“History always repeats itself”. Just stop doing it. The history of Bitcoin is too short to assume that the same history will always repeat itself. It is not pessimism. It is humility. Simple. We cannot count the chicks before hatching. The future is not always a carbon copy of the past. Here we are not declaring the death of Bitcoin. However, this could ben call for reflection for a community very prone to blind fanaticism. Why assume Bitcoin is undervalued right now? Why not assume that it was overvalued thanks to the stimulus?
The scarcity of the code, the computing power of the network, and the “non-confiscality” of private keys are very important to the most hard-core believers. However, for the rest of mortals, the priorities are different. Hardcore bitcoiners, sooner or later, will understand that the truth of the tribe is not the truth of the universe. There is everything in the vineyard of the Lord. And not everyone believes what you believe. For many, Bitcoin is not the “monetary utopia” that libertarians advocate. For many, it is a simple financial opportunity.
The price is the money that you have to pay to acquire a certain product, while the value is the money that you will earn from a utility for purchasing that product. In the case of a farm or business, the value is based on the underlying assets and production. Because it is a “wealth creation” asset. In the case of an asset like Bitcoin, it is a “wealth transfer” asset. There are no underlying assets, no production. Which implies thatu value (essentially) is its price. The rate is much more fundamental for “wealth transfer” assets than it is for “wealth creation” assets.
The price conveys information. After all, the market is made up of opinions. The fundamentals of a company do not always reflect its price. Nevertheless, a real improvement in the fundamentals of Bitcoin should be reflected in the volatility. By now, we should have a little more stability. What is volatility? If stability is security, volatility is lack of confidence. Volatility is doubt, uncertainty and fear. It is no accident that this market attracts ambitious young people with a high tolerance for risk. Why? Because Bitcoin is not a safe bet. Bitcoin is a very risky asset.
Beyond the semantic tricks and phraseologies of the cryptoevangelists, investors buy Bitcoin hoping to make money. Greed drives purchases. But greed also drives sales when the possibility of losing money arises. Bitcoin behaves like a speculative asset, because it is a speculative asset. The former glories of Bitcoin are not a guarantee this time, because most of the mourners in this story came on board in the last 5 years.
Now, let’s get to the numbers. Bitcoin price hit $68K after the largest liquidity injection in history. Thanks Pandemic! Now, in less than a year, those gains have been lost like tears in the rain due to new macroeconomic conditions. In 2017, Bitcoin grew 20X. And then in 2018 the price dropped to set a bottom. That low, however, was 3X the previous cycle’s high ($1.2K). Unfortunately, on this occasion, we cannot say the same. In conclusion, Bitcoin is slowing down when going up, but when going down, it goes down with the same fury as always.
One could assume that we would gain stability with higher capitalization and better fundamentals. This was obviously not the case. Which is not very good for the reputation of an asset being sold as an “inflation hedge” and a “safe haven”. At some point, we are going to remember that “Bitcoin always bounces back” is actually about a few cycles. These can be counted on the fingers of one hand in a period of just 13 years.
Who is Satoshi Nakamoto? Who are the miners? Who are the main investors? Who is responsible for all this? Who oversees this operation? What are the rules of the game? Lovers of decentralization could happily say that no one is in control and that the free market is the invisible hand that decides everything. Well, that translates to risk, chaos, and savagery in the minds of many people. That “darkness” does not inspire much confidence. We are in a very immature market with immature users, immature analysts and immature influencers. Fake?
“Money” is not what we use as a token. Gold itself was never “money.” Likewise, the dollar bills themselves are not the “money.” Bitcoin code is not “the money of the future”. Those who defend Bitcoin by talking about the scarcity of the code, the computing power of the network and the “non-confiscality” of private keys have not understood that social technology that we call money. ANDhe “money” is the complex network of intangible relationships that are built on a token. What is truly valuable is not the tangible elements of money like the beautiful shine of a metal, the color of a piece of paper, or the digital scarcity of a decentralized database. Neither is the inventory and flow of tokens. What is valuable here is the credibility, strength and size of the social construction. In that sense, we are still in diapers.
Money is a system of measurement. And that measurement system is sustained by a social agreement. If that “measure” is not stable or predictable enough, what it really tells us is that the social agreement is not as solid as it should be.. Money is a social institution. And the token is a simple symbol. Its value is not born from the properties (physical or digital) of the token, but from a social convention. If the inflation of the dollar reveals to us a flaw in the system, the volatility of Bitcoin reveals to us the immaturity of a community.
Many bitcoiners make the same mistake as the gold beetles when they think that their preferred form of money is valuable due to its intrinsic properties. This is an error in the doctrine inherited from classical liberalism. Consequently, the idea that the value of bitcoin has little to do with its price is a dogma error. The problem, of course, is that dogmas are articles of faith. And few dare to question their faith. In practice, this is a blind spot.
What does this all mean? It means that we should prepare for the possibility of a longer, more painful and colder bear cycle than anticipated. It means that we cannot assume with such confidence that this particular cycle will be like the previous ones, because, this time, we will not have the same stimuli. You have to step on land and get off that cloud. The most sensible thing is to hope for the best, preparing for the worst.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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