Bitcoin's price seems to be caught in a limbo between bull and bear market. Even if we're still 60% above the November 2022 heights, there is again some fear lurking around. I think thus, it's time to remember why Bitcoin could be a much bigger success than it currently is.
Some will know the blog article
The Bullish Case for Bitcoin by Vijay Boyapati, which has been transformed into
a general introductory book about Bitcoin.
I agree with many of the ideas displayed in the article, but I get the impression that the linear "adoption timeline" the author pleads for, needs an update.
Basically the author argues that Bitcoin adoption will have four stages:
1.
Collectible: A thing some people like to collect, even if its value is still undetermined.
2.
Store of value: An asset used to store an abstract "value", for example to invest money in it and get the same or more value/money in the future.
3.
Medium of exchange: A currency used to purchase goods and services.
4.
Unit of account: A currency which can be used as a base to calculate prices.
We've successfully moved away somewhat from Phase 1. But I've got the impression that Bitcoin is currently caught in an intermediate "limbo" with characteristics of the first three stages, but without progress to evolve into the fourth (unit of account) stage. Even more: it seems that people's hopes currently are linked to the store of value concept, and usage as a medium of exchange was already more popular a few years ago. And as a store of value, it's only useful considering very long timespans (>2-3 years) due to harsh volatility.
My theory is that the order for Bitcoin's "bullish case" has to be updated. For me the stages are:
1. Collectible
2. Medium of exchange
3. Store of value
4. Unit of account
Why? There are basically two reasons.
1) The first one is
liquidity and demand. Bitcoin's liquidity is better than 10 years ago, but hasn't made significant progress in the last 2-3 years. This makes its market still vulnerable to panic, FOMO, manipulation and other plagues which lead to its erratic price behavior.
If Bitcoin was used more as a medium of exchange, it would have significantly higher liquidity. Because each time you buy and sell something for Bitcoin it's a market operation where you're establishing its value. Even more important: Each time somebody agrees to sell something for Bitcoin, this can be considered a buy offer in the order book.
Thus, with more usage as medium of exchange and "boosted" liquidity, Bitcoin's volatility would probably lower, and it would become a safer store of value. Imagine you wouldn't have to fear an 70-85% depreciation in a bear market cycle but only 30% in the worst case. Would you invest more in it than now?
People also seem to misunderstand the concept of "scarcity". Scarcity is not equal to "limited supply". Scarcity exists when there is more demand than supply. A limited supply helps, but it does not mean something is really scarce. Many altcoins have a more limited supply than Bitcoin but have dramatically failed.
Demand is crucial. If demand is erratic and only depends on FOMO cycles, then no reliable store of value can be achieved.
While if there is an explosion of merchants and everyday people accepting Bitcoin, then this means that there's also an explosion of demand. Again: Each of these offers is an offer in an imaginary orderbook where Bitcoin is traded against "real value".
Of course if volatility lowers then the bull runs will become less steep too. But that isn't a problem because Bitcoin has anyway the potential for values largely above $100,000. And that leads us to the second issue:
2) Many people forgot why Bitcoin is such a big innovation. It is the first digital value exchange medium which
lacks central intermediaries completely and thus has its known advantages like censorship resistance. All previous attempts needed some kind of "bank" controlling the system.
This is
Bitcoin's USP. Bitcoin can be used by anyone, anywhere (where there is Internet access) and anytime, without the need that someone "allows" you to do so. And this characteristic is most useful for a currency, not so much for a store of value. The internet (and this forum) is full of complaints about banks having closed accounts of people and made your life a pain. Bitcoin fixes this (And no, Ethereum and other centralized coins do not really fix it, as their censorship resistances is much lower).
In my opinion, Bitcoin's big advantages all really shine when it's used as a currency. And thus long term success in the future depends if it's used as a medium of exchange or not.
Once a path to currency usage becomes clear, Bitcoin will thus become a reliable store of value. Not before - before it will be subject to the same wild swings we've seen in the past years.
I would even say: There'll be no $200,000+ ("digital gold") Bitcoin without usage as a currency.(And if you are worried about scalability: There's LN, there's even progress with sidechains, like projects like Stacks or Nomic and rollups show. It's nothing unsolvable.)
