Bitcoin could become digital gold ... and then the digital Swiss Franc

[Dogedegen]

For Bitcoin to ever go past just a store of value into being more of a digital gold or somewhat like the Swiss Franc if am correct, it would mean and require a lot of trust as you said, but it must also perform in the form that volatility won't make it be traded like a high growth tech stock, but more like an independent and reliable financial baseline as a stable collateral and very well suited for everyday commerce.

It is already doing that to a good amount, some people still live in the past. You need to look at what Bitcoin has actually been doing during this cycle. Every past correlation is broken, lowest volatility ever and very low compared to stocks, and most currencies. Users need to stop demanding perfection from Bitcoin and must start understanding Bitcoin in the environment that it is and for what it is. We can never make statements that Bitcoin must have low volatility like gold to be considered as digital gold, or some kind of comparison like this. When you do that you are demanding that something radically unique, completely different to things humans have ever had or even are able to think of must satisfy the same qualities like something that is very common, known, easy to understand and has thousands of years of history or in the cases of fiat currencies decades or hundreds of years depending on how you are looking at it.

It is like if we said a few decades ago for airplanes to become used in mainstream as a means of transport, they have to become like cars?  

Bitcoin must at this point have massive liquidity and stability and perhaps may need the drive of layer 2 scaling  or institutional adoption to have the best effect.

Complete stability is not present neither in gold nor the Swiss Franc, so I am not sure why the obsession with volatility or stability continues. More liquidity is always good, and even if it is growing we are far away from the liquidity of something like gold.

[marrcelo]

I think its hard for Bitcoin to become a digital swiss franc. What attracts alot of people to Bitcoin is the scarcity and the possibility of strong appreciation. If it becomes too stable, it can lose the interest it has today. Digital gold looks more like it than a stable currency. Yes, the volatility bothers, but thats what makes Bitcoin different and stands out in relation to other financial assets.

[Lucius]

~snip~

Centralized systems have the advantage of being able to implement changes much faster and more efficiently and adapt to newly emerging situations. However, when BTC is twice as old as it is today, I believe that things may look much different than they do today, in a positive sense.

The idea doesn't really require a consensus change
Just a trajectory that could occur if people trust in bitcoin goes past just being a store of value.
More like a change on how people see Bitcoin.
The Key term I would pick is Trust

I agree that trust is key, but something even more important is understanding what Bitcoin actually represents. If you went to the 100 largest cities in the world and asked 100 people on the street, "What is Bitcoin?" how many do you think could define the same in the correct way? Even after so many years, the average person either doesn't know what Bitcoin is, or has some kind of misconception.

Misunderstanding is the main reason for mistrust, and those who promote this mistrust the most are leading people in politics and business around the world. Most people will still prefer to believe their national bank governor or prime minister who says that Bitcoin is a big risk and can go to zero, than you or me or any other stranger online.

[Abiky]

I hope that doesn’t happen, because that return over 23 years works out to 2% per year. No one is going to be interested in Bitcoin if they can earn more from savings accounts, time deposits, and money market funds.

And I don’t think it will happen, because for that to happen, it would have to be used as a currency, and its use today is minimal—and it doesn’t look like that’s going to change in the future. What we’re seeing is that more and more Bitcoin is ending up in centralized institutions—not to be used as a currency—in ETFs or companies like Strategy. This doesn’t look like it’s going to change in the future, so I think the analogy with gold is more accurate: higher volatility, higher returns, and less use as a currency.

There's still time for Bitcoin to change. I mean, the Lightning Network (although flawed) allows people to use BTC as a currency. Fast and cheap transfers. The only problem is the market price volatility. That's a huge dealbreaker to many.

In a "hyperbitcoinized" world, people would think in sats or BTC instead of plain-old Fiat. The dream is for Bitcoin to become the standard unit of account. For a long time, Gold used to be like this. Let's hope the same happens with Bitcoin in the long run. At least we know, Bitcoin will survive for generations (thanks to the way it was designed).

[d5000]

There is no logic in comparing BTC with ETH, especially since the latter switched to PoS, and there is still no clearly defined max supply (if something has not changed in that regard).

I tend to agree but I've mentioned it because some people seem to fear the scenario where Bitcoin isn't among the best performing assets, and ETH already has reached that "stage" a lot of time ago and has still some demand. The max supply issue and PoS are secondary, Ethereum still has at least "controlled" supply (in fact it had less supply growth than Bitcoin since 2022 [1]).

The supply issue being secondary is also based on my observation that when you compare altcoins' performance, there's not much difference between those with a Bitcoin-like halving scheme (LTC, Monero), a steady-inflationary scheme (Doge) or a completely static supply which "should" in theory be the "hardest" and "most scarce" type of cryptocurrency (I remember NXT and NEM with that, they're now almost insignificant). All the focus on supply ignores that demand variation in crypto is actually much more important than most differences regarding supply (there were some "hyperinflationary" exceptions but I think these don't count because they always were tiny). And most altcoins have either a sideways or slightly bearish market (LTC, ETH) or have been strongly long term bearish (NXT).

Regarding the comparison of BTC in relation to the Swiss Franc, as in many other discussions of a similar type, I am not too optimistic that something like this can happen (at least not in the near future) precisely because of the fact that Bitcoin is decentralized and the path ahead is very difficult and full of obstacles that require a lot of consensus to be solved.

It would be interesting which obstacles you see. I could imagine scalability being one, which has already some solutions (some of them are quite new and experimental, like Ark).

I think Bitcoin is being prematurely labeled as digital gold. That part is in the future, when Bitcoin grows over 1 million usd in price. Right now I would still consider Bitcoin an early player on the international currency stage.

Interesting post with a fresh opinion, I think I agree somewhat -- I think the "digital gold" and "digital cash" can come in parallel, because the currency use would provide the liquidity and stability that Bitcoin needs to be more interesting as a (less speculative) saving asset.


[1] https://etherscan.io/chart/ethersupplygrowth

[Lucius]

~snip~

Regarding the comparison of BTC in relation to the Swiss Franc, as in many other discussions of a similar type, I am not too optimistic that something like this can happen (at least not in the near future) precisely because of the fact that Bitcoin is decentralized and the path ahead is very difficult and full of obstacles that require a lot of consensus to be solved.

It would be interesting which obstacles you see. I could imagine scalability being one, which has already some solutions (some of them are quite new and experimental, like Ark).

I primarily mean the regulatory ones, because realistically regulators in various countries can give Bitcoin a boost, as was the case with spot/futures ETFs, but they can make a U-turn at any time. Problems of a technical nature are of course challenges, but I still think that "they" will never allow Bitcoin to become something big and stable like gold or the Swiss franc, because that idea simply does not fit into the structure of today's world based on centralized systems.

However, it is possible that the outcome will be similar to what we are talking about here, but only if "they" are able to control transactions through control over mining. Today we already have a situation where several pools control around 60% of the hashrate, with the first two having close to 50%.

[atookz]

Bitcoin as the Digital Swiss Franc would be an attractive long time scenario: Bitcoin protecting you from inflation and even maybe giving you a small profit (according to your local inflation), but at the same time, be a stable and usable currency, not an asset where you have to look all the time at the chart to not miss an opportunity.

One thing I haven't come across yet is the "stable digital currency" space is already being taken up, with "stablecoins". Those wishing to have something that is on-chain equivalent of dollar as a unit of account can currently have it, undermining the argument that bitcoin needs to become the digital Swiss Franc in order to be used for payments.

At this point it seems consensus is that dips are buying opportunities so velocity will continue to be slow and people are disincentivized to spend it as money.

The story also has a tension. Gresham’s law: Individuals spend money they believe will be devalued, and save money that they believe will appreciate. Indeed, if the price of BTC is to stop rising, then the general expectation of significant price rises would have to die down, and that's not the case if you're currently holding onto BTC. The hard part I think is not getting to the low volatility level but moving between the levels, when it is still too volatile to spend, and when it is not yet at the low volatility level to be used for pricing goods.

But to change from the "store of value" to a "currency" "branding" we would need better L2 technology to solve the problem of handling millions or even billions of payments per day.

One final point: If Bitcoin becomes a low reward (low subsidy) currency then the security budget for the long term is determined by fees. But moving the payments to L2 reduces the demand for fees on the chain. Would a self-funding L1 work with a Swiss Franc Bitcoin?

[ObeyKnock]

The hard part I think is not getting to the low volatility level but moving between the levels, when it is still too volatile to spend, and when it is not yet at the low volatility level to be used for pricing goods.

Totally agree. There is certainly a risk of it remaining (in a less volatile form) as digital gold.
Until expectations for returns drop enough that people are no longer strongly motivated to just hold it, Gresham law will keep working against spending. BTC isnt likely to be used much for transactions while meaningful upside is still expected.
Holding an appreciating asset is pretty instinctive behaviour.

[d5000]

I primarily mean the regulatory ones, [...]

The main regulatory obstacle currently for Bitcoin "as a currency" is taxation, but even this is solvable as it is easy to track taxable events. With a more stable Bitcoin taxation would become even easier.

Regarding control over mining, that does not happen currently, even with big pools having a lot of hashrate, no censorship event has taken place as far as I'm aware of - with the exception of the failed attempt by the BIP-110 folks. Which was of course a different type of censorship attempt than a typical government attack as it was directed towards data transaction, but it would have also challenged one of Bitcoin's main advantages, and could have served as a blueprint for similar government-funded "undercover" attacks on privacy-friendly features.

I think it would be impossible for a government and even a cartel of government to "ensure" that Bitcoin's volatility stays high, (how? FUD hasn't worked at all, see these European Central Bank guys) so that's not a thing we agree on currently