You are saying a lot of sensible things, except that horrible formula, which is irrelevant for everything and specially for the value of bitcoins. I believe I have supported that view in my earlier comments.
That horrible formula is just plain bookkeeping, there's no discussion about whether it is correct or not (it applies always, trivially), the discussion is whether it is useful (that is, whether the quantities that appear in it, can be sensibly estimated in an independent way).
We both agree that what sets the price of bitcoin, is the aggregate demand for "holding value in bitcoin" as compared to the offer. But that doesn't help us much ! We have to know *what drives that demand*.
In other words, what makes "people fight for bitcoins". What is their *drive*.
For the moment, the drive is of course "to the moon" type of speculation, but that can only last a finite time, and should normally be rooted in an expectation of a high bitcoin price *for another reason*.
Now, I see two drives to "make people fight to have a bitcoin". One is indeed, "long term store of value", that is, in competition with gold and so on. Then my formula is still valid, but doesn't mean much, what counts is what fraction of the universal aggregate demand for "long term store of value" will be taken by bitcoin, as compared to gold, stock market, real estate, and all other "stores of value".
The other is that bitcoin is used as money to buy things with. That *also* implies holding bitcoin, between the time you get it, and the time you spend it. And *there* my formula is mightily useful. Because the amount of stuff bought with bitcoin, together with the average holding times between two of such buyings, determines the value of bitcoin.
And now my point is that bitcoin will, if it succeeds, essentially first have to do the *second* thing. Nobody is going to trust bitcoin as a long term store of value in my opinion before it has settled as "money that buys stuff".
Of course, in the real market, there will be competition for bitcoin for both uses (to "buy stuff with" and to "store value for much later"), so the effect will compound the prices. But I would guess that the first part is going to take a long long long time.
Gold was for a long time a means of payment ; that is why people also considered it as a store of value. There was trust that gold would still buy stuff 20 years later. Now, the buying function of gold has essentially disappeared and it has only kept his "store of value" function. But there is still this century-long trust in gold as store of value which was build up over many many centuries. It takes a lot of trust to put value in a long-term store. I don't think that bitcoin will get that trust immediately.
However, bitcoin as a means of payment, yes, I hope so. The idea that you have "international money" that is valid everywhere in the world, yes. And then, if that is the main usage of bitcoin, my formula applies.
The store of value means that what value you put in, you can get out, either when you turn around and do another trade directly, or you hold the value in money for months, years or even generations. I talk about value, not a number of dollars. And you are never guaranteed the value to be constant over time, that is impossible. Bitcoins are designed to not lose value, and the main aspect is the max number of coins in the system.
Yes, that's what "store of value" means. I agree, except with your last statement. Nothing can be designed to "not lose value", after all, it is speculative, it depends on the trust people put in it. Especially in the long term. What you mean is that bitcoin is a collectable: there's a finite, known amount of it. Similar to gold (if you include mining reserves under the ground), or to land, or to Rembrandt paintings. They don't make any anymore.
The speculative aspect is real, but that is only temporary, until the balance between demand to hold and the demand to not hold stabilizes. What we see currently, is that even while the liquidity of bitcoin is far below the liquidity of the respective local fiat currencies, bitcoin is still winning terrain, and since that means higher liquidity for bitcoin, there is no reason for that to stop, until that crucial balance is achieved. So in the end, it will be the best store of value, now you have the possibility to earn something, if you have knowledge and take action.
Yes and no. That is what we are all hoping for, and that is why I think it is a good bet to buy some bitcoin now. But actually, we don't really *know* and the real indicator is the price. We really don't know whether we didn't already reach equilibrium between offer and demand. Most people holding bitcoin (like me) do this NOT as a store of value, but for purely speculative reasons because they hope "to the moon".
I'm not even sure that if you were in some sense to know that it is NOT going to the moon, you would still hold bitcoin "as a store of value". I would think bitcoin too volatile and too risky as compared even to fiat. I'm only in it because it would be silly to MISS the rocket too the moon. But for the moment I still consider fiat a surer store of value than bitcoin if there was not the "to the moon" incentive.
I wouldn't place all of my savings into bitcoin for the moment as a "store of value".
So if this "to the moon" incentive would be gone, I'm not even sure that the demand for store of value would be as large as the people holding coins now. Most of them are in it for the ticket to the moon, not as a store of value in my opinion.
So if you want to have an idea of the steady state aggregate demand for "store of value" you should leave out the speculative drive, which is probably the main drive right now to hold coins. And then, I don't know if many people are in it.
This is why I think that that cannot be the support for the bitcoin price for a long, long time. I think that the main steady state drive will be "buying stuff", with my formula.
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