Have you ever seen one asset which is listed on a niche market and that has so much success that it becomes traded worldwide by any kind of people at any time ?
This asset is Bitcoin and its economics are basic if you forget about technology which is just what made its existence possible. Just remember that it’s open source and that everybody can have an easy and free access to a deep understanding of technicalities.
It’s supply and demand equilibrium and confidence. Supply has been arbitrarily fixed though the total quantity has not been fully released yet. Hence it’s mostly about demand and confidence and with supply out of the equation it’s not a story of something going down.
If bitcoin was worthless there would be no demand and we would not be talking so much about it. There must be some value and this value is mostly about confidence. You exchange cash for bitcoins because you have some confidence it’s in your interest.
If few people were using bitcoins you wouldn’t be confident to move all your savings but just a little bit of trust can make you start using it and that helps confidence grow which makes bitcoin more valuable and the demand increase until the price reach a new equilibrium level attracting more attention. It’s hyperdeflation and I wrote another article about it.
Having no intrinsic value is actually a strength because you can’t lose what you never had and that clarify who you are.
Can you assess bitcoin risk ?
If demand and confidence are self-sustaining price will keep rising until demand is peaking unless something happens to break confidence or force demand to decrease. Bitcoin has grown up a lot and past a point when a major shift in confidence is hard to imagine. Breaking confidence would require something extreme but not impossible and that is precisely why you’re being advised to always stay diversified and exposed accordingly to your understanding.
Understanding of bitcoin is still extremely poor and that makes it an excellent opportunity. For many people bitcoin came such as a surprise that they want to see in it another Tulip mania because they don’t want to feel that they can be greatly outsmarted by anybody. They live in their own bubble and bitcoin is the needle.
Bitcoin can still go down sometimes but everybody has a price at which he is ready to buy and that puts the minimum value always higher.
Suppressing demand is something wanted by Nocoiners. Finding a way to say stop would mean that some leaders agree to willingly destroy wealth to turn this story into a forced redistribution scheme from nobodies to lucky ones including criminals. That is never going to happen and once this is understood this will suppress more fear and let the price rise higher.
You’re being told that bitcoin is the most speculative investment but bitcoin is not an investment. It’s not volatile because it’s risky like a stock that has an uncertain price but it’s volatile because people are ready to pay a premium to secure enough of it. It’s an insurance against it becoming the most perfect store of value so far.
Bitcoin is not a threat to our economies, it’s not a legal tender. It’s just money changing hands and backed by something you consent to believe in. It’s wealth created out of nothing and backed by confidence pretty much like if you were selling new paintings.
It’s fair to let this market develop because it says much about what needs to be done to improve real economy. Bitcoin is not perfect but undeniably powerful and instead of rejecting it we should let it evolve and try to learn from it. I do believe the price is going way up from where it is now but when most people you know tell you the opposite and you are not able to convince them that means bitcoin is still bigger than you and you have to accept it with humility. It’s not just about bitcoin itself it’s about everyone as a society in an era of permanent revolution.