What will the price of BTC be when 22 million people know that bitcoin is not gold and that there are many altcoins which work exactly like bitcoin?
What will the price of BTC be when the major exchanges like MtGox, Btcchina & co. add other coins on their platform?
Why is gold much more valuable than silver, despite that it has way less actual uses? Why is dollar more valuable than gold, even though everyone knows that it is a unit of unpayable debt from a bankrupt government?
Marketability. Salability. Hoardability.
You can use dollar everywhere, whereas gold you must sell and convert, and that happens differently in every country, involving hassle and fees. With silver, the situation is pathetic, and despite being the layman's money for 25 centuries, it does not function as currency anywhere today.
In
The Art of War, Sun Tzu tells that 50 kilograms of silver is enough for upkeep of a 100,000-strong army for one day. Today that same amount has a purchasing power of mere $35k. I venture to guess that 35M is required today. This is an illustration that monetary elements' valuation can change over time when changes in their monetary properties occur.
As a investment silver merchant, I am very much aware that silver is "poor man's gold". For a rich man the difficulty of obtaining a large holding of silver is prohibitive. Buffett bought silver in the 1990s, and it took years for him to receive it, for the sellers had difficulty procuring it from the market. Silver price and silver lease rates shot up 50%. He was instructed to sell the holding before it caused more disruption to the silver market. Then I know a person who owned a few million$ worth of silver, and had to do it via banks due to the lach of physical merchants. He too was swindled out of his holdings. I am pretty much the "highest" guy who can own silver free of government intervention. Even if this wasn't the problem, the problem is the fact that buying and selling so much is a large international operation. Even for people less wealthy than me, silver is often too much of a hassle especially as most of its attributes are found in gold, you essentially trade some leverage for marketability. The largest practical silver holding is less than $100k and do not expect to trade it because dealers will suck you dry. Something that sucks so bad in
hoardability cannot be money. (
Silvervault is my creation that is designed to empower
physical silver to work as money; currently it has not succeeded in the main mission but is well functioning as a depository.)
Gold fares a little (2 orders of magnitude
) better, because you can pack 100 times the value of silver in the same space. Market does not collapse if you try to buy and sell $1 million worth of physical gold, it is always available (well not always, but that is again those behind-the-scenes things, which are not the main issue here). Even countries have gold reserves, but gold is currently so cheap that the largest players who want gold (China, Russia) cannot buy it from the market since the largest holders (international bankers) are not selling. Even a humble request to get back the gold that you own (Germany, from USA) is turned down. Finland knows better to not even ask for its reserves. (When Bank of Finland was questioned this, the answer was that they are happy that gold is safely stored in London and other places. My interpretation: no chance to ever
see the gold.)
The basis of dollar's value is in its monetary attributes. If it was not so ubiquituos and accepted everywhere, I highly doubt that it would be able to reach its current dominance. After 150 years of dirty tricks, assassinations, coups, puppet governments, wars with millions of deaths, and the building of a socialist system that constitutes 50% of the economic activity, it has this role, though. Companies that produce stuff and have been profitable for decades in a row, do not enjoy the same credit rating and must pay higher interest. The reason is that companies are smaller and the marketability of their debt is thus weaker. Midsize corporations also have the political risk of running into adversities if they do not conform to the unwritten rules of their domicile, no matter how solid the business was. "Democratic" governments cannot default on their debts, this was by the way a major reason why England gained dominance in 1700s - interest rate was lower, boosting investment. In the continent, kings needed to pay more, since the successor did not always assume their debts.
That some good gains a monetary status (that it acts as money) is not an everyday occurrence. In very early times it has been hypothesized that salt and cattle were used as money. When metals became available, they became the money par excellence, not always available to the public due to their high price, but being the unit of value, medium of exchange in large purchases, and especially store of value. This has continued until present day, only in the 20th century has the common perception of what is money, changed from metal to numbers of an abstract unit.
That some good gains a dominant monetary status, does not happen in once per millennium. There is no explicit evidence that this has
ever been occurred before the coercion-induced switch from gold to fiat in the 1900s. (It is debatable whether silver was dominant to gold prior to 1800s, because the values of their monetary stocks ("market caps") were in the same ballpark.) The reason why a money cannot gain dominance over another, is that a good money has the least possible inflation. To have a 1.2% inflation of gold today, the money supply would only about triple in 100 years. But if it grows so slowly, you never get started with your new money! There needs to be a stock to begin with, and it must grow at maximum very slowly.
Ripple is an example of model, where money supply is fixed, but distribution is according to the whims of a soviet.
Bitcoin is an example of model, where money supply is fixed, and distribution happens over more than 100 years according to a predetermined model where everyone can participate in a free market fashion.
Ripple has at times been more valuable than Bitcoin, so the jury is still out. If people continue to buy ripples and keep the exchange rate up, it does not matter how OpenCoin distributes the stash. But I doubt that the fad will last, because XRP as a currency is hardly any improvement over USD, and is currently a terrible underdog in acceptance. (Can you buy anything with XRP?)
Bitcoin, on the other hand, is a genuine improvement over both gold and USD. It is the most hoardable, since you can store and move an arbitrary amount of wealth as easily as you buy a sandwich. It has transactional capabilities which, when fully implemented, outdo all that Visa and PayPal can even dream of in their dollar economy.
And it has a 2-year (2 orders of magnitude) lead over the nearest competitor, Litecoin. Even if you consider Litecoin to be technically superior to Bitcoin (I don't), it is a minor tweak and not a generational improvement. At present I cannot imagine anything which would be so much superior to Bitcoin than Bitcoin is to U.S. Dollar, and therefore it is not just improbable, but outright impossible that an altcoin would take over Bitcoin.
Summary: Nothing prevents the public from buying gold or even silver, if they like. Altcoins will remain in niche applications, but the market cap ratio between Bitcoin and best altcoin will be on average 50:1, as is the market cap ratio between gold and silver, its nearest competitor.
