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It is an old tradition in crypto circles to collect and log articles predicting the death of Bitcoin, noting the release date and current Bitcoin price. Several websites specialize in this, for example this one. The count stands at 474, the impending death has already been announced at least that many times in many well-known media outlets, including the Financial Times, the Wall Street Journal, the Economist, Bloomberg, Reuters, CNBC, Forbes, MarketWatch, and the New York Times, among others , the Washington Post, Barron’s. The impending end has already been announced by former central bankers (like Ben Bernanke and Alan Greenspan), Nobel Prize winners in economics (like Robert Shiller and Joseph Stiglitz) and star hedge fund managers (Ray Dalio, Warren Buffett). If you read the articles “Why Bitcoin Will Fail”, “Bitcoin Is Dying” or “The Rise and Fall of Bitcoin” you would sell your Bitcoins quickly.
These articles were published in 2011 with an exchange rate of $3, but even later the titles became no less threatening …
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Last November, after the FTX bankruptcy, the European Central Bank also joined the queue. In his article entitled “Bitcoin’s last stand” on the ECB blog, the author reflects on the fact that we are in the final, artificially induced phase of the exchange rate freeze before Bitcoin finally sinks into insignificance. Namely, regardless of FTX’s bankruptcy, as it was clear from the outset that this would happen.
A At HOLD Alapkezelöy, it is also fashionable to repeatedly make tulip bulbs and bury Bitcoin, and of course there is no shame in joining the aforementioned reputable company. Last year, for example, Vakmajom in his annual review rejoiced at the collapse of the cryptocurrency price and predicted 20 years of stagnation. But as we know, predictions are difficult, especially when it comes to the future. Blind Monkey’s prediction came true for a few days, as the Bitcoin price started in January with an explosion of almost 50 percent, and so far in 2023 it has recorded an increase of 164 percent.
So Bitcoin simply doesn’t want to expire. It is quite evident that something essential is being persistently overlooked by those awaiting death. I think that those close to the center tend to underestimate the power and necessity of decentralization. I recommend everyone to take a deep look at Bitcoin, especially those who are really curious about why the exchange rate has risen hundreds of thousands of times in 13 years and what we can expect from it in the future.
It seems to me that Bitcoin is on the path of manias and crashes that I have described many times. So far, this path has been spectacularly marked by four-year cycles associated with the halving. In the table below you can see how the exchange rate developed in which year. The rising years are marked in green and the falling years are marked in red.
And in the graph, next to the Bitcoin exchange rate, I showed what it looks like if we smooth out its cycles. The exchange rate, smoothed by a four-year moving average, is steadily rising. Amazingly, there hasn’t been a single day in Bitcoin’s history that saw a bearish move. Maybe I’m blind, but I don’t see impending doom in this.
Some obituary articles argue that Bitcoin is simply a Ponzi scheme, a pyramid scheme based solely on the greater fool principle. In other words, I only buy Bitcoin because I expect some bigger fool than me to come along and buy it from me at a higher price. And these systems are unsustainable, meaning Bitcoin will eventually collapse and die.
I even partly agree with the whole thing. Given that the world has, for well-considered reasons, abandoned commodity money and switched to using (fiat) money with no intrinsic value, it is too easy to get caught up in the fact that money is being spent in a Ponzi scheme. There is a fear that something like this is happening in the world right now, or if it isn’t happening yet, then we are on a knife’s edge. I firmly believe that our financial system in its current form is built on an unsustainable foundation. Maybe at some point it will collapse and die.
The question related to the monetary system or its unsustainability is of course complicated and complex and, like things in the world in general, has many connections and many aspects. I wouldn’t deign to argue for it loudly in a single paragraph, but in a simplistic and endlessly superficial way. However, its explanation is beyond the scope of this article. Maybe I’ll write it one day. If you want to learn a little more about this, check out my series on the ideal monetary system – it starts here. However, in order not to leave the dear reader completely alone, I will highlight one or two aspects below.
The U.S. national debt as a percent of GDP looks like this:
With the exception of a few years, this value continues to rise. Four times as much in four decades. There were stagnations in it too, but if I had bought a 10-year US Treasury bond at any point, the debt level at maturity would have been higher not only in nominal terms, but also as a percentage of GDP. America did not grant the loan. He can pay me off if he finds an even bigger fool than me who is willing to give him a loan despite the greater debt. The American economy is, of course, very strong, but not so strong that it can sustain ever-increasing debt-to-GDP ratios. It reminds me a lot of a pyramid scheme.
Of course, American budgetary processes can probably be put in order and then there will be no problem. Or it could be that the Fed can buy as many Treasury bonds as it wants without consequences. Or just look at Japan, where government debt is much higher but the yen is strengthening, inflation is on track and interest rates are close to zero. Or AI will come along and provide such an increase in efficiency that you’ll drink! These are, for example, the questions that I will not discuss here.
However, based on what has been said so far, we could understand that those who see the above process as too risky to fully base their savings on the credit money/fiat money system may not be completely stupid. And there are quite a few. For them the question is simply this:
“For the economy to function, some form of oil production is required, and this task is accomplished by money.” Issuing money is a huge business, as central banks print money for free but sell it at a high price. As long as fools buy money with no intrinsic value at high prices, there is no problem. In central banks, a few people decide, based on loose rules, the parameters and processes that regulate the issuance of money, and these people and the politicians who appoint them pursue their own interests, which do not necessarily coincide with the public interest. The monopoly of issuing money can be severely abused or even destroyed without any malicious intentions. Sooner or later one of them will happen. When you run out of fools to buy expensive, free-produced money, the pyramid scheme will collapse. Which Ponzi scheme should I base my savings on? For fiat money that can be spent indefinitely based on the individual decisions of a few people? Or to an immutable, code-controlled cryptocurrency issued based on predictable rules and with a cap?”
Of course I don’t know the right answer. But I think it’s worth diversifying. And based on the above, it is perhaps understandable that Bitcoin supporters do not necessarily claim that Bitcoin is not a pyramid scheme. Except it’s a better pyramid scheme than fiat money. That means it will crash later. And these are long, decades-long processes; no one should expect a huge collapse in the near future.
Bitcoin is typically purchased for two (three) main reasons.
1. The first is diversification, that is, not betting everything on the fiat monetary system, as described in the arguments above.
2. The second is the classic pyramid scheme motivation cited by the mourners: those who buy Bitcoin in manic times for short-term gain and then sell it to a bigger fool (if they know how). The price increase during these periods is therefore really unsustainable.
3. (The third main purchase motive could be to conduct illegal transactions, but it is not. Bitcoin is often suspected of being the money of criminals. This is a simple lie, analysis of the blockchain shows that this is not the case. Bitcoin is hardly used for crime.)
During the mania, the value relationships in the portfolios of those who hold Bitcoins for diversification purposes shift. Due to the sharp rise in price, the weight of Bitcoin will be too high, so they will more likely enter the market on the seller side. In the crisis that follows the mania, the mourners then announce impending death. They don’t see beyond the motivation of holding Bitcoin through the pyramid scheme, they don’t notice the motivation to diversify at all. The ECB blogger is also too biased towards his self-governing monetary system, he doesn’t believe there could be an alternative. So they think we are having a classic pyramid scheme/tulip bulb crash and that a rally will never happen (which would be suspicious for them because Bitcoin has already risen a few times). But damn it, the weight of Bitcoins in the portfolio of Bitcoin holders for diversification purposes is decreasing at this point, so this time they will buy with a higher total asset compared to the original thanks to the profit made in the mania. Furthermore, during the mania, new crowds begin to study Bitcoin and understand its benefits, meaning additional demand for diversification purposes. And since the total quantity of Bitcoins hardly increases, their price stabilizes at a higher level compared to the previous cycle.
Finally, I would like to recommend everyone to get involved with Bitcoin. And then everyone should decide for themselves which of the available pyramid schemes they want to participate in.
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