Back to your point though, and I'm repeating myself, my expectation is that with time Bitcoin gets better (more established, less volatile and thus less risky) and most fiats get worse (more debased). If I'm right, the Bitcoin line on the 'useful as currency vs time' chart will progressively cross the lines of the fiats. Bolivar today, Peso next year, Dinar in 8 years, USD well maybe never but you get my point.
I think you're conflating two separate concepts: utility as a currency and utility as an investment. For what it's worth, I think it's reasonably likely that 1 BTC will be worth more USD in a decade than it is now. So what? That has no bearing on how useful BTC is as a currency relative to USD. A useful currency is one in which the value is relatively stable over time (so that people can set their prices and sign contracts in terms of that currency), and one in which transactions can be completed simply and quickly. BTC is way too volatile. Even if the Lightning network solves the transaction cost/speed problem, nobody's going to sign a contract denominated in a currency whose purchasing power regularly swings back and forth 3x over the course of a year.
@seattlecyclone, what in your view will likely cause 1 BTC to be worth more USD in a decade than it is now?
Continued speculation. Note that my definition of "reasonably likely" isn't ">50% probability," it's more a statement of "I would be mostly unsurprised if this happened." In my view, any fundamental changes in the utility of a Bitcoin token explain little (if any) of the price swings in recent years. Given prior history I would hesitate to make any bets against the ability of the hype machine to bring in a new round of "greater fools" to pump the price up again and again. That's why I consider it reasonably likely that the price will increase. I also think it's reasonably likely that the price will decrease. The price of a Bitcoin has previously been something that defies most logical analysis, and I expect this trend to continue.
This whole conversation makes me think about why we gravitate to this particular subject rather than to far more concrete things. Cryptocurrencies are patterns stored on a network of servers representing intangible brands, spread virally by social media and financial media. They are described as "greater fool" investments with mysterious origins, rampant fraud, underlying technical limitations, a future utility that is purely speculative, and a complete lack of progress toward that future utility.
That's my best elevator pitch to someone who just came out of a 10-year coma. It's 100% fuzziness and ambiguity.
We could instead be talking about junk bonds or pharmaceutical micro-cap stocks and cut out 99% of the uncertainty. It would be a very concrete conversation about known facts, predictable systems and results, tangible assets backing the securities, and potential causes that will have known effects. All we'd have to solve for was the future performance of the companies, which is a cakewalk compared to predicting the future of cryptocurrency and then finding a way to profit from that.
So why do we choose to talk/think about which way the dice will roll with cryptocurrencies when we could instead be attacking more tangible questions, and arguably be making a lot more progress generating investment plans?
My theories:
1) Because traditional financial assets are so concrete and tangible, we assume EMH applies and therefore we cannot have any advantage over the markets in valuing a stock or bond. If you cannot obtain an advantage, it makes sense to just B&H an index fund. However, if cryptocurrencies are an
inefficient market, where information is not necessarily connected to the price, then perhaps - people think - they can obtain a competitive advantage in this market. It is rarely made clear what the hypothetical advantage would be though.
2) Bitcoin had a run a long time ago (when markets were thin and public awareness was nil) where it gained thousands of percent in value, so people think that is possible again. There are few other imaginable investments other than lotto tickets where we can imagine that being possible. So people are multiplying infinitesimal odds against astronomical possibilities and arriving at a positive probability-weighted estimate. This is, of course, the extrapolation fallacy riding on the back of the performance-chasing fallacy. Instead of multiplying 1% odds against 5,000% returns, people should be considering how the possibility of a cryptocurrency functioning like a real currency declines every day that passes without expanded adoption for transactions.
3) Human attention is captured by little bits of unexpected illogic, and so the illogical behavior of other people bidding up cryptocoins grabs our attention in a way that 9% yields on Bed Bath & Beyond bonds do not. The bond investor is making a risk/reward tradeoff based on their assessment of likely outcomes, incorporating all available information, but WTF is the cryptocurrency buyer doing? It's a mystery, and we love mysteries, so we cannot stop thinking about it. This is related to
Cunningham's Law and the observation that TikTok content creators are intentionally inserting
misspellings, mispronunciations, and factual errors into their videos because doing so increases engagement. The second article describes a surgeon who erroneously said a victim of a shotgun blast was suffering from buckshot when in fact it was bird shot. Thousands of people came out of nowhere to correct the doctor over and over again. The video went viral because it contained an error, which allowed people to be smarter than a doctor and show that they know something. Maybe cryptocurrency was a meme intentionally or unintentionally designed to be talked about on the internet, with enough ambiguity so there is an argument on both sides, and plenty of reasons to make everyone feel like they're the smart ones correcting those who are wrong on the internet.
I'm not adding a "low% of crypto" because none of these three possibilities make crypo assets a good investment. #1 is without basis, #2 is fallacious, and #3 suggests the crypto meme is a mind-virus, hacking our innate desire to make sense of our world to produce more engagement and propagation of itself. I'll stick to value-creating investments and US dollars.
