Simple, crazy arguments can be contagious and convincing.
I invested in Bitcoin (BTC 1.28%) on and off for over 10 years now, but I never really had the conviction to keep my pieces for very long. After all, it is unlikely that coins will ever have any real use as a precious metal would, and there is certainly no major nation-state or equally powerful actor that supports its value or accepts it as a means of exchange.
A few years ago, however, I heard an absurd argument that completely evaded all of these concerns, and now I am convinced that I will buy and hold Bitcoin forever.
Value is a social phenomenon
We use the dollar as our main currency on a daily basis. Although a piece of paper with a U.S. president on it will never be useful in itself for productive industrial purposes, many people around the world recognize that such a piece of paper still has value.
In fact, people believe so deeply that dollars have value that they are usually willing to trade their time, effort, and other resources to acquire them. In other words, there is a broad social consensus that the pieces of paper called dollars are themselves exchangeable for the resources of others.
There is no such consensus on Bitcoin yet, despite its dramatic progress in becoming more widely accepted as a store of value. Nonetheless, there is a popular stereotype that posits the existence of a group of die-hard cryptocurrency enthusiasts who are completely convinced of the merits of Bitcoin, regardless of what others have to say about it, to the point of being delusional.
Critics will claim that these investors are accumulating Bitcoins because they are unable to discern that digital coins are in fact worthless because they are not useful for making most transactions that require dollars. On this point, the critics seem to be right; If you’ve ever tried to use Bitcoin to buy a burrito, you probably went home hungry. The financial infrastructure to use it for everyday purchases simply doesn’t exist and doesn’t appear to be on the way.
But the bears forget a much more important point. People who value Bitcoin as a cult are so convinced of its value that they are effectively immune to any attempt to dissuade them, no matter how competent, extensive, or factually correct the objections may be. They simply don’t care; their decision is made and, if they are to be believed, their opinion on the matter is set in stone. They are practically indoctrinated, because they will always be willing to buy Bitcoin from someone who no longer believes in it.
And if they can help it, they will never sell a single fraction of Bitcoin. According to them, as the difficulty of mining the coin increases over time due to the halvings coded into the protocol, fewer and fewer new tokens will be added to those in circulation and the price will increase. So for them it is rational to buy it at any price because in the future the price will be higher.
In other words, the existence of these serious Bitcoin aficionados implies that the coin cannot go to zero, because even if the price falls sharply, there will still be individuals who want to buy it as long as they have the dollars or other currencies to do so. . There is therefore a floor for the price of Bitcoin.
They believe that this perpetual purchasing behavior will be rewarded in the long run. The group that puts constant upward pressure on the price of the coin is responsible for providing a base level of demand that produces the desired price action. They invest and evangelize as conscious acts of self-fulfilling prophecies.
So far, they have been richly rewarded for their conviction. And, according to this absurd argument, you don’t even need to believe in the merits of the Bitcoin protocol to understand why it’s a good investment – you just need to believe that fanatics exist and that they will take care of it. stay.
There is no guarantee that it will increase forever
Could it really be that a relatively small clique of evangelists is all Bitcoin needs to move forward forever?
This doesn’t seem right. But that’s probably the case. More and more investors are adding tokens to their portfolios every day, and there will never be more tokens than the 21 million described in the protocol.
Taking the diehards into account, any growth in the investor population in the room implies that prices will rise even if new converts aren’t as convinced. Of course, it is possible that investor conviction is fickle. It’s also possible that Bitcoin’s value could drop wildly and never recover, which would make it a terrible investment.
But the bullish argument is compelling because it recognizes that the direct utility of a currency may be a separate issue from its role as a store of value. Likewise, all something needs to be a store of value is for others to believe it is and behave accordingly. For Bitcoin, the belief is already there, which is why I will buy it slowly for a while.
