Bitcoin's Rally Masks Uncomfortable Fact: Almost Nobody Uses It
bloomberg.com
bloomberg.com
Bitcoin has proved remarkably resilient over the last 10 years. It's clear (to me, anyway) that this asset class/set of technologies is here to stay, it's really just a question of what comes of it.
It's actually quite useful to be able to send large quantities of money anywhere in the world without needing a series of intermediaries. For that purpose alone I could see supply limitations leading to increased prices in the long haul. There are also some interesting "layer 2" projects that have been percolating for several years now with a lot of potential to make Bitcoin useful for smaller transactions.
The insane hype of the last cycle understandably turned a lot of people off from crypto, but I think it would be a mistake to ignore the progress that's being made.
What does that even mean? Resilient in what way? As this article notes, it hasn't been adopted for use in any meaningful or significant way. It's a speculation vehicle. I guess in the sense that it didn't literally disappear it's resilient, but beyond that the idea from its early days that it would fundamentally change the world and be widely adopted is gone. It's not the glorious dagger that will pierce the heart of the statist beast its libertarian boosters imagined. The governments, banks, and people of the world have mostly shrugged at it. Ironically, some banks and governments even started adopting the technology for their own uses.
It's just a vehicle for speculation and a toy that doesn't seem to have any actually useful applications that couldn't have already been done better.
>I think it would be a mistake to ignore the progress that's being made.
What progress? It made some speculators rich but is otherwise useless.
As for utility: I've used it to pay contractors in Europe, for example, without having to figure out which money transmittal service is going to rip me off the least. Tons of expats living in North America and Europe use it to send money back to family in their home countries. People use it to hedge against runaway inflation caused by poor monetary policy.
It could all fall apart in a few years, sure, but it's damn interesting. Being cynical just means if you're right you get to gloat about it, but if you're wrong you're missing something that could be really important.
At times it's been talked about as a replacement for cash in the sense of using it for lots of low-value transactions (it won't work), as a value store (it fluctuates a LOT for that), for sending money across borders (absolutely dwarfed by Western Union), for replacing Paypal/Venmo/Google Wallet/any other electronic payment system (absolutely dwarfed any of those), and so on.
It's not dead, of course, but the Bitcoin community has made a LOT of strong claims about widespread public adoption, yet still remains very much in the hands of speculators and hobbyists.
That's what, I think, a lot of the objections come from. Bitcoin's like the Segway in a sense; did it change the world? in some small way, yes. Are we building cities (or large-scale financial infrastructures) around it? Well, show me.
And there is no cohesive "community" that's making predictions and measuring against them. It's just people speculating out loud, and then other people writing about the speculation.
It's a bit unusual because it started out as a cool technological curiosity vs. a product with a defined product/market fit. Sort of like desktop computing in the 70s.
> It's an emerging technology,
What are the timelines like here? If 10 years is too short to suss out what BTC is going to be useful for, will another 10 years help? Is this a 100 year long thing then?
Everyone I knew in high school wanted a cellphone but couldn't afford it. Same with desktop computers. Same with space travel. Everyone wanted that that stuff but it was expensive.
Bitcoin isn't hard or expensive to get. But still nobody wants it.
So... pretty much exactly the opposite of what you're arguing.
Cryptocurrency in a broader sense is an emerging technology and will probably find other areas of utility. I feel like we don't even know what it is yet.
So is everything else. Investors buy company shares to make a profit; they don't buy the shares for any other reason.
In a world where practically every person only cares about capturing value and almost none of them care about creating value, everything is speculation. Everything is just smoke and mirrors.
The problem is that the vast majority of businesses do not accept Bitcoin and right now Bitcoin is too volatile to store value/buying power. This means that for all practical purposes you need to exchange your local currency for Bitcoin, send it somewhere, then convert it back to fiat currency.
That means you require at least 2 intermediaries. Not to mention I would have a hard time trusting any reasonable amount of money to most Bitcoin exchanges.
https://bitinfocharts.com/comparison/bitcoin-transactions.ht...
After 10 years there really is nothing to show for it.
I mined a few coins in 2011 and they were quite useful in the 2013 boom when there were various merchants experimenting with adoption.
Since then the merchant adoption has only gone down.
Bitcoin will continue to have value because of its use in very shady transactions:
* hard drugs
* avoiding capital controls(China, Russia etc)
* extortion, blackmail
* crypto scams
* pure speculative/gambling vehicle
That is: as a buyer you get no protection and pay more as compared to regular credit card. Why in the world would you use it unless you want to use it for something shady?
Now one could argue that capital controls and hard drugs should be legal but that doesn't change the problem that bitcoin and other cryptocurrencies only exist to serve markets that nation states deem illegal.
Compare this to regular gold and cash.
Finally, the big problem is the energy use. If BTC runs to 50k-100k then the energy consumption used for mining will surely surpass that of a medium sized country. If speculators push the price of BTC to say 500k, then the whole world will stop and half the energy will be used to mine BTC.
It is ridiculously silly yet dangerous.
Look at the volume column and you'll see that Tether has more volume than bitcoin and has had for a little while.
Tether has recently
a) Admitted that they don't have 1:1 backing in USD
b) They use customer funds for investment rather than just storing them and
c) They're currently under investigation by the New York Attorney General.
Against that backdrop they've increased the number of Tethers in circulation by $400 million in the last month...
Now it's possible that they've got a load of companies who really believe in them to the point that they're eager to invest in Tether (even when there are other 1:1 backed stablecoins available)
A different interpretation could be that Tether have worked out they can effectively just print money as much as they want and are using this to buy bitcoins, driving up the price...
>Look at the volume column
The really odd thing is getting your volume numbers from CoinMarketCap in the first place when according to this well argued deck[0], 95% of those numbers are fake.
What you're looking at there is completely distorted as unregulated exchanges have a huge vested interest in inflating the numbers to dupe projects into paying higher listing fees and since most of the time, the fake volume doesn't track the waning and waxing of the real volume of legitimate exchanges, not only is that fake volume wrong quantitatively but it's also wrong relatively making it worthless and CMC practically worthless by extension though they do claim to be addressing the issue.
[0]https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2...
Well, some people here thought for themselves and analyzed the technology and ideas on its merits. Just not the people who comment on these posts.
During this story arc, I also witnessed a growing dissent against Bitcoin. A lot of it came from the media and tech adjacent people but not technologists themselves. Initial complaints were more or less ad hominems (money for filthy nerds), as the currency went up in value, the story morphed conveniently to an ecological one as the rebuttal for that requires deeper knowledge of crypto and an acknowledgement of the energy consumption used to secure regular money.
Now you get on HN and it's just hated. Passionate hate. I figure it's a mix of people that could have understood it and didn't until it was too late, people who still don't understand it, and people who don't like it due to the constant barrage of negative media coverage.
Meanwhile Microsoft is building a distributed system on top of Bitcoin to help people get rid of passwords and take ownership of their data and identity.
The protocol is blockchain agnostic, the only requirement is a public blockhain, they're using Bitcoin because it's the most secure one.
They've calculated that when batching transactions they could give an globally verifiable identity to every person on the planet using only a tiny fraction of Bitcoin's 2MB~ every 10 minutes blockspace. The users of the system would have no clue that they're using Bitcoin, they would download an app that just works.
If public Blockchains end up being massively adopted it's going to through Layer 2 protocols like Microsoft DID or the Lightning Network that barely touch the actual blockchain layer because blockchains don't scale.
https://techcommunity.microsoft.com/t5/Azure-Active-Director...
MS has an Azure service that allows people to spin up private Ethereum blockchains, but they don't have any projects that utilize public Ethereum network.
So they missed out on a gold rush, so what? Another will appear in due time, be it Beanie Babies, Tamagotchis or Fidget Spinners.
> Well, some people here thought for themselves and analyzed the technology and ideas on its merits.
You are talking about buy low, sell high. The bitcoin boom was in 2017, what changed in the underlying technology?
I was mining back in 2011, so I'm very familiar with the technology and its merits. I've witnessed the price swings, the FOMO, the exchange "hacks". I'm very active in Bitcoin discussions under a pseudonym.
My conclusion: the technology and the price are orthogonal.
Of course most of these devs will take any of the top N cryptos.
As a very early bitcoin adopter who made and lost and made and lost a fortune; I can say that bitcoin and crypto is still "ahead of schedule" for realistic-optimistic timelines of adoption.
I still believe cryptocurrency will continue to grow and eventually eat gold; but I am less convinced that it will eat fiat.
For me, buying and holding seems to be legitimate usage. I guess that would count as "speculating". What else should you do with a store of value that you expect to appreciate in price because it has inflation going to 0?
Do you expect to increase in price solely because there are a limited amount? There are many things which have that property, but are not good stores of value. Your ability to sell it later for more money is based on continuing demand. Unless there's some other use case, where is that demand going to come from? Isn't some of the value it is allegedly storing based on future expectations of utility?
I really do wonder why Bloomberg hates Bitcoing. If you read through a history of their articles, they REALLY hate it.
I'm asking why BTC value should keep going up without some sort of demand beyond people buying because they expect it to go up? Or do you think that's enough?
You've had an answer for gold and silver and you've just said it's a store of value because it's a store of value. That's circular logic.
On the opposite end of the spectrum you’ve got South American cultures that loved Gold for purely decorative purposes, but basically never considered it money. These cultures largely traded using barter or using a specific agricultural product as the unit of account, such as cacao beans.
Hence the Opium Wars, the only way for UK/USA to get silver out of the Chinese economy. China had no interest in sub-standard Western goods and only wanted silver in exchange for their fine porcelain, silk and other goodies. Getting the whole nation on drugs and defending that trade with gunboats was a way of getting silver, silver being needed in the West for paying soldiers/mercenaries.
Such proud history we have, enslaving India to get the opium, selling it in China and getting silver back to buy legit goods from China.
1 or 21 million does not really make a difference, as long as they are infinitely divisible.
It depends on the price. If the price if above what it's "real" value will be (after factoring in later deflation), then you'd sell it.
Also there is a difference in short term and long term. In short term one might sell only to buy again after corrections, but this is risky/hard to time.
Rarity does not confer value. My toenail clippings are limited in quantity, but valueless. There has to be some sort of underlying demand before rarity gets to play a factor in the pricing equation.
So for bitcoin, what has been the underlying value proposition to justify purchasing? A large part of it was that bitcoin is the future of money, and that once “mass adoption” began, the price would go up.
Of course, bitcoin is a miserable failure of a currency. It doesn’t have properties that most consumers and vendors want. So this leaves us with “bitcoin has no inflation”, which is as I’ve mentioned above, not a good reason for anything to be valuable.
Indistinguishable from other toe-nail clippings, for which supply is not limited. Not easy to transport internationally quickly.
Ok, that makes sense. So why is there more hashing power on bitcoin than the hard forks? Oh, because bitcoin is more valuable and so the mining reward is higher once converted to fiat? Well, that seems like a problem.
And bitcoin is easy to move internationally, but that’s just begging the question. Why would anyone want to move bitcoin? Presumably because it’s valuable, but now we have a circular dependency; bitcoin is valuable because you can move it internationally, and people want to move it internationally because it’s valuable and can be converted into currencies in which people can actually buy goods and services.
As soon as the bitcoin price becomes stable it will be useful. As soon as it is useful it will swiftly rise in value and become unstable again. We have already seen several iterations of this cycle. Who knows when this will end.
Think of historical examples of governments buying and selling each others' gold and silver coins; or more recently governments actively buying and selling gold and silver in their currency; or even more recently governments holding reserves of other countries currency.
The historical purpose is to ensure that a currency has a stable value, and is readily available for anyone who wants to use it.
No one does this with Bitcoin. The incentives are to use the currency as a speculative bubble, instead of as a means of commerce.
Drawing an analogy, in order for Bitcoin to work, there would need to be a "Bitcoin authority" that basically holds a huge reserve of Bitcoin or another commodity, and buys and sells to keep the value stable. Bitcoin goes up in value: Sell Bitcoin for some commodity, Bitcoin goes down in value, sell the commodity for Bitcoin.
(Of course, a Bitcoin authority goes against the general anti-government promise of Bitcoin.)
Of course opponents might say: why should it succeed if they see no reason for it to succeed.
That position is completely acceptable to me, but the risk of losing out seems too high for me, so I invest a little bit, just to hedge.
And because many people might do that, it could succeed. As long as there are no good arguments against holding a little bit. Which there aren't.
Except maybe the ecological footprint. As soon as someone finds a solution to that without sacrificing the other qualities, a hardfork will surely succeed.
Especially due to the fact that the early cryptocoins like Bitcoin, Ethereum, and Monereo each designed their supplies to dump into a plutocratic distribution.
Oh, and 4 transactions a second is far too low a limit for any currency.
(I've always been in shock at how many people don't realize that it's a poor currency, but a useful experiment overall.)
This rally is designed, as will the next downcycle and the next rally.
Its price was kept very low for the longest time so some very powerful organizations such as Bakkt (backed by the same people behind NYSE) could accumulate most of its market supply. At the moment the price is being artificially pumped up to build momentum until enough people from the public buy into it, then its price will once again start dropping faster than gravity.
You often can attribute the exact reasons why a stock price went up, but for BTC it seems to be a complete mystery black box that even the most well-versed traders couldn't tell you the exact reasons why it went up.
For stock price for example, you just knew in advanced even from last year that Beyond Meat's stock was going to be a hit. "What The Health", an anti meat industry and pro vegans documentary film, was a HUGE success last year and you could see from miles away everything was set up for this trend to become mainstream in 2019 as public sentiments were beginning to swing very positively towards it. For BTC however, everything just seems like a wild guess as no one could pin point exactly what drives its price.
The same happened to gold. As soon as one entity controlled the vast majority of gold the price ceased to be stable. Central banks already essentially destroyed gold as payment method. If central banks only sell 1% of their gold assets they increase the supply on the actual tradeable market so much that the price can be vastly manipulated. It would be smart if they do the same with bitcoin.
Some 'coiners actually believe this. Wow.
Most assessments of Bitcoin's potential impact on the economy come out saying it's negligible.
This is comedy gold.
Comedy bitcoin.
BTC price reached its peak at $20,000 on December 17, 2017 which happened to be the exact same date that the CME Group (Chicago Mercantile Exchange) became the first provider of Bitcoin derivatives to the market. Immediately BTC price started dropping down the next day and it went down all the way to $13,000 only within the next five days! Not much needed to be said after that.
FYI: https://ethereumworldnews.com/report-crypto-platform-bakkt-u...
It's not like a regular asset, where the most you can lose is what you put in. You could lose literally everything.
In the case of stocks, there is some limit in the sense that there's an underlying asset. There's some dispute as to the real long-term value of a share of Facebook or Netflix or Google, but ultimately there is one: your share entitles you to a piece of the profits of that company. It's still possible to lose a huge amount of money shorting stocks (say, you short a nearly-worthless stock in a drug company whose product is surprisingly approved), but it's very rare.
With bitcoin, there's no underlying value to the asset. That makes it extremely volatile; there's no sound way to guess what it could ultimately be worth. Further, unlike stocks, there's no regulator trying to put a damper on price manipulation. (Basically, every dirty trick that was ever tried in the stock market now has rules against it, but they all get dusted off and tried again.) So shorting BTC puts you at significant risk.
Some people are long on BTC because they think that ultimately there is a real value there, and happens to be higher than the current trading price. Their willingness to do so is what will ultimately determine that long-term price. Shorting it is betting that they're wrong... assuming you have the financial wherewithal to wait for the "long term". Or are willing to assume the risk that you're right in the short term, too.
There is no instrument to borrow and short real Bitcoin.
You can't buy a car or toilet paper with your precious Pokemon cards.