incentive to maintain currency under the mattress. This is accentuated by the fact that bitcoin can't be used in fractional-reserve-banking.
This means that there is little accumulated capital available to borrow and invest.
It also means that any investment would need higher returns than the expected appreciation of a bitcoin, which might set a very high bar for investments, making raising capital nearly impossible.
Today, in most open economies, nobody controls the supply of money, it is increased and decreased dynamically by the market according to supply and demand and to maintain a certain level of risk on the banking system (with some adjustments from the central bank).
Continuing the thought experiment, consider what goods and services people would continue to spend money on, in spite of the expected increase in the value of money.
> Today, in most open economies, nobody controls the supply of money, ...
With all due respect, this is demonstrably false. The Federal Reserve and its member banks control the supply of money.
I love this comment. Everyone just blindly says "People will put money in their mattress. Economy will go down" and then it's case closed.. but then what happens next? They just won't buy food? water? won't go to the mall? They just stay at home and hunker down? They won't even be watching entertainment since they won't be paying for a Netflix subscription too, apparently.
Gold wasn't a deflationary currency, not only that, the supply of gold increases over time, and some times suddenly such as when the Spanish empire started extracting gold and silver from the new world resulting in the Spanish Price Revolution.
Seriously, please go take some economics classes...
If the economy is growing in the long term and the supply of money is constant, the value of money (vs. goods) will always increase, and everyone has an incentive to hold currency instead of investing in the economy.
The result is that you can't raise capital for a startup or for an infrastructure project.
The claim isn't even wrong, it doesn't make sense.
And no, the federal reserve doesn't control the supply of money by any means.
It influences it, sure, but it doesn't control.
Sorry, but you didn't understand how capital accumulation works.
People work and so on, get paid and so on. Then they spend part of it on their living expenses and save part of it (that's the domestic savings rate).
The money saved doesn't just sit under a mattress, it becomes the stock of capital in a country (plus and minus capital imports and exports and so on), which is then invested in projects (startups, infrastructure, etc.) that need capital.
Banks are the intermediaries in this market, taking capital from savers and providing investments and loans to projects that need capital. That's why so many emerging countries are desperate to get people into the banking system and to move their savings to the banks (the US did it by Executive Order 6102 for example).
Without this stock of capital, it is impossible to start a business, or to fund large infrastructure projects. It is a key and necessary component of a healthy economy.
And bitcoin kills it completely.
Money doesn't become the stock of capital; money isn't capital. Money is a proxy for value. Capital is created by consuming less value than is produced, so the non-consumed value can be invested, which savings can achieve even if the money itself is not invested. This is because saving/hoarding essentially reduces the money supply, thus increasing the value of money - transferring purchasing power from the saver to people currently spending money. If I create x dollars of value, then burn the money I recieved in compensation, I've essentially gifted the value I produced to other currency holders, which they can consume or invest.
The US experienced deflation through much of the 19th century, yet saw higher growth rates then than in the 20th century. For instance, from https://www.investopedia.com/ask/answers/040715/were-there-a... (don't have time to find a more formal source): "The period between 1873 and 1879 saw prices drop by nearly 3% per year, yet real national product growth was almost 7% during the same time." And overall "the price level (the average of current prices across the entire spectrum of goods and services produced in the economy) was actually 50% higher in 1800 than it was in 1900." So clearly it's possible to have strong economic growth during deflationary times.
Exchanges are not banks.
Fractional-reserve banking is just a pooled-risk lending instrument. If you can lend something, then you can fractionally reserve bank with it.
To put it another way, when you have dollars deposited in a bank, you exchange your dollars for a contract saying that the bank will remit so many dollars to you on demand. You value that contract at pretty much the face value of the dollar amount of the deposit because the risk of default on that contract is considered extremely low.
Fractional reserve banking in Bitcoin would work the same way -- the bank would give out loans while promising to make their depositors (creditors) whole should they require their deposits. They cannot satisfy that contract if more than a certain number of depositors come knocking, but that's true for regular banks too.
With a liquid credit market, even runs on the bank, as long as they are slow, are fairly tractable; you can just sell your debts for their face value (discounted, most likely, for the fact that the counterparty to the sale may not use the same risk metrics) and thereby make your depositors whole without having to call in any outstanding loans.
I don't know what you mean to say here, but you can absolutely use bitcoin for fractional-reserve banking, just as gold was used through history. Pretty much since the dawn of banking, a bank collects reserves from its depositors, and then loans outs a designated fraction of those reserves. It's not like that process was somehow invented with the Federal Reserve.
What you cannot do is have a lender of last resort with the ability to print money out of thin air, who can then flood the economy with cheap money; But that has nothing to do with fractional-reserve banking.
And then you're just creating a bitcoin-back currency, which at some point will inevitably see the same fate as all currencies did, and being de-linked from bitcoin just as other currencies were de-linked from gold.
They did fractional reserve with gold-denominated currencies.
Sure, you could create a bitcoin-denominated currency (a terrible idea, but let's entertain it) and perform fractional-reserve banking on it. But at that point, bitcoins become irrelevant.
Let me start by throwing out a little bit of terminology just to make it clear if we're on the same page. Loans have existed since money existed. The only difference between a private loan and fractional reserve banking is that the lender is a) lending someone else's money and b) allowing depositors to withdraw money despite the fact that the sum of all depositor's money is not physically possessed by the bank.
Wikipedia's page [1] is a reasonable place to start. The Babylonians were issuing loans in gold. The Greek and Egyptians were issuing loans in gold. The Romans were issuing loans in gold. None of these (except the Egyptians, with their seed grain short-term currencies) were issuing any sort of derivative currency or notes.
Throughout medieval times, letters of credit were frequently used as a form of correspondence banking [2] for travelers. The lack of high-speed communication meant that the settlement and clearing of loans could take months or years, but the depositors (correspondent banks in foreign countries) were unlikely to make any immediate claims on their deposits except through such letters. The letters could be redeemed, usually, directly for gold. You can argue whether this constitutes fractional reserve banking; it's in some ways closer to what we would now call "corporate paper"; very short-term credit extended to very high trust individuals or institutions.
[1] https://en.wikipedia.org/wiki/History_of_banking#Earliest_fo...
It is, in fact, exactly what fractional-reserve banking means: Loaning a fraction of your reserves.
BTW: The exchanges are creating money by allowing margin: There is already a difference between M0 and M1 in the bitcoin economy.
In your example, they can fractional reserve with letters of credit and trust. At no point can a bank actually loan out more physical gold then it had in its possession.
FRB is essentially a form of "double spending", but under certain conditions to maintain stability.
Bitcoin doesn't allow double spending. Neither does gold.
This is nonsense. Loaning money that you own is not "double spending".
Fractional reserve banking means you accept deposits, and you make loans from those deposits, and the difference between the amount you've lent out and the amount you have in deposit is called the "reserve". If you try to maintain your reserve as a "fraction" of your deposits, you're doing "fractional" "reserve" banking. What's the "literal" aspect?
You can't spend dollars that you have in the bank, not in the sense of handing someone cash. You can do money transfers to other accounts or other banks, but when you get down to how a money transfer happens (i.e. deposits with a central bank or correspondence accounts between institutions) there's no reason that you can't do that with any substance or commodity.
There's no double spend involved, because you don't have specific Bitcoins on deposit. The Bitcoins you've deposited are long gone; munged into some central wallet and lent out to depositors, with only a fraction held by the bank. When you ask to withdraw, they take that fraction and give you the amount of your withdrawal out of it, and reduce the paper balance of your account.
Whenever somebody asks me to give them back their gold, I reach into the pile and hand them pieces equal to the amount they deposited, but not necessarily the same pieces.
But this happens infrequently enough that most of the time, the pile just sits there. So I decide to only keep half the pile sitting there -- more than enough to cover the rate at which my customers make withdrawals -- and loan out the rest to borrowers I deem credible. I charge interest to make up for the losses I take on bad borrowers and actually make enough profit on this interest to keep some and pay some out to account-holders.
I would say I am 1. conducting fractional reserve banking, with a 50% reserve ratio, and 2. not creating a new currency (everybody still transacts in gold pieces).
Are you saying that this is NOT fractional reserve banking, or that it IS creating a new currency?
You are confusing "fraction-reserve banking" with something else, probably "quantitative easing".
There is no requirement to create currency with fractional-reserve banking: A bank simply loans out a fraction of its reserves, which has the effect of creating money, but only in the sense of increasing M1. M0 remains constant.
In the case of USD, for example, a USD created by a bank is indistinguishable from one you deposited on the bank.
You could say that being able to double spend in certain conditions is a feature of modern currencies, and largely necessary for a stable economy, which is impossible under bitcoin.
You can define "credits" and "debits" in a currency to be a separate currency, but since that has been in the lexicon for millenia, you'd have a very long road ahead for acceptance of terminology like that.
There is a reason why we define M1 as different from M0. Trying to say that bitcoin is some newfangled currency that demands M0 and M1 be equal? Good luck with that.
But if banks continued to work like they do now, where you deposit your money into the bank, and then they show a number when you login, but it's just what they "owe" you. In that case they could continue to do fractional reserve banking just as they do now.
So basically this debate is not whether fractional reserve banking is possible with bitcoin, but whether banking with bitcoin would continue to resemble banking now.
Why would you? You can get better returns by simply holding it (since it is deflationary) than by lending it out or investing in productive assets.
And even if you deposited, you can't "double spend" the bitcoin, so you can't do FRB with it.
> So basically this debate is not whether fractional reserve banking is possible with bitcoin, but whether banking with bitcoin would continue to resemble banking now.
It is both. You need FRB to dynamically adjust the supply of money and keep a balance with demand.
And the fact that nobody will invest, which kills economic growth.
No new startups, no new factories, no new bridges, no new houses, etc...
There's obviously a balance in this scenario, as slower investment pace, makes for slower expectation of BTC value increase.
Only "investments" of very low expected return are being prevented by lack of monetary inflation.
If BTC-based monetary system produces relatively slow .5% global growth, that means only investments with expected return lower than .5% are not going to happen. Which is a feature, not a bug. It makes growth cycle much more stable and self-balancing. Too high growth slows down investing cycle, low growth speeds it up. No need for central bankers.
And it's not that much different than current monetary system anyway, where people just throw they currency into speculative, unproductive assets to escape inflation. Nowadays things like housing serves the role of Bitcoin.
Just like in emerging markets with high interest rates: if your government pays 10% per year (real terms) interest on its bonds, would you invest in a business that would only return 9%?
No, nobody would ever invest in it. But there's a reason the government is paying 10%: to reward the risk of lending money to it.
In the case of bitcoin, the only reason there is this deflationary "tax" is because someone arbitrarily decided that the supply of bitcoins should remain constant.
So you're voluntarily fucking up your economy.
Sure, "we could relax that and make the supply increase over time", but that doesn't address fluctuations on the demand for money, resulting in harder oscillations.
And then "but then we could have the supply adjust dynamically based on some guidance from economists plus the balance of supply and demand for money".
Well, congrats, you just recreated the modern monetary system.
I keep hearing this. Saying that Bitcoin is deflationary is exactly equivalent to saying that the value of Bitcoin will always go up. In a Bitcoin economy, the value of Bitcoin would vary over time in response to various factors; technological innovation causing actually cheaper goods, and credit markets that allow people to trade on the future vs. the present value of money.
This is trivial.
And the consequence is that everyone is better off holding currency than investing it. Which is disastrous for the economy.
There is simply no such thing as an asset that will always increase in value -- _that_ is trivial.
That's why it is trivial, the velocity of money doesn't change the deal, unless it is varying wildly, and in that case, you're screwed anyway...
This is all assuming that we're talking about modern Chicago-school monetary theory. In Keynsian (i.e. most mainstream economics) there's not even a universally accepted connection between money supply and price inflation/deflation. Most Keynsian theorists (and practitioners) agree that directly manipulating credit markets through artificial price floors on future money is a much more sane way to affect price inflation and deflation, while also having the secondary effect of manipulating the employment market.
The idea of an asset that always increases in value (or a "free lunch", let's call it) is explicitly disowned by every theory of economics, from the Austrians & monetarists to the Keynsians & the Marxists.
Because the velocity of money isn't determined by market forces, it is determined by how easy it is for money to flow.
If bitcoin was the dream it aspires to be (instant, easy, transparent money transfers anywhere in the world), velocity of money tends to infinity, and the value of bitcoin goes to zero.
> The idea of an asset that always increases in value (or a "free lunch", let's call it) is explicitly disowned by every theory of economics, from the Austrians & monetarists to the Keynsians & the Marxists.
I'm not talking about an asset that always increases in value. I'm talking about a fixed supply of money, which would on average always represent more value (since the economy is growing on average) year after year.
As the supply of bitcoin will never increase, but there demand will (on average) always increase, a single bitcoin will represent a larger amount of value each year after year.
Therefore, it is a deflationary currency.
I mean... that's not what that means [1]. Monetarists use the "Equation of Exchange" [2] to determine/define inflation.
> I'm not talking about an asset that always increases in value. I'm talking about a fixed supply of money, which would on average always represent more value (since the economy is growing on average) year after year.
Bitcoin is an asset -- "always represent more value" is another way of saying "increase in value". What's the thesis here -- Bitcoin will decrease in value because it will increase in value? I think you'd do well to take a moment to digest what your argument is.
You're far from alone here; many people are under the impression that Bitcoin is a deflationary currency. This is a very common trope, made more annoying by the fact that Bitcoin proponents have a lean towards the Austrian school of economics, which defines "deflation" and "inflation" to mean a decrease (and increase) in the money supply, independent of prices. But that's not the mainstream definition of inflation; mainstream economics uses "debasement" to refer to the direct increase in the money supply, but it is used rarely since most economic schools feel that the money supply is only very weakly coupled to price inflation.
Where am I saying that bitcoin will decrease in value? Bitcoin is a deflationary currency, not an inflationary one.
If bitcoin was the only game in town, it would always (disregarding short-term cycles) increase in value, because the economy is growing.
This is FUD. The US experienced deflation through much of the 19th century, yet saw higher growth rates then than in the 20th century. For instance, from https://www.investopedia.com/ask/answers/040715/were-there-a... (don't have time to find a more formal source): "The period between 1873 and 1879 saw prices drop by nearly 3% per year, yet real national product growth was almost 7% during the same time." And overall "the price level (the average of current prices across the entire spectrum of goods and services produced in the economy) was actually 50% higher in 1800 than it was in 1900." So clearly it's possible to have strong economic growth during deflationary times.
But again, you are confusing deflation with deflationary currency.
Compared to the Fed, which makes arbitrary (non-cyclical) adjustments to the "cost of money", Bitcoin's more predictable deflationary attributes might lead to more predictability in financial cycles.
This is of course, assuming the hundreds of other problems with Bitcoin as a currency, or credit-instrument have been solved.
No need for cycles: a deflationary currency means that you're better off holding it than investing it.
This is disastrous for the economy.
> Compared to the Fed, which makes arbitrary (non-cyclical) adjustments to the "cost of money", Bitcoin's more predictable deflationary attributes might lead to more predictability in financial cycles.
Quite the opposite. The money supply wouldn't adapt dynamically to the demand for money, leading to harsher crises.
This is FUD. The US experienced deflation through much of the 19th century, yet saw higher growth rates then than in the 20th century. For instance, from https://www.investopedia.com/ask/answers/040715/were-there-a... (don't have time to find a more formal source): "The period between 1873 and 1879 saw prices drop by nearly 3% per year, yet real national product growth was almost 7% during the same time." And overall "the price level (the average of current prices across the entire spectrum of goods and services produced in the economy) was actually 50% higher in 1800 than it was in 1900." So clearly it's possible to have strong economic growth during deflationary times.
It is ridiculous to assume that any artificially designed deflationary digital asset will produce long term returns greater than an index like SPY, which is intrinsically tied to human productivity in the economy.
An average, semi-rational investor will always have the incentive to lend to a credit worthy person/business/asset, regardless of how much artificial deflation you can induce in your asset.
You're literally creating a broken system by design. Don't complain when it doesn't work.
Unfortunately I don't see how bitcoin would be likely to maintain a deflationary rate anywhere near balanced with economic growth if it were used as a primary currency considering its hard capped at 21 million BTC, and an unknown number of coins are pretty much permanently lost. I think it'd have an effect of making primary interest rates have to exceed the rate of Bitcoin's deflation which sounds like a death spiral to me.
You are confusing this with something else. If there was no fractional-reserve-banking under the gold standard, then why did bank panics happen? If the bank had $1 million loaned out, and also had $1 million of gold in its vaults, then why would anyone panic? Yet bank panics were common. And that's because the banks all engaged in fractional-reserve-banking -- if they had $1 million in gold in their vaults, they would make loans worth $5 million.
You can't just make gold out of thin air. Same with a bitcoin.
You can, however, issue gold-denominated notes in $5M even if you only have $1M in the bank. But you're not lending gold, you're lending paper currency.
You seem to be confusing "1 pound of gold" with "a piece of paper saying that bank X will trade this for 1 pound of gold".
The two are not the same.
A perhaps better comparison would be to "cryptocurrencies" instead of Bitcoin itself.
Bitcoin is, by design, deflationary, but not all cryptocurrencies have to be, and once the infrastructure for widespread Bitcoin use is in place, it will be quite easy to support other cryptocurrencies. I'd be more interested in what an economy would look like when people can choose which currency to hold and spend while payment processors abstract away the rough edges (e.g. price anchoring, conversion) around accepting different cryptocurrencies.
For example, if virtually all PoS systems in the US could handle both USD and Bitcoin, would virtually everyone choose to stick with USD? Or not? What if they also accepted Ethereum, Litecoin, Nano, and other crypto? And how would that economy behave during a boom/bust cycle? Or during hyperinflation like in Venezuela?
Also, stupid question: what's the expected price then, given that the infection nears that asymptote by say, 90%?
To me this is in-line with the reports of market manipulation [0] and the inherit lack of regulation.
[0] https://hackernoon.com/meet-spoofy-how-a-single-entity-domin...
This strikes me as a rather strange approach to fitting data. But I'm not a data scientist, and they do give some references to other studies about bitcoin price manipulation to support this.
New wallets cost nothing to create and manipulation in this sector is rife.
The assumptions are flawed from the start.
2. Using a new address per Tx is one of the only ways you can preserve anonymity.
3. Lots of people have more than one wallet.
4. Manipulators could automate the creation of wallets at essentially no cost.
5. The minimum value of bitcoin is 1 satoshi which is 0.00000001 BTC or 0.0000398886 USD at current prices.
To put that in perspective you could fund approximately 250 wallets with 1 satoshi each for one penny.
1. The author claims the lower bound is above 0 because "Bitcoin offers people a money storage and transfer system with two key properties: (i) permissionless access and (ii) decentralized database management." That might be true if Bitcoin were the only technology that offered those features, but it isn't. Cash is the most notable competitor, but there are also dozens of other cryptocurrencies which are drop-in replacements for Bitcoin.
2. The number of Bitcoin users has a hard cap because the technology is not scalable. It is just plain impossible for a large number of people to use it. This is not like Facebook, where the system is scalable and user growth is determined almost entirely by user interest.
Also, those graphs make me nervous. Fitting a line to a log-(log-square-root) graph using linear regression sounds awfully fishy to me. Would anyone with a better grasp of the statistics care to chime in?
but there are also dozens of other cryptocurrencies which are drop-in replacements for Bitcoin.
It's fishy, but depressingly common in Economics. There's an old joke that 'everything on a log-log plot is linear when drawn with a fat magic marker'.
The errors at the top-right of the chart are much larger than the errors on the bottom left: they just don't look that way because of the log scale. They're also systematically biased at the top-left.
If you want to run OLS on a timeseries, you need ergodicity (i.e. the time series forgets its own history) for the regression to be valid. The number of observations also needs to be across a time much larger than the relaxation time of the timeseries. I don't see that here.
The entire thing triggers my spider sense for cranks. It's written in word and uses excel for its plots, the author runs some sort of crypto fund, and the fact that it uses 'square root of time' as a regressor is just bizzarre.
Nobody really ever used it for normal things.
The one attempt at actually attempting to take a first step to fix scaling issues collapsed due to governance issues.
It never worked as a reliable store of value or means of reasonably transferring funds.
Really cool project but it was an experiment. We can still learn from failed experiments to make even better new ones...
I wonder how many people called the internet a failure, 10 years in.
The value people get from FB is related to the value of other people being on the network, but there is an intrinsic value drived from the different use cases on the platform - photos, messaging, likes, fomo and what not. Which has directly been monetized using advertising.
The value you get from other people using Bitcoin is that the price goes up, without any other intrinsic value aside from "Maybe my investment grows" - in effect following the 'greater fool' theory (Buffett), or the 'castle in the air' theory (Malkiel et al).