Wences on bitcoin value-- thoughts?

[celes8]

source:

https://forum.bitcoin.com/ama-ask-me-anything-f69/i-am-wences-casares-co-founder-ceo-of-xapo-ask-me-anything-t2025.html

Of all the ways in which Bitcoin could fail the one that worries me most, because I think it has the highest probability of all the bad things that could happen, is a price panic that drives the price to zero, or $15, from which it may be very hard for Bitcoin to recover the public's trust.

Right now most of the money that is invested in Bitcoin is money people can afford to loose and that makes it safe money. So when Bitcoin goes from $1,200 to $200 there is not a vicious cycle of people who need to sell, because they cannot afford to loose more money, that drives the price to zero.

It is hard to estimate how many people on bitcoins, but it may be somewhere between 13 and 15 million people right now. If Bitcoin is successful we will see hundreds of millions of people own Bitcoin and, eventually, billions. The only way we can get to billions of people owning Bitcoin is by the price going up by several orders of magnitude, let's say $ 1 million (but this is highly speculative and risky). So, if I am right, and Bitcoin has to go from $390 to $1,000,000 the best way for it to get there without crashing irreversibly is with as much volatility as possible.If bitcoin went up a couple percentage points every week and everybody began to think about it as a "sure" thing, investing money that was destined to pay for kids colleges or for retirement, that is a disaster waiting to happen price wise. Because when Bitcoin corrects those people have to sell because they cannot take more losses, potentially creating a vicious circle which is hard to reverse.

Ironically, we have to thank Bitcoin's volatility for people not investing money they cannot afford to loose. As long as the Bitcoin price remains highly volatile and perceived as risky, we are OK. Begin to worry when it is perceived as a sure thing that everybody should own a lot of.

I wholly agree when he says that hte greatest threat is some unrecoverable loss in value. But the longer we stay non-zero bound (e.g. sub 100) the greater legitimacy bitcoin possesses as an ecosystem that can recruit adoption.

Where I disagree with Wences is that we are not going to 1m unless there is some catalyst, volatility alone wont get us there. For us to become magnitudes of order higher than 300$, there must be a singularity whereby there is a massive and sudden rush of adoption. How we achieve that event is unknown, but the best bet is that there is something out there that is ready to become imported onto bitcoin's blockchain.

[BlindMayorBitcorn]

Good post.

[vuduchyld]

Well, if hundreds of millions of people own it and bitcoin is worth $1,000,000, a cup of coffee might cost $15,000.

[celes8]

Well, if hundreds of millions of people own it and bitcoin is worth $1,000,000, a cup of coffee might cost $15,000.

right, but bitcoin at 1m would never be used to settle those kinds of transactions.


at 1m, bitcoin would be owned by the IMF, and it would settle the entire international banking system.

[gentlemand]

He downplays the currency and merchant angle a lot. At that price level it would have to be one of the most desirable things on the whole planet. Considering the ease which it can be spent and transferred it's natural that the use as currency would develop. Maybe not for everyday stuff, but the big spends he's fretting about.

Even if you don't care for it as a currency yourself, there'd be no shortage of third parties willing to take it out of your hands so the things that people would customarily dump for - college tuition, medical bills, house deposit - wouldn't be necessary. You'd offload it and the market would trundle on. It would be a closed loop with the added bonus of fiat clamouring to enter at every possible opportunity.

Widespread use as some type of currency, even if it's only for giant transactions, is the endgame I think, not the beginning.

[vuduchyld]

Let's say there are 15 million users currently.

Just to keep it simple, let's say there are exactly 15 million bitcoins in circulation right now, too.  Each person owns 1 bitcoin.

If my math is right (better check me to make sure, because these numbers have a lot of zeroes), bitcoin at $1 million gives a total market capitalization of $15 trillion.

That $15 trillion is just about exactly the current GLOBAL levels of all M0 and M1 money supply.  Not just USD, not just CNY, not just EUR, but ALL global M0 and M1.  That is equal to all circulating cash AND bank deposits.  It also includes US Federal Reserve deposits, FYI, a large chunk of which was recently created by fiat. 

That means one of two things:
--Either bitcoin has taken over, literally, the world.  At $15 trillion, that's all there is.  There are no dollars, euros, or yuan.
--OR the global money supply has gone up tremendously and "$1,000,000 worth of bitcoin" ain't really worth all that much.

This guy seems to be imputing a global M0 plus M1 VERY far in excess of 20 times that.

Sorry.  Just not credible.  I'm sure he's a smart guy, and I'm sure he has his reasons for saying it, but if you'd like to reserve the opportunity to buy mine at, say, $500 and exercise the option when bitcoin hits $1 million, I'll sell you options on it all day long and twice on Sunday.

Just name your price.

[BTCtrader71]

He downplays the currency and merchant angle a lot. At that price level it would have to be one of the most desirable things on the whole planet. Considering the ease which it can be spent and transferred it's natural that the use as currency would develop. Maybe not for everyday stuff, but the big spends he's fretting about.

Even if you don't care for it as a currency yourself, there'd be no shortage of third parties willing to take it out of your hands so the things that people would customarily dump for - college tuition, medical bills, house deposit - wouldn't be necessary. You'd offload it and the market would trundle on. It would be a closed loop with the added bonus of fiat clamouring to enter at every possible opportunity.

Widespread use as some type of currency, even if it's only for giant transactions, is the endgame I think, not the beginning.

I agree with you. I do not share Wences' concern, at least in the long term. I think it is instructive to compare and contrast bitcoin with USD in terms of what generates and maintains their value. Once you are past the initial adoption phase and are in steady state conditions, there is a lot of similarity between bitcoin and fiat when it comes to the forces that cause short term price fluctuations. Once bitcoin gains wide enough usage, it will gain short term stability when people start to price things in bitcoin, write contracts in bitcoin, etc. These will make the value of bitcoin "sticky." This is similar to what generates short term stability for fiat. And what Wences is describing is similar to what in the fiat world would be described as hyperinflation. So, take Wences' concern and apply it to the USD. Is it possible that its value could plummet to zero (priced in some other currency) from panic selling? Sure, but we would call it hyperinflation, and is fueled by the printing press which does not exist with bitcoin.

As bitcoin becomes more and more entrenched, the risk that its value could plummet to zero in a panic becomes less and less.
 

[BTCtrader71]

[Quote from Wences at AMA:]

Ironically, we have to thank Bitcoin's volatility for people not investing money they cannot afford to loose. As long as the Bitcoin price remains highly volatile and perceived as risky, we are OK. Begin to worry when it is perceived as a sure thing that everybody should own a lot of.

I don't see the irony. It's like saying: "Ironically, we have to thank the 100 foot drop for people not jumping off the cliff." Am I missing something?

I agree with Wences btw on its long term valuation. It'll be HUGE.

[vuduchyld]

While that notion of $1,000,000 and hundreds of millions of users is completely off base, I will say that I TOTALLY agree with his thoughts on volatility.  Hadn't exactly thought of it that way.  Like many, I've been looking forward to a more stable, predictable value in order for bitcoin to be a worthy store of value and currency for exchange.  But actually, I think that what he says is true.  Thanks for sharing, OP, and sorry I had to read it twice to get at the thing that was, I think, your primary reason for sharing.

Pretty effin' cool, really. 

So, on that subject, where do y'all go for options?  Anything good out there?  Those silly casino game, 5 minute up/down vanilla options are not what I'm after, but rather legit put/call options.

[gentlemand]

I'm willing to bet that there are many, many people who've gone far beyond the affordable loss level. We won't hear from many of them but they're out there. And I don't think it's 'safe money' either. It'll be the first thing to go if people come under financial pressure and it's ready to be sold if there's a vast price rise. It's a long term bet and a luxury. It needs to transition to being the very last thing you'd ever want to let go of.

[BlindMayorBitcorn]

I'm willing to bet that there are many, many people who've gone far beyond the affordable loss level. We won't hear from many of them but they're out there. And I don't think it's 'safe money' either. It'll be the first thing to go if people come under financial pressure and it's ready to be sold if there's a vast price rise. It's a long term bet and a luxury. It needs to transition to being the very last thing you'd ever want to let go of.

Is there any way to estimate that bolded part at all?

[gentlemand]

Is there any way to estimate that bolded part at all?

Doubtful in the extreme. How many people do you think would admit to it in public? And what's fatal for one person is chump change for another. I myself went further than I ultimately should've but no damage would be done if it all turned to dust.

[brg444]

He downplays the currency and merchant angle a lot. At that price level it would have to be one of the most desirable things on the whole planet. Considering the ease which it can be spent and transferred it's natural that the use as currency would develop. Maybe not for everyday stuff, but the big spends he's fretting about.

Even if you don't care for it as a currency yourself, there'd be no shortage of third parties willing to take it out of your hands so the things that people would customarily dump for - college tuition, medical bills, house deposit - wouldn't be necessary. You'd offload it and the market would trundle on. It would be a closed loop with the added bonus of fiat clamouring to enter at every possible opportunity.

Widespread use as some type of currency, even if it's only for giant transactions, is the endgame I think, not the beginning.

It most definitely is but not until Bitcoin's market cap is several orders of magnitude above what it currently is. In fact the promises of Bitcoin as a transactional currency will not fully realize until it good & services become denominated in Bitcoin which requires some sort of stability. (Although I'd argue Bitcoin will never be as stable as fiat).

Wences is one of the few in the industry who understands well how this is going to play out. (Although his support of BIP101 was quite a dissapointing decision.) I often refer to this quote of his from an old presentation, I think it helps to put OP's comment in context:

I think that something the Bitcoin community has to be honest about, at least amongst ourselves is what Bitcoin is about today and what we would like it to be. Sometimes we make it look like it's about things we want it to be in the future. The truth is when we look at the volume of people buying the "stock" of Bitcoin and the flow of people buying their first bitcoin. It's mostly about buying & holding. It's totally fine, it's a decent use case. It's not a two-sided market : for me to buy & hold it doesn't require a counterparty to accept Bitcoin. I simply have to agree to a price that someone is selling. It has been working for 3 years and I think we can depend on that. It's not some theory, some hypothesis, it's working and it can keep working