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

[DiMarxist]

Off course Bitcoin has always been seen by many as digital gold, Bitcoin as a technology is still evolving before even Bitcoin acceptance was a problem. That is not the case today because Bitcoin has evolved today we are even talking about institutional adoption of Bitcoin, which was something that was not even forseen when Bitcoin started.

When ever topics like this pop's up one thing that people will quickly point out is that, Bitcoin is a volatile asset so comparing it with gold which is a more stable asset is not fit for it. But I am one person who believes that this is not a problem because going forward I believe that Bitcoin is going to be more stable, because crypto laws are one thing that government may take seriously in the future.

[lombok]

Off course Bitcoin has always been seen by many as digital gold, Bitcoin as a technology is still evolving before even Bitcoin acceptance was a problem. That is not the case today because Bitcoin has evolved today we are even talking about institutional adoption of Bitcoin, which was something that was not even forseen when Bitcoin started.

When ever topics like this pop's up one thing that people will quickly point out is that, Bitcoin is a volatile asset so comparing it with gold which is a more stable asset is not fit for it. But I am one person who believes that this is not a problem because going forward I believe that Bitcoin is going to be more stable, because crypto laws are one thing that government may take seriously in the future.

The current volatility of Bitcoin is a typical phenomenon for the formation of a new kind of property. It took gold many years to become what it is now and recognized worldwide. The involvement of large corporations into the game increased the liquidity of the market considerably. This process shows that volatility decreases progressively in line with the growing capitalization of the global market.

Legal guarantees from different governments will create some sort of formal security for the capital owners. Legal guarantee also restrict speculative activities and give a feeling of security. It becomes easier to control value changes due to the existence of the formal regulatory mechanism, just like with precious metals.

[Lucius]

~snip~
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

I wouldn't bet on it, because unlimited funds and using the media as a tool to create public opinion gives very good results when it comes to Bitcoin. A large percentage of people have a fairly negative or bad opinion of Bitcoin, which is not just a result of a lack of understanding of it, but also of what the media writes or politicians and various global influencers say.

The ECB is a complex machine that unfortunately produces very simple and ineffective solutions, so I don't consider them to be a relevant factor in anything related to Bitcoin.

[d5000]

Legal guarantees from different governments will create some sort of formal security for the capital owners. Legal guarantee also restrict speculative activities and give a feeling of security.

Above all, regulation in important markets makes some kind of FUD impossible. For a long time, "Bitcoin will be banned" in some way was a recurring FUD scheme in bear markets. There are indeed some countries with very hard restrictions, but of those, only China is a major market (and in China Bitcoin is not banned, only exchanges and mining are heavily restricted). In most democracies it would also be difficult to ban Bitcoin because this would be seen as a breach of civic rights, for example you can't ban barter that easily, and if you want to barter some electronic "asset" (like Bitcoin) then you must have good reasons for it.

I wouldn't bet on it, because unlimited funds and using the media as a tool to create public opinion gives very good results when it comes to Bitcoin.

Governments don't have unlimited funds. Some (example: Argentina with its ultra-liberal president) are even quite positive about cryptocurrencies, and in other regions, liberal / libertarian movements are strong and are part of governments. It's mostly (traditional / "paleo") conservative and some center-left governments who are most critical towards Bitcoin, but these "traditional" politic movements have lost power in the last decades. The more "populist" conservativism of a Trump or Bolsonaro is instead more bitcoin-friendly.


@atookz, I forgot to answer in my last post but your points are quite good ...

One thing I haven't come across yet is the "stable digital currency" space is already being taken up, with "stablecoins".

I disagree with this, because a stablecoin is not a currency. A stablecoin, at least in today's sense, is a representation (IOU) of a fiat currency.

There may be future stablecoins (Facebook's Libra project was aiming to that) that use different assets as a base to create "stability", for example some kind of basket of goods and services. But if it is managed in a centralized way, it still isn't really a currency. The only idea I would accept as a "currency" would be a basket stablecoin based on completely decentralized management, like a DAI but without the premined Maker tokens. I think this has still not been tried.

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.

That's an excellent point. I think however that a "spending habit" can evolve if people discover Bitcoin as an alternative to a saving account, for example if it rises 5% per year on average (currently it's around 20%), but without the risk of tremendous crashes. In this case, it may be simply convenient to pay some things with Bitcoin eventually, even if it won't be the "main spending money". For example, after a bullish period (e.g. 10% rise in a few months) you may be tempted to spend your profits on a good you've "saved money" for (e.g. a new phone, or even a car).

This kind of habit can then evolve into a more regular one. I don't expect people to massively pay for their coffee with BTC, but for goods you need every month or two, just as new clothes, it could become interesting ...

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?

A massively used Bitcoin with even 99% of payments on L2's would still have some L1 demand. Take Lightning, where you every now and then have to close and re-open channels, or Ark, where Ark providers also do onchain transactions every now and then. Even sidechains have peg-ins and peg-outs, and most people would probably prefer L1 for savings and cold storage. So I don't have any fears about the security budget of a Bitcoin used "as a currency" considering L2s. A "SoV Bitcoin" or "speculative Bitcoin" is much more likely to run into security budget issues.

[Lucius]

~snip~

I wouldn't bet on it, because unlimited funds and using the media as a tool to create public opinion gives very good results when it comes to Bitcoin.

Governments don't have unlimited funds. Some (example: Argentina with its ultra-liberal president) are even quite positive about cryptocurrencies, and in other regions, liberal / libertarian movements are strong and are part of governments. It's mostly (traditional / "paleo") conservative and some center-left governments who are most critical towards Bitcoin, but these "traditional" politic movements have lost power in the last decades. The more "populist" conservativism of a Trump or Bolsonaro is instead more bitcoin-friendly.

I would not agree that these two you mentioned are bitcoin-friendly, they are only interested in how they will profit from Bitcoin and beyond that they are not interested in anything. The whole EU is more or less very negative towards Bitcoin, I won't even mention China or India where almost a third of the world's population lives.

[Don Pedro Dinero]

I would not agree that these two you mentioned are bitcoin-friendly, they are only interested in how they will profit from Bitcoin and beyond that they are not interested in anything. The whole EU is more or less very negative towards Bitcoin, I won't even mention China or India where almost a third of the world's population lives.

Leaving aside individual examples, from a theoretical point of view, for a left-wing politician, the government is the greatest guarantor of progress and well-being, whilst a right-wing politician believes that a smaller state is preferable and that society moves forward when individuals interact with one another with minimal state intervention.

It therefore stands to reason that we have seen far more right-wing politicians in favour of Bitcoin – a system created independently of, and in opposition to, state intervention – than left-wing politicians, who are more inclined to control everything, for example through CBDCs.

There are many nuances and exceptions to all this, but I think it is a good general characterisation.

[uchegod-21]

I have never really loved the idea of comparing bitcoin to gold or any other currency people think that bitcoin shares similarities with. In this particular case, I will rather compare bitcoin to gold than the Swiss Franc that is still controlled by the government and can still be subject to depreciation by inflation. Swiss franc surpassing dollar is impressive, but definitely not enough reason for bitcoin to be considered a digital Swiss Franc.

Apart from the price growth, the comparison does not match in any other way. Bitcoin's supply is fixed and it cannot  be issued by any central authority like fiat would be issued. If there is any other thing to compare bitcoin to, then it should be gold.

[d5000]

I would not agree that these two you mentioned are bitcoin-friendly, they are only interested in how they will profit from Bitcoin and beyond that they are not interested in anything.

Yes, Trump and Bolsonaro use Bitcoin for their own purposes, but many of their supporters of these populist conservative movements are generally pro-Bitcoin because they believe in individual economic freedoms (not so much in individual social freedoms, unfortunately). And that's where these politicians can capitalize from, of course also (in the case of Trump) trying to benefit financially. So it's unlikely that a Trump will be able to turn completely against Bitcoin, it would draw away some of his important supporters.

Leaving aside individual examples, from a theoretical point of view, for a left-wing politician, the government is the greatest guarantor of progress and well-being, whilst a right-wing politician believes that a smaller state is preferable and that society moves forward when individuals interact with one another with minimal state intervention.

Yes and no - the Nazis and other "strong state conservatives" (take Erdogan in Turkey, where the government banned Bitcoin payments!) were / are clearly right-wing but also very in favour of a strong government regulation. It highly depends where you draw the right-left wing line.

I prefer to use the more precise terms, e.g. (economic) Liberalism/Libertarianism being more Bitcoin-friendly, while state-socialism is often highly hostile (China), the Center-left is critical and tends to over-regulate it (Europe), but anarcho-communists and also "left wing liberals / libertarians" could find some value in Bitcoin / crypto (above all, in privacy altcoins like Monero or Grin).


To return to the sub-topic that took us to this small political discussion, I think generally the Libertarian movements and conservative / populist movements with libertarian elements are growing worldwide, and that could benefit a more positive Bitcoin regulation in my view, paving the way for more currency usage and thus for the "digital Swiss franc" in the long term. The center-left "over-regulation paradigm" which was very prominent in the late 2000s (after the financial crisis) and early to mid 2010s seems to have lost traction a bit.