Why bitcoin is here to stay
The problem with arguing that bitcoin is “going to zero” is there are too many investors who are willing to buy it at a price far above $0. I remember speaking to many non-crypto investors before the recent run-up in price who said they wouldn’t buy bitcoin at $10,000, but if it dropped to $1,000-$2,000 they would surely jump in.
Well, guess what? Now that the current price is above $30,000, some of those investors have likely increased the limit at which they would consider buying bitcoin. Instead of buying at $1,000 these same investors may be happy to jump in closer to $10,000. And every time the price goes up in the future, these “mental buy limits” go up as well, increasing the likelihood of bitcoin’s future survival.
“But Nick, bitcoin doesn’t have any intrinsic value!” Well, guess what? Neither does gold, which has a $10 trillion market capitalization! So if you want to argue against bitcoin on intrinsic value terms, then you have to argue against gold, too. Because both the price of gold and the price of bitcoin are based around one thing and one thing alone – belief, the belief that these assets will have value in the future.
See also: Pondering Durian – Why >15% of My Net Worth Is in Bitcoin
And right now the collective belief in bitcoin is increasing. The cult is becoming a religion. Don’t just take my word for it though. There are plenty of articles (see here, here and here) that discuss this increased adoption within the investment community. And if this trend continues (as it probably will), then we are even less likely to see a future without bitcoin.
How will bitcoin behave?
Now that bitcoin is here to stay, you might be wondering how it will behave in the future. Will increased adoption lead to higher prices? I have no idea! What I do know is bitcoin is a speculative asset class. Therefore, we should look at other speculative asset classes as a guide for how bitcoin might behave. And I believe there is no better speculative asset to use for this comparison than the early years of gold as an investment.
While gold has been around for millennia as a form of money, it wasn’t until August 1974 in the U.S. that it was an investable asset class. And in the six years following its reintroduction to the investment community (1974-1980), gold tripled in value in real terms (i.e., the yellow line below):