Sunday, 16 June 2019

Do you believe Bitcoin will be a commonly used currency for the general public in the next 5 years?

No, I do not believe Bitcoin will be a commonly used currency for the general public in the next 5 years, or ever, but it’s not because of the limited transaction processing capability.
Even if Bitcoin could implement upgrades and become “infinitely scalable,” a simple truth remains: Bitcoin is too good at being money to actually be used in day-to-day transactions.
I wrote a post about this here: If Bitcoin stops being used as currency, what WILL it be used for?

Given a choice between spending two different forms of currency, most consumers will - over time - express a preference to spend the currency that erodes (e.g. US dollars or any other fiat currency) and save the currency that doesn’t erode (or, erodes less on a relative basis); this is known as Gresham’s Law.
So if you have both dollars AND Bitcoin in your pocket, and a merchant will accept either of them at the current market rate, most people will spend dollars and save Bitcoin. [Anyone who thinks otherwise won’t own Bitcoin to begin with.]
As a result, Bitcoin (like gold) will be stuffed under mattresses indefinitely (aka HODL’d), and its market price will behave like gold – i.e. slow downward or sideways movements over long periods of time, then quick, massive increases during times of fear, uncertainty, or crisis:
That was Bitcoin. Here is gold:
It’s almost unbelievable how similar the two charts are.
And this was the entire price history available on (for Bitcoin) and (for gold) – I didn’t “cherry pick” any special dates – these graphs show all available data from those two websites. I’ve just added the colors to illustrate the 3 bull markets for each (and of course, the 3rd bull market for each – in gray – is just starting).
The long-term trajectory of both assets, relative to dollars, is clearly upward.
But neither gold nor Bitcoin will be used in day-to-day transactions because they are money (a store of value), not currency (a medium of exchange), relative to the other options in the economy (i.e. relative to government “fiat” currencies).
The only way Bitcoin will become a commonly used currency by the general public is if one of two things happens:
  1. Bitcoin is the only form of payment accepted by merchants (for example, if one or more large countries declares that Bitcoin is the only legal form of payment), or
  2. A “better” form of money is created, and Bitcoin becomes “worse” money relative to this “better” money, and therefore is spent as currency (as modeled by Gresham’s Law).
Both scenarios seem very unlikely.
I think governments (and central banks) will “always” (for the next hundred years at least) create their own currencies, which are “fiat” (aka “fake” money). These government currencies will circulate, while Bitcoin and gold will be HODL’d.
Key takeaway:
I believe that Bitcoin will NOT be a commonly used currency for the general public in the next 5 years, or ever, because it exhibits the properties of real money better than government-created currencies, and people tend to save real money (not spend it).

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