The Microstrategy shareholder letter is very, very interesting.
Quoting: <<<<Bitcoin is the first store of value in history for which its supply is entirely unaffected by increased demand.>>>>
True but a bit of sophistry for if BTC should decline in value, rest assured that the BTC miners would slow down their work, and BTC perhaps would never reach its magic ‘no more’ number. Thus, in order to get to the ‘no more’ number, BTC has to have intrinsic value, i.e., it must be ‘money’. It must be sufficiently valuable to make mining worthwhile.
So, what is money? What is value? The writer says it is technology. Again, sophistry. Money is nothing except consensus, a prevalent across-the-board agreement that I can exchange something useful and valuable (a cow, eggs, etc.) for something (cowrie shells, USD, etc.) we both agree can perform the exchange function again in a different setting with some degree of regularity and uniformity, e.g., my cowrie shell will generally buy the same number of eggs that the previous transaction bought. This gives the cowrie shell (or the USD) usefulness. But at the end of the day, money is consensus that a unit of money is worth some ascertainable amount of the value it can purchase and that it can do so with some regularity across time. If it cannot do this, it is not money
In this case, BTC’s value as money is derivative of what it can buy in fiat equivalent. BTC’s value is not expressed in BTC but in its fiat equivalent, whatever that may be. The critical consensus of BTC as money is not yet in existence. Because the amount of fiat can and will always rise, while BTC cannot, BTC’s value should rise as the amount of fiat in circulation also rises. Eventually, it might become money, leave its status as a derivative of fiat, and this is why it is undergoing a speculative phase. But that is not a given, thus its volatility. It could disappear tomorrow and leave no impact on the financial landscape. Not so with fiat.
Because it has a long history and a developed market, we know that BTC’s physical analogue, gold, is worth about USD 1900 at the moment. We have no idea what BTC is worth because price discovery is ongoing. No one as far as I know has priced goods or services solely in BTC, only in its fiat equivalents. Thus, BTC is not yet ‘money’. Nonetheless, a lot of people think it will eventually be ‘money’ and are willing to pay huge sums to be in the vanguard.
I’ll join them. There is money/value to be extracted from the phenomenon, perhaps a whole lot of it.
For now.
But I’ll jump ship the minute it appears that the consensus function is faltering for it will be then that BTC tanks, e.g., if a large number of financial institutions reject payment in BTC or transactions involving it are banned. An interesting experiment would die. It could happen overnight. |
