James asks, "Store of value in a volatile market."
"My smart friend says the biggest barrier to mass adoption is price volatility,
which limits bitcoin's usefulness as a store of value, its most convincing use case to date."
"It is a lousy store of value if the price keeps changing."
"Is this right? Are there other obstacles to mass adoption of bitcoin? What are they, in your opinion?"
James, your friend may be smart, but I don't think they understand some of the basic economics at play here.
I don't think price volatility really affects bitcoin as a store of value. Store-of-value is a long-term perspective.
It certainly affects bitcoin's use as a medium of exchange. But as a store of value...
If you are buying or investing in bitcoin, using it as a store of value,
then you have a long-term perspective, certainly more than a year.
How is bitcoin doing in the last year?
Oh, [the price] is up by about 600%. Sure sounds like a good store-of-value to me.
Over the last three years? Definitely a pretty good store of value.
If you look at it over three months, probably not a good store of value, but that is not what [the term] means.
Store of value is definitely a long-term perspective.
The other thing about this, it is a circular argument. Volatility is an expression of [the size of the market].
In a follow-up question, James said, "We tend to harbor an expectation that this volatility, a key obstacle to...
bitcoin's wider success, will eventually calm down."
"But Bitcoin's resistance to regulation is a feature, not a bug. Where will stability come from, absent regulation?"
I think there is a broad misunderstanding about how volatility is dealt with in markets.
The idea that regulators control volatility in currencies, I think, is an illusion. Regulation doesn't control volatility.
If anything, regulated markets that don't have enough flexibility and liquidity are more volatile.
I would say the biggest contributor to volatility is the small size of a currency [market].
You have to understand that bitcoin is currently traded on a global basis, unlike most national currencies...
that have primarily domestic markets.
Bitcoin is a global market. For a global market, it is [still] absolutely tiny.
$100 billion is nothing in currencies, even for a currency that is domestic, let alone for a currency traded globally.
So this sounds like a circular argument.
You are basically saying "the biggest barrier to mass adoption is the lack of mass adoption."
"If only there was more mass adoption, then there would be more mass adoption."
"The biggest barrier to bitcoin being big, is that bitcoin is small. If only bitcoin was bigger, then it could be bigger."
That is what price volatility is [reflective of]: this currency is small.
If the fact that it is [now] small, is a barrier to it becoming big... That is circular logic.
As bitcoin gets bigger, the market becomes more liquid, and it is traded more and used for different purposes,
I think that reduces volatility.
The more companies depend on bitcoin as an input, use it for payments to contractors or providers,
hold inventory, purchase or sell things based on bitcoin, the more the price volatility is reduced.
Right now, it is mostly used for speculation and dealt with on a short-term basis.
It is traded globally, in a wide open market, and as a result [the price] is quite volatile.
Bitcoin will become less volatile as it grows; at least I hope it will. I think the economics would argue that.
Ash asks, "Do you believe there are cartels in the crypto space?"
"There is a lot of noise about bitcoin being manipulated and such things. What do you think?"
'The lady doth protest too much, methinks.'
I wasn't hearing a lot of complaints about [price manipulation] when it increased 1000% in six months.
There wasn't much complaining about manipulation and pumping when the price was going up by a factor of ten.
Now, when the price is going down, for obvious reasons....
Anything that goes up by 1000% in six months is bound to have a correction.
I had started calling for a correction last October, saying these price [movements] are unsustainable.
I was quite roundly bashed for being a "naysayer," "a negative Nelly," and all of that.
The point is, anything that goes up by 1000% is likely to have a correction at some point.
If it goes up too fast, it will come down even faster.
As traders say, "what goes up on an escalator, comes down on an elevator."
Now, we have a lot of people [complaining] about bitcoin being manipulated by whales, by the futures market,
by world governments trying to dump crypto holdings in order to take the market, etc.
The truth is, looking at the broader market, it is not just bitcoin. There was a massive correction in tech stocks.
There has been massive corrections in stock markets, in currencies, all around the world.
There are also massive corrections happening in [other crypto-coins].
This is, I think, a natural response to a market that [became] over-exuberant with too much excitement.
Too many people bought bitcoin and the other cryptocurrencies.
[They bought] not because they believed in or understood the value of the technology;
not because they thought this technology [would] have great potential for the future.
They thought they would get rich in a matter of months, simply by buying into a fad. That is a greater-fool theory.
That is not a good basis to invest.
People were asking me, "Bitcoin is $16,000. Should I buy now?"
I told those people, "Your strategy should [probably] be based on dollar-cost averaging."
"Figure out what [risks] you are comfortable with, and [how much you] understand the technology."
"The more you understand [it], the more comfortable you should be about your investment decisions."
"If you're asking me (and I'm not an investment advisor), then you shouldn't be buying this stuff."
I don't believe there are cartels in the crypto space. Do I believe there is [price] manipulation? Sure.
Absolutely. Do I believe there are pump-and-dump schemes, whales trying to manipulate the price,
completely irrational buying and selling that is pushing the price around?
Absolutely, all of that is happening. But that is not the reason the price is crashing.
I think trying to find causation in these markets is a fool's game, like reading tea leaves...
or predicting stock prices based on the alignment of the Zodiac.