Unlike physically located nation states, it does not bow to any political pressure over issuance or operations. It can not be closed. It is also very difficult to ban people from using it or confiscating it.
It can not be reconsidered thoughtlessly. Why not? Since it is extremely portable, divisible and easy to take care of the underlying asset, it introduces counterparty risk to hold it through third parties who mortgage it, so rational players will generally avoid it, or at least demand market-based compensation to take it on. Danger.
Bitcoin is traded freely 24/7, 365 days a year, and the cost of exchanging it is likely to be increasingly lower by competition over time. Of course, the exchange rate (this term is a better framework than “price” in this discussion) is very volatile. This is in contrast to currencies where there may be restrictions on trading and authorities may intervene in foreign exchange markets. That may be logical, the bitcoin exchange rate is flourishing in times of depreciation of other currencies, but is struggling in periods when they are tightening. (Examples of recent dollar tightening are 2018 and 2022, so far.)
Fiat currencies certainly have huge sources of demand for those that bitcoin does not currently have, namely to meet future transactions priced in these currencies. These can include taxes due, payments for goods and services, or investments in real estate, shares, etc. In terms of raw materials, much is made of the relevance of oil being priced globally in dollars. This has undoubtedly contributed to the number of foreign nations keeping dollars in their reserves. Why? If the dollar oil price can remain relatively stable, keeping the dollar will help match the costs of future energy needs more closely than another currency.
I deliberately hesitate to describe “bitcoin” as a currency by the way. It is another lazy criticism that it has not already managed to have the qualities required to be so. I think the Bitcoin White Paper avoided the word for good reason. Bitcoin has many years and decades ahead of sovereign nations to decide whether to take it as a currency or not, but it will not change operations.
In summary
Due to its fixed supply and other unique attributes, it is only logical that many have started exchanging other, faster degrading currencies for bitcoin. There are undoubtedly many short-term traders around, but the long-term exchange rate is probably driven more by those who take long-term prospects in their positions to avoid volatility. Note that this is not an “investment”; bitcoin is a form of money. It saves.
What about altcoins as competing money? We do not see them in the mentioned top 10. Take the time to learn why bitcoin does not have any meaningful competitors in the above context. Why proof of work is so important for the immutability and completely decentralized nature of bitcoin. And why any extra “tool” developed in another altcoin seems pointless if they can not match the monetary properties of bitcoin – they can not.
Just like conventional exchange rates or curves, such as DXY (a frequently observed basket of British pounds, euros, Canadian dollars, Swiss francs, Swedish kronor and Japanese yen against the dollar), it is quite difficult to predict where bitcoin will hit a certain price level in the future. As we have seen above, bitcoin has several interesting and unique features such as money compared to fiat currencies. These make it likely that demand for it will continue to increase as fiat currencies compete to deteriorate. As Bitcoiners often say, it’s just math (s).
When you frame it in these terms, are you still sure that bitcoin is heading towards zero at any time now?
This is a guest post by BitcoinActuary. Expressed opinions are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
