The whole idea of Bitcoin and cryptocurrencies is that they have totally different characteristics from fiat currencies.
As Bitcoin is resistant to inflation this means that people are not going to lose the value of their money at all.
What would be the case of creating an inflationary cryptocurrency? It won't provide any positive impact to the market - at least at the current period of time.
You can dislike market manipulation and corruption. But you cannot worship deflation and say it's a cure for the disease. People will see how deflation wreaking havoc to economies. Inflation has its own role. Why not use a crypto with fixed inflation? It offers the same liberation as Bitcoin, just different economics and use case. The game is fair. |
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On volatility, I've seen hypotheses on how it will go down as Bitcoin matures.
- More hodlers, less volatility. This is not true. Speculators still drive its price. Bitcoin can still drop 50% in a day when speculators dump.
- More traditional market adoption, less volatility. Assume many funds hold 1% in bitcoins, does it reduce volatility? I think it would drive up Bitcoin's price. But it won't reduce volatility. Speculators still drive its price.
- More payment adoption, less volatility. We won't get here. Low volatility is required for payment adoption. People don't want to accept a currency whose value can drop significantly within a few days.
Bitcoin has reached a significant market cap. The industry has hundreds of billions of dollars now. Volatility is still here. Will it ever go away or is it inherently a property of Bitcoin? I think volatility is a property of Bitcoin due to the 21m cap.
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I'm the developer of Bitflate. I'm currently holding and mining the coin. Bitflate is a cryptocurrency with constant inflation. Its goal is to be a Medium of Exchange. I think Bitflate is the cryptocurrency that the market needs.  Although it has inflation, it does halving to reward early adopters. The reward schedule is as follows: 0: 50 1: 25 2: 12.5 3: 6.25 (end of halving) 4: 6.56 (start of inflation 7%) 5: 7.02 6: 7.51 7: 8.04 8: 8.60 9: 9.20 10: 9.85 For more information, see our website: https://bitflate.org/You can buy Bitflate (BFL) on Unnamed Exchange (not an endorsement, use with caution): https://bitflate.org/exchange/Join our Discord channel: https://discord.gg/utnEyp8 |
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I partly disagree. I don't think the majority holds bitcoin just as a collectible as it costs a good amount of money. It's 80-80% a speculative asset and probably a collectible for the ultra rich.
I think a speculative asset still needs some valuation model. If Bitcoin remains under 10k in 2030, all current valuation models are wrong. Traders would lose interest in trading bitcoins. Exchanges would be out of business by then. It would be hard to speculate on Bitcoin. |
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I saw this chart. But I think the chart is misleading. It implies that Bitcoin will eventually become The Ideal Money (Full Global Money). That's a maximalist view of Bitcoin. In reality, Bitcoin can be "downgraded." My Bitcoin thesis has been a (highly volatile) Store of Value. But I can also see it as a Speculative Asset. Bitcoin has shown that volatility is not going down even as its price is going up.
In 2030, if Bitcoin fails to reach more than 10k, I would say it is a Digital Collectible. There's a range of possibilities.
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Everyone has different views on Bitcoin. I want to run a poll to see where people are. It's hard to control your thoughts when there's a lot of noise in the market. This is a good exercise for me. I'm currently at 3 (An SoV).
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Original Post: https://bitflate.org/post/2020/04/11/the-coronavirus-and-a-deflationary-crisis.htmlNobody could have imagined the Coronavirus crisis. But the scope and damage are enormous. The Black Swan event is here. Nassim Taleb calls it a White Swan, an expected pandemic that will eventually happen. You can buy his book to learn this distinction. Governments and people were caught off guard. The crisis started at the beginning of 2020. A few months later, it has turned the world economy upside down. The Coronavirus crisis offers important lessons for crypto. It discredits some foolish ideas that we used to believe in. Bitcoin is not money during a crisisBitcoin is supposed to be a Store of Value. Crypto sphere has pitched it as an uncorrelated asset, a safe haven, a hedge, an insurance against a global economic crisis. False! The opposite has happened, at least, in the short-term. People flee to cash. They dumped their positions in equity and Bitcoin. For a few weeks, equity and Bitcoin prices are highly correlated. During this crisis, Bitcoin volatility increased dramatically. It dropped more than 50% (from 8k to 4k) on March 12, 2020. The lesson here is Bitcoin is not money during a crisis. People need cash to pay for their essential expenses (e.g. rent, food). It’s time for the crypto community to discard some thesis about Bitcoin. - Bitcoin is an uncorrelated asset. (It’s not.)
- Bitcoin is a hedge against an economic crisis. (It’s not.)
- Bitcoin volatility will decrease as Bitcoin matures. (It won’t.)
I remain bullish for Bitcoin in the long-term. But I revised my view. Here are my current thoughts. - Short-term, Bitcoin is a speculative asset.
- Long-term, Bitcoin is a Store of Value.
- Bitcoin is not a medium of exchange.
We are heading into a deflationary crisisWhen the US government announced the 2T stimulus package, people flooded Crypto Twitter with the Money Printer Go Brrr meme. This meme quickly died as the crypto sphere quickly realized the scope of the Coronavirus damage. This is no ordinary economic crisis. The US economy has shut down. Consumptions slow to a halt. People briefly spent more money to stock up groceries at the beginning of the shutdown. Consumptions in other categories, like entertainment and travel, are down from 20% to 90%. We see reports of farmers dumping milk and eggs because consumptions have gone down. When demand drops and supply remains the same, price has to drop to encourage people to spend. Commodity prices will drop. Companies will make less money. Then, wages will drop. This is a vicious price decrease cycle. We are heading into a deflationary crisis. It’s likely that a 2T stimulus package is not enough. The Coronavirus crisis shut down the world economy for months. It probably destroyed a lot more wealth than 2T. We probably need more than 50T stimulus to just get the US economy back to its previous height. There is an immense challenge to distribute the stimulus money fairly. The roadblocks can cause prices to drop for many months. Crypto sphere has expected rampant inflation to make the case for Bitcoin. Policymakers may overshoot and cause rampant inflation. They may become corrupt and distribute money unevenly. Bitcoin is a good hedge against this. But the opposite is happening. We need an inflationary cryptocurrencyThe Coronavirus crisis highlights the importance of inflation. It is the force to drive economic development. Deflation can send an economy into a long-term recession with vicious price decrease cycles. We experienced these issues during the Great Depression during the 1920s. The gold standard exacerbated the Great Depression. We’ve learned many lessons. Some people ignore these lessons to profess their ideology. Deflation is a real threat. Bitcoin does not fix this. It’s time to discard the idea that Bitcoin is the ideal form of money. It is a good starting point to create a new monetary system. But its deflationary property makes it volatile. It is not suitable as a medium of exchange. We need crypto experiments with inflation. Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange. |
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I recently thought of an analogy that explains the difference between fiat and Bitcoin: Fiat functions as the lubricant to allow the exchange of values. It's not hard money like gold or Bitcoin.
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hash algorithms are very important and they make a lot of difference. the problem is that majority of altcoins are focusing on changing a thing or two without innovating anything. if they just swap SHA2 with SHA3 (keccak) or double SHA256 in PoW with scrypt or total supply, block size, block reward, block interval,... to something else there is no innovation there which is why they fail to gain any kind of meaningful adoption outside of exchanges.
then you were misled by the litecoin pumpers.
there is a network called "Test Net" that is exactly the same as main network and the coins there have 0 value which is where developers and anybody else who wants to test things out goes to.
Different PoW algorithm isn't that unique, especially when both LTC and BTC can be mined with ASIC. I was talking about something that isn't exist on Bitcoin such as smart contract (such as ETH), privacy by default (such as XMR) and ProgPoW (which supposed make ASIC impossible or not efficient)
You also can use BTC Testnet to perform experiment without risking losing your money even the coin is lost/stolen.
@pooya87, you mentioned that there's no innovation if someone just fiddles with the mining algorithm or reward schedule. I wonder if you consider ETH as innovation. There're also newer stacks, EOS, Tron, Polkadot. These stacks are complete rebuild. Are they also not innovating? |
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Long-term, Bitcoin is a Store of Value.
Short-term, Bitcoin is a speculative asset.
By long-term, I mean the time horizon is 5-10 years (more than 1 halving). This is my current thesis. We can divide Bitcoin owners into two groups: long-term hodlers and short-term traders. The groups are somewhat fluid. Some hodlers switch to trading. Some traders switch to holding.
Bitcoin's price movement is mostly controlled by traders in the short-term. But in the long-term, hodlers will ultimately decide the price movement. Bitcoin price long-term has been up. That suggests a growing number of hodlers. Data also suggests growing hodlers.
People will move their money around. Know your long-term timeline. Ignore short-term price movement.
5-10 years isn't really a long term, I bet nothing will seriously change in Bitcoin - the price will be higher than it is now, but it still would be speculative and risky. If some other major crisis will happen at that time, Bitcoin would probably react just as it did now. Bitcoin today is ten times higher than it was 4-5 years ago, and still it is just as volatile. It will take really-really long for Bitcoin to become a mainstream asset like gold, if it will actually happen. I agree that the return is not guaranteed. Even the famous Stock-to-Flow model is showing weakness in this downturn. I put 5-10 years for reference. Adults working timespan ranges 40-50 years. Volatility does not disqualify SoV function. Gold is highly volatile as well. The most important feature is retaining value over time. If an asset can deliver an above-average return, I would consider it a Store of Value.
Bitcoin's price movement is mostly controlled by traders in the short-term. But in the long-term, hodlers will ultimately decide the price movement. Bitcoin price long-term has been up. That suggests a growing number of hodlers. Data also suggests growing hodlers. I would say that the price of bitcoin is entirely determined by active traders and not just most of it because the market is always active and prices continue to fluctuate then I think both in the short run or in the long run prices will still be determined by traders. Holders will enjoy the benefits of active trading results carried out by traders today if the price exceeds the issued capital and will suffer losses if the trader currently wants a lower price. Suply and demand made by traders today will determine whether the holder gets profit or loss. 5-10 years isn't really a long term, I bet nothing will seriously change in Bitcoin - the price will be higher than it is now, but it still would be speculative and risky. If some other major crisis will happen at that time, Bitcoin would probably react just as it did now. Agree with you, there is no certainty about the price of bitcoin for a long time and the price can still be 5 times higher than now and also can still be lower. Many things can affect the demand and supply in the market and one of them is the crisis and even global health problems such as a pandemic. There's always a group of hodlers who are constantly buying bitcoins. They do affect the price. The data has shown a growing number of hodlers. https://plotly.com/~unchained/37/bitcoin-utxo-age-distribution/#/The current 5y hodler sits at 21%. |
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One of Bitcoin's main feature that gives it its utility is censorship-resistance, which requires it to be decentralized. Would Bitcoin have value if decentralization was removed, and be a "slow Paypal"?
Decentralization of Bitcoin is one of the main features for sure, but it isn't the only feature that gives value to bitcoin. Decentralized system itself is not very usefull for doing exchanges for goods. Desentalization helps to push monetary properties of Bitcoin through any obstacles such us borders, regulations, lack of banking services etc. So, from my point of view, what makes bitcoin truly valuable is a combination of credibility of its monetary properties and bitcoin's ability to express these monetary properties through everything trying to stop that expression. I agree. Decentralization is a feature of Bitcoin, not a utility. It's a feature that enables digital SoV function. Bitcoin has a utility, you can transfer it to others. But this utility is a feature of Bitcoin's SoV function. It's not a widespread utility. This is the reason against big blocks. Some people try to scale this utility up to payment. It won't work because it's not a use case. It's like you're trying to make a hammer out of gold. You can certainly do that. Your gold hammer won't be good at hammering nails. You want to use steel for making hammers. Bitcoin is a long-term Store of Value. It's not a medium of exchange during a crisis. |
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