In terms of the USD, the price of Bitcoin is volatile in the short term. But that volatility is due to its relatively small size compared to its total addressable market. The total addressable market of Bitcoin is all monetary value on earth, so in the hundreds of trillions, probably.
Bitcoin's network effects have already likely reached "runaway" status, so Bitcoin will continue to grow as the network effect speeds up exponentially. Its volatility will continue decreasing as it grows to address more of the T.A.M. of global monetary value.
My US Hay, Confederated Slaveholdings, and buggy whip stocks were shooting up for a long time, they must still be great investments.
This misses the whole picture which is about both supply and demand, and mining is only one side of the equation.
You do mention demand afterwards, but
> Bitcoin's network effects have already likely reached "runaway" status, so Bitcoin will continue to grow as the network effect speeds up exponentially.
is debatable to say the least. Is there any legal niche group that would use it for at least 50% of their transactions? News articles about the experiment in El Salvador seem to indicate that people still prefer to use cash (USD).
> The total addressable market of Bitcoin is all monetary value on earth, so in the hundreds of trillions, probably.
Not sure how this is relevant, in practice 99% of the world can use the USD one way or another, but that doesn't mean it'll ever reach this point.
> Its volatility will continue decreasing as it grows to address more of the T.A.M. of global monetary value.
Has it even begun? I haven't computed anything myself, but whenever I look for sources I end up with figures that contradict this claim, e.g.: https://www.buybitcoinworldwide.com/volatility-index/
If you look at the past 7 years, it doesn't look like it has gone down. I had seen tables with yearly volatility averages (or whatever the measure was) claiming the same. Do you have a better source than this?
Of course, I just pointed out that price action has historically gone in four-years waves driven by halving cycles. This is clear in the charts. That's why the 200WMA is particularly meaningful in the Bitcoin world.
> is debatable to say the least. Is there any legal niche group that would use it for at least 50% of their transactions? News articles about the experiment in El Salvador seem to indicate that people still prefer to use cash (USD).
No question, I would be surprised if anyone is using Bitcoin for much of anything but remittences in El Salvador (right now). It will probably be a while yet before we shift into the medium of exchange phase.
> Not sure how this is relevant
I think it's relevant because network effects generally means money wants to be a monopoly good. Money is more useful if more people use it. Gold, guilder, pound, dollar; the world trends toward one monetary standard, one unit of account. Unlike the fiat reserve currencies since gold, Bitcoin has no counter party risk. Unless something BREAKS the network effects of Bitcoin somehow, I don't see anything stopping it from becoming the dominant monetary good at some point in the future.
What do you think will break the network effects of Bitcoin?
> If you look at the past 7 years, it doesn't look like it has gone down
No, I will admit I'm operating on my gut here. Bitcoin is like the reserve asset of the cryptocurrency world. The crypto market is very much the Wild West still. Crypto trading happens on insane leverage, and is highly correlated with tech stocks and such. But small countries and institutions are just finally starting to get involved. They're not going to be degenerate traders, they're going to be holders. As the institutions and sovereign wealth funds start to pile into crypto, they're going to want to choose the most secure and stable good in the space to hold for the long term, which is Bitcoin.
It only makes sense to me that volatility will decrease with time.
Which network effects are you referring to exactly? What does BTC have that the RMB or USD don't have? Or do you mean that having no counter party risk is a network effect in itself? I'm not sure I follow.
Why would country A supplying country B with something it really wants accept a contract denominated in a currency other than the one of their choosing? Why would they choose a volatile currency they don't even control?
I feel that the network effects are playing in favor of the dominant currencies. By definition, network effects only exist once there's an actual network, and it seems we agree that BTC doesn't have one comparable to e.g. USD yet.
> It only makes sense to me that volatility will decrease with time.
So you think it will start decreasing this year?
1. as I pointed out, numbers still don't show a decrease 2. lack of regulation means it's prone to market manipulation, with some parties playing simultaneous roles to an extent which would be forbidden in a regulated market. These manipulations tend to increase volatility (you don't make much money if the price remains the price, but you can make a lot if you have an idea of where you'll send the prices)
In turn, that means that:
> As the institutions and sovereign wealth funds start to pile into crypto, they're going to want to choose the most secure and stable good in the space to hold for the long term
is not necessarily true. Elon Musk can send BTC either way with a simple tweet. Why would big players buy and hold when they can benefit from the volatility they themselves generate and make a quick buck instead?
3. BTC hasn't gone through a crisis yet. As you wrote, it seems to be correlated with tech (risky) stocks, with higher swings, either way. I'd be surprised if that changes during a crisis.
The network effects of people owning and becoming more comfortable with it. This drives the value, which drives companies to build on it, which further drives value, etc.
This will either: A) Level off at some point. B) Reverse and go to zero. C) Continue growing forever.
Because there's no counter party risk, there's no company that can go out of business and take it out. There's no revenue projections that Bitcoin can miss. No founder to attack. No foundation to sanction.
In order to reverse Bitcoin's progress, someone would need to somehow do something to break the network. It must be something really dramatic, like breaking SHA256, governments unanimously banning it, or creating some new monetary technology which is overwhelmingly superior to Bitcoin.
I agree BTC is not USD yet. My view is that USD is eroding, however, and Bitcoin is growing, and I see nothing on the horizon that can reverse this. Many other currencies are eroding faster, though, and most will collapse into the USD in the meantime.
> So you think it will start decreasing this year?
I would be comfortable saying this year. Major nations are adopting formal regulatory frameworks for cryptocurrencies, including the United States. Fidelity just announced that they will start letting customers buy Bitcoin with their 401k. I would expect other asset managers will be following suit, shortly. I know pension funds (big bit money) are looking at buying in. We will be seeing a major sea change in Bitcoin this year and next year.
By the way, I would expect Bitcoin to remain relatively volatile for quite a while, even if overall volatility decreases. Deleveraging the crypto markets will help a lot, but there's still much growth left to be done.
> 3. BTC hasn't gone through a crisis yet.
I think the network has gone through several crises. Do you mean internal crises, or major economic crises? If you mean the second thing, I would agree. We're about to see what Bitcoin is really made of in the next couple of years, since we're probably going to see huge global deleveraging event and a lot of economic/currency collapses.
People already own fiat currencies, and are mostly comfortable with them, more than they will ever be with cryptocurrencies where losing a private key can mean losing your funds irremediably. And even then, at best you'd get the same network effect as the fiat currency, no more than that. So how would this effect lead to the cryptocurrency prevailing over fiat currencies?
I guess I still don't understand your reasoning about Bitcoin's inevitable fate as a dominant currency, or even as a mainstream one. There's nothing stopping Bitcoin as a blockchain, but there's not much pushing for it either in terms of use. I still don't know anyone who actually uses cryptocurrencies as currencies rather than as speculative assets.
Currencies are used because states want people and other countries (in the case of international currencies such as the USD) to use them, and they have the power to enforce this through various means. The same can't be said about BTC. There could be some advantages for countries adopting it as a legal tender that we're not seeing, but I somehow doubt it'll become apparent in CAR of all countries, and it doesn't seem to be going so well in El Salvador either.
Fiat currencies weaken and die because of counter party risk. Governments can't help but abuse their powers and eventually kill their currency. Bitcoin has an entirely new and unique value proposition: A monetary network with no counter party risk without the need to physically transport a good (like gold). The implications of this are mind bending.
We're seeing something we've never seen before: the bootstrapping of an entirely new monetary system from the ground up with an asset and network that didn't previously exist. The path is laid out:
1) Store of value: We're still working our way through this phase. There is still a lot of monetary value left to gobble up.
2) Medium of exchange: People will horde this asset until other monies become so weak in comparison that merchants will prefer/demand payment in this one.
3) Unit of account: People become so used to transacting in a money they start to think in terms of that money. At this point, volatility gets measured in terms of this asset, not the other way around.
Some goods are stores of value but will never reach the second stage, because they're not good monetary assets. Real estate, for example, or stocks. Not divisible, fungible, neutral, etc.
Bitcoin has all of the ingredients, we just need to wait for the stew to cook. There are only a few things that can stop it, and none of them seem particularly likely to me.
edit: I don't want to be dismissive. Private key management and things like that are certainly challenges, but it's just a matter of time, experimentation and UX improvements. It's not existential.
This is an argument against USD as some kind of eternal international currency, not against RMB / EUR or another fiat currency replacing it (instead of BTC).
It's debatable whether your 1) is happening at all, depending on definitions; most BTC transactions seem to boil down to speculation. Some users do "store value", as in, they buy and hold thinking it can still go way higher (or at least won't go lower) than it currently is with a reasoning similar to yours. But given the correlation with tech stocks as we wrote before, it remains to be seen if these users can go through a financial crisis with this mentality.
Regarding 2), what do you mean by weak? The absolute value of a currency doesn't matter as long as it doesn't change too rapidly. If you need to pay $100 in a month and have some confidence about what this will represent by then, you don't need to know more, buyers and sellers can agree on a price. As long as merchants need to pay their taxes and other things in a fiat currency, you still have a bootstrapping problem with BTC.
> Some goods are stores of value but will never reach the second stage, because they're not good monetary assets.
Why is BTC a "good monetary asset"? I can buy ETFs representing commodities in liquid markets, why is that strictly worse? E.g. for whom is the "neutral" aspect of BTC a selling point?
> There are only a few things that can stop it, and none of them seem particularly likely to me.
I don't think BTC will ever go away, but I also don't see it becoming much more widespread outside of speculative circles.
> Bitcoin has all of the ingredients, we just need to wait for the stew to cook. There are only a few things that can stop it, and none of them seem particularly likely to me.
One problem in this space is how discussions remain both static and hopeful. I had the exact same discussions in 2017, it's been 5 years. The 10000 BTC pizza was bought in 2010, and yet 12 years after there's almost nothing I buy that I could have spent BTC on.
If you ask me to do something, and I tell you I'm working on it whenever you ask me for a status update, how long do you keep believing? We can't prove that BTC will never be $SOMETHING. But until I actually find someone using BTC for something other than speculation or bypassing regulations, I'll have to remain skeptical.
That seems pretty nonfalsifiable.
[Edit: * was up-left, mistakenly.]
BTC is also currently down from its peak, no one knows if it's currently "trending up".
Not sure what you're disagreeing with. Point is, if I can't predict reasonably well what I'll be able to buy in a few months with the currency I'm using, maybe what I'm using is not meant to be a currency.
> And your time frame on BTC is too short. Yes, it's trending up, and also becoming less volatile over time.
I'm sure I can find a time frame over which BTC is up. Not sure that helps much. It's "trending down" since August 2021. It's "trending up" over the last 10 years. What comes next is anyone's guess.
Regarding volatility, whenever I look at it, all the sources I can find point to some volatility being at least constant over the past few years (I linked a source in another comment which indicates sustained volatility over the last 7 years). I've seen 3 different ones so far. Do you have one that would indicate otherwise?
I could find one[0] but it's pretty bad, it starts with the yearly chart showing that the volatility is not declining, then shows a daily one over 7 days and shows a decline over this period.
[0]: https://medium.com/@silvestrimichela.s/is-btc-volatility-goi...
It's more of an ideal, e.g. the ECB targets this. In practice there's a margin of error, the question is how big it is. Once this error (for the currency you use, e.g. USD I assume, given your comment) and the volatility of BTC are close enough, we can consider BTC as competitive as a currency. Until then it's not.
At any given time almost every asset is "down from its peak". It's impossible to be "up from the peak". The best-case scenario is to be at the peak, but that doesn't last.
If you bought in at the peak, when it was trading at double the all-time high as of just a month or two prior, then you lost of bunch of money when the price returned to normal. That's a fairly predictable outcome. But before it started shooting up in December of 2020 it had never been above $30k for more than a day or so (if ever), and since then it hasn't gone below $30k, and for the most part has remained above $38k or so despite some rather chaotic market conditions. Over the last two years it's up over 320%. (The S&P 500 is up about 80% over roughly the same time period, measured from its lowest point in March 2020.)
IMHO the recent volatility is mostly due to political factors rather than the market. Regulators can't seem to collectively decide whether they want to adopt it themselves, ban it outright, take the hands-off approach, or just impose one unreasonable regulation after another with the goal of forcing it into the mold of the broken systems it was designed to replace. You'd see the same in any other asset class subjected to a similar political environment.
> IMHO the recent volatility is mostly due to political factors rather than the market.
If that's accurate, that would indicate that this volatility is not bound to disappear anytime soon.
Still, given the incentives to manipulate the market for a profit and the presence of actors such as Tether, I wouldn't discount manipulation as a big part of this volatility.