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The problem with belief is that the Bitcoin price only raises when you find new people who believe in it to put more money into it.

As soon as the BTC market reaches maximum penetration and no new buyers can be found, Bitcoin becomes price stable. And once price stability is reached, because the price isn't appreciating anymore, people will want to start spending their earnings. And as BTC in particular isn't actually that good as a currency, people need to turn their BTC into fiat in order to realise their value and spend them.

And then suddenly... there aren't any buyers and it crashes.

You're not taking inflation into account.

Inflation isn't the driving force here.

Inflation is only relevant from the time you receive cash to the time you invest it in productive (or in the case of Bitcoin, totally unproductive) investments.

In fact, inflation is the only reason people put money into Bitcoin lol. If there wasn't any inflation, nobody would buy Bitcoin. Really makes you think.

The stock market continues to go up even though its adoption is already widespread. The reason is that governments continue to print USD, and other currencies, which they get invested, re-loaded out, etc. I expect that this can continue in Bitcoin as well for quite some time if there continues to be a shared belief in its intrinsic value.

A shared belief in intrinsic value? What's the calculation then that results in the current bitcoin price without referring to it's existing or historical price?

The stock market goes up because you are looking at a market index of the biggest companies, which are growing bigger as markets concentrate. The difference is if you have a share for a year, it earns you a return separate to what happens to the price of the stock (i.e. a dividend), and this is the intrinsic value (i.e. you can do a fundamental analysis of the stock to reach a price). If you hold onto a Bitcoin for a year it might be worth more, but only because the market is pricing it differently, not because of any fundamentals. This is why it does not have intrinsic value.

This doesn't sound right to me. It seems like your analysis assumes that BTC has already become a store of value, and people are putting excess income into it, like gold. In that future, why wouldn't there be buyers? There aren't new people earning money and investing excess income?

People need to turn gold into fiat in order to spend it. Those are people with excess wealth and not enough income. There will always be people on the other side, excess income but low wealth.

More specifically, I'm assuming that they are a speculative instrument where people are expecting positive growth (i.e. that bitcoins become more valuable over time).

The supply of new people earning money who will want to invest income into Bitcoin has to be finite. Growth can't continue forever because you always need to find someone new who is willing to pay more than you did for a bitcoin/satoshi to keep the price growing, and there isn't an infinite supply of people with an infinite supply of money.

> As soon as the BTC market reaches maximum penetration and no new buyers can be found, Bitcoin becomes price stable.

Bitcoin is negative sum because the miners constantly have to sell Bitcoins for real currency to pay their electric bills. The equilibrium point is when the new money entering the system is equal to the cash value of block rewards. The higher the price, the more new money has to come in to keep it stable.

Currently, Tesla's $1.5B investment is about 4-5 weeks of electric bills (lmao).

The point at which there are no new buyers is actually a negative slope point.

"Bitcoin is powered by a shared belief in its value."

The nuance in this is that its value also includes a financial incentive - the MLM structure inherent to Bitcoin, and that is truly what aligns everyone in Bitcoin - it's not for whatever other positives may exist as the primary glue, arguably 99%+ is the financial gain and potential that is the glue.

But yes, pro-Bitcoiners have been good at refining their narrative, the propaganda, conveniently ignoring the MLM structure whenever writing prose of how amazing Bitcoin is - while avoiding answering questions related to its pitfalls like with Bitcoin how do you implement policy and mechanisms like the Magnisky Act to block money of known bad actors as an economic punishment and attempt to sway their bad actions - before needing to perhaps (hopefully not) escalate actions into the physical, destruction-violence mechanism?

Gold doesn't have earnings releases either.

It at least is tied to a physical thing. There are then limits to how high gold can go in price as higher prices means more will come to the market to sell it because the higher prices are not viewed as sustainable.

Whereas with bitcoin, it is fairly unmoored from physical constraints.

There is no natural price for bitcoin.

It could go up forever or drop to nothing and both are acceptable valuations that would be hard to question -- because it is merely shared belief.

The only plus I can see is a stronger belief that you can't synthesise gold. Synthesising Bitcoin would take an enormous amount of coordinated computing power, but it is technically possible. Other than that I don't see why it matters that gold is a physical thing.

See my peer comment. You can "synthesize" gold pretty easily. I agree most people don't consider this when buying gold though. So "stronger belief" is still accurate. Unfortunately unscrupulous people make fortunes off of that strong belief.

> It at least is tied to a physical thing.

People should know more about the paper gold market. Most importantly how much gold people think they have stored safely in vaults, but is essentially just an IOU that could never be paid if everyone withdrew at the same time. Pretty scary/exciting stuff. I couldn't even begin to describe all the dimensions to this and still learning myself. But long story short, consider the possibility that the price of gold isn't anywhere near tied to a physical thing. :)

Chuck .E Cheese tokens are tied to a physical thing.

All money, currency and assets are based on faith on the continuing demand for that thing. All the other properties are incidental.

There's only one gold... of the cryptocurrencies Bitcoin has become the store of value, by consensus, but that consensus is far more easily popped than the consensus of Gold's worth

it is intrinsically valuable

How? As an intrinsically valuable means of speculation because sound investment opportunities are absent?

It has a social network effect of people who agree that it's the store of value for the future. Your paper dollar bill has very little intrinsic value. It's just a shared acceptance.

MMT people would say the intrinsic value of dollar is that you can pay your taxes in them. And if you can not you go to jail

I fail to see the distinction between “shared acceptance” and “social network effect of people who agree”. Each has value because people agree it does.

Dollars have some amount of intrinsic value: they are the only currency accepted by the US government to pay any taxes due to them. Also, by force of law, anyone living in the US must accept dollars as a way to settle a debt that is due to them, which also gives them some intrinsic value.

So I own some crypto too, but the dollar has a much larger social network effect of people who agree it's the store of value for the future, no? So does the Euro. It's a bit weird that you would claim that bitcoin's intrinsic value is that it's a store of value, but then deny the same reality for other traditional currencies.

I don't think that's true at all. Inflation of fiat is widely accepted as people know more gets printed all the time. You know your dollar will be worth less next year due to inflation. This is why people invest in interest baring accounts and stocks. Dollars by themselves lose money over time.

And yet more people use dollars, and have bank accounts with dollars or their home country's currency.

Bitcoin's block reward can be changed as well, it's not some immutable law of the blockchain. I'm not claiming that it will change, but I also see the potential for there to be a change there to incentivize mining once the block rewards are minuscule and miners are dependent on transaction fees for profitability.

> And yet more people use dollars, and have bank accounts with dollars or their home country's currency.

Those people are losing money due to inflation. This is well known and an issue with people keeping cash in "mattresses".

> Bitcoin's block reward can be changed as well, it's not some immutable law of the blockchain. I'm not claiming that it will change, but I also see the potential for there to be a change there to incentivize mining once the block rewards are minuscule and miners are dependent on transaction fees for profitability.

This is called a hard fork, and has been done more or less unsuccessfully multiple times now.

And yet people still own dollars. I own various investments, and also dollars.

I'm aware of what a hard fork is, I'm also aware of what a 51% attack is. The risk of that down the road could be a fair amount of incentive for folks (and the network effect) to get on board. I'm not saying something will happen there. You do need to maintain clarity to understand the reality of what's possible though. It's also possible that bitcoin's first mover advantage is overcome at some point.

As I said, I own some cryptocurrency too. It's important to see through the mania that is the current market.

You (and I) own dollars but the government can always print more. It's like owning shares in a company that has the habit of regularly issuing more shares, diluting you. We know the denominator on BTC (21,000,000) the denominator on USD is unknown and always increasing.

The fixed, deflationary nature of Bitcoin isn't the only financial instrument we need, but it is desperately needed in its own right.

Paper money is legitimized by the government requiring you to pay it in that denomination. This then gets further legitimized via bonds, bank lending, etc.

Competing tenders in most countries are outlawed. It is an enforced shared belief.

Uh, my paper dollar is backed by the might of the US government and the US economy. It's a lot more than just "shared acceptance". Countries couldn't just switch off the US dollar reserve currency for international trade without massive economic repercussions, which is why no country or set of countries has developed a viable alternative to the dollar for a global reserve currency. It's not like China/Russia wouldn't like to, they have no choice.

The EU came the closest, but no one outside of Europe has wanted Euros since the Greek economic crisis. Hell a large chunk of internal European trade is still done in dollars on the back-end.

On the stick side, under Obama the US stepped up the various mechanisms such that we can cut off trade denominated in dollars on a whim to anyone we want, that's part of how sanctions work. If we (the US) decides we don't want a country to be able to trade internationally, we just cut them off from converting into dollars at the exchanges. There are no economically viable ways around this at present. Just ask Iran.

Bitcoin however, will collapse the moment enough of the crowd loses the faith. It'll go on for a while because it's the new hotness, and some people will get lucky and rich, but at the end of the day it's an ultimately worthless commodity (unless you're trying to avoid government regulation over financial transfers) that exists as long as world governments allow it to exist.

Sure, if theoretically some critical mass of the population all collectively decided Bitcoin was the future it would be, but right now we can't get a critical mass of US citizens to wear masks during a pandemic that's killed hundreds of thousands. So I wouldn't hold out too much hope for pan-Bitcoinism.

Your whole comment is basically an ad for Bitcoin. USD is valuable because we have an imperialistic global army that will kill you or starve you off if you don't use it? Seems like something we desperately need an alternative to.

USD is the dirtiest fiat there is because it's backed by blood at a global scale.

All fiat currency is backed by blood and violence at some scale, it's meted out by court systems, police and military forces. The US happens to be the sole global superpower so the scale is larger for us, but we're actually a very well behaved superpower by historical standards. The "Imperialistic Global Army" has allowed countries who could never have traded globally due to lack of resources to industrialize. The US Navy keeps the trade lanes open for everyone, or at least it did. Whether that will be a thing going forward is an open question now that the Cold War mentality is fading and our troop deployments at historical lows. We might be going back to a truly imperialistic attitude of protecting US and allied trade lanes and letting everyone else build their own Navies if they want to protect their shipping (many countries couldn't do this even if they wanted). But Bitcoin wouldn't be a solution to that either.

As for moral purity, it's no secret that a significant (albeit unknowable) portion of Bitcoin's current value comes from illegal transactions concerning everything from human trafficking to drug sales to organized crime rackets. The ability to obfuscate financial transactions is part of its intrinsic value, so anyone with an interest in doing so will be attracted to it. Plus if Bitcoin were to somehow grow large enough to even consider replacing the dollar, all the blood behind the dollar would simply shift to Bitcoin in some (albeit likely different) manner. Someone has to enforce monetary policy and financial laws, a chaotic, decentralized enforcement would arguably be even worse than centralized fiat enforcement.

There's no way forward financially without some blood on your hands at some stage. So for my money I'm going to build my financial house on solid ground. I'm all for making the system more just and less bloody, but IMO Bitcoin isn't it. In the meantime we've all got to play the hand we're dealt, the only other option is to be a martyr, and while they might get some occasional press and lip service, martyrs typically don't accomplish much.

> Hell a large chunk of internal European trade is still done in dollars on the back-end.

No. Internal trade is balanced with target2.

Right, but to my knowledge target2 doesn't preclude the use of other exchanges. It wouldn't be illegal for say, Spain to convert to dollars and then back to Euros when selling to France. I'm having a hard time finding the statistics I read a few years back, and maybe things have changed or I was misinformed, but I remember reading while most internal EU trade is settled in Euros a significant amount was still settled in dollars for a variety of reasons (legacy systems and such).

I can pay my taxes with a paper dollar bill.

That's not just shared acceptance because even if the mighty USD should crumble and fall, a US citizen will still be able to pay the taxman with a dollar bill which is in itself of great value.

Bitcoin is a group of technologies, the one that creates Bitcoin's "value" is a digital implementation of scarcity. Usually digital things are easy to copy infinitely, so Bitcoin's implementation of scarcity is one of its core innovations. Scarce things inherently have value in society, beyond the material themselves, because we primarily make transactions (trade) using scarce things. In other words, scarce things are useful simply by being scarce. So if you take there's value in something being purely digital, and decentralized, then Bitcoin has value through its implementation of scarcity.

Bitcoin isn’t likely to be banned. Might as well ban World of Warcraft gold while you’re at it.

Clearly it has value as a speculative vehicle and as a systemic risk hedge (like Gold). Whether it can become a true currency is still debatable. Its infrastructure feels more like selling stock or bonds today.

It is not a currency. It is an asset like gold for sure. I think because it is deflationary in nature, it will stay an asset. Currencies need inflation to encourage spending.

100x this. I still don't quite get the logic behind hard money.

> I wonder if Bitcoin will ever be forced to bend towards an inflationary monetary policy controlled by government like entities? It is code and code and always be changed. If it is so successful it becomes necessary to co-opt it into the existing system.... weird stuff.

You can change the code, but it's up to the miners to actually run that code. Not saying it's impossible, but that's a big ask for a controversial change like that. Maybe someday if the mining is even more centralized than it currently is.

> I could see it being banned by the US government and others...

It's difficult to imagine this causing the price to go any direction other than up.

I believe the opposite to be accurate, as we have seen in the past.

> as we have seen in the past

To what do you refer here?

Korea banning BTC i think? Unless its china? the price dropped a lot.

It would likely cause a short term shock, especially if people were forced to sell quickly. Essentially a lot of shorter term traders would quickly exit the market.

Though in the longer run, assuming the network stays up (I see no reason why not), I also think it would strengthen the case and we'd see prices continue to climb.

>Bitcoin is powered by a shared belief in its value.

So is US dollar.

Dollar is powered by one of the biggest economical, political and military power in the world.

The USD also had some difficult beginnings, and through luck and force of will has been established as the de-facto world currency. Saying that no-one will ever challenge the king is foolish, short-sighted, and naive.

No one reasonable says that USD cannot be challenged. Chinese yuan is on the way there and we’ll see that fight pretty soon.

Bitcoin is not even not in the same league - it’s playing different sport.

then what happened in 2018 and 2013 where it lost 90% of its value?

What happened to Amazon in the two cases where it has drawn down 90% from a high?

yes this analogy works because amazon ships billions in packages with almost a trillion in revenue and btc can be replicated by a sql database

I would suggest gaining additional technical familiarity about block chains if you genuinely believe they are equivalent to centralized relational databases. That's just flat-out incorrect and untrue.

i bought bitcoin and understood block chains in 2013. just because someone disagrees with you doesn’t mean they are dumb. and maybe sometimes you’re the one that doesn’t know what you’re talking about

You seem to be lacking an understanding of the most basic principles of bitcoin, ie permissionless decentralization backed by proof of work which would not function with existing SQL databases.

no im saying the actual practical use. keeping track of who owns what can be accomplished way better with a centralized database.

the only thing novel is that its decentralized and inefficient but the average user really doesnt care about that.

What if the central database gets hacked? What if someone does a double-spend? What if the person in charge of the central database decides to redistribute everyone's money or decides to revalue it? What if a transaction fails or someone makes a mistake? How do we know we can trust the owner of said database? What if the central database gets wiped or corrupted?

These are some of the problems with centralization that decentralization solves. The original Satoshi white paper calls out many of these use cases. Part of the reason bitcoin is exploding in value again is because the US government is inflating everyone's money.

This is before even getting into applications of smart contracts...

Congratulations on your successful investment (that's not something I would recommend publicizing though)...

Your misunderstanding of bitcoin seems to boil down to your lack of understanding of what "decentralized trust" is and why it's useful. Maybe start there, but you probably won't because you sound extremely angry.

Also, totally unclear about what this has to do with them both having 90% drawdowns.