Future of Bitcoin

[kraphael]

@anon21880037

Are people still DCA into crypto here?

I am waiting for a clear trend reversal to go all in.

@johndoe1

What’s the genuine use case for bitcoin?

I just talked to a friend from Iran yesterday who sold her grandmothers house and struggled to get her money out of the country. Bitcoin solved that problem.

Bitcoin is a global, digital store of value secured by an unmuteable code and the law of thermodynamics owned by nobody.

It’s price is determined by liquidity and adoption. Adoption is growing exponentially. Liquidity is - as we all know - very low for the forseable future.

@marcel-burkhard

I don’t think “investing” is the right term here.

If you mean that investing is to buy and never to sell then yes of course you can. You can invest in anything from wine to art, Gold or Pokemon cards.

With a value investing method you will not be able to price a bitcoin. That’s why Warren Buffet hates it. That’s fine.

@kawansky

We call this speculation…

If you mean by speculation buy an asset in the hope that it will develop in the direction you anticipate, again you can speculate with anything, stocks, real estate and VTI. It’s a question of timeframe and knowledge.

Crypto adoption is growing worldwide by the hour even, the price has no big impact.
Sorry guys but it is not going away, we are way past that point

2024 Global Crypto Adoption Index - Chainalysis

[Barto]

@Wolverine

It’s fun to watch the crypto space rediscover what the rest of the finance industry has learned long before. To have any value, insurance must be provided by a trustable third party, and to offer an additional guarantee, that third party should be insured itself by yet another reliable party.

The solution touted put forward is to keep your crypto off exchange in and take care of safety of your keys yourself.

A bit like how vikings buried gold (until banks were invented)

[Giff]

@kraphael

I am waiting for a clear trend reversal to go all in.

How do you decide when the trend reversal is clear? Looking just at the price or something else too?

[kraphael]

A technical indicator: Blue to yellow = trend is up, Yellow to blue = trend is down. Trend is still down:

[marcel-burkhard]

@kraphael

I just talked to a friend from Iran yesterday who sold her grandmothers house and struggled to get her money out of the country. Bitcoin solved that problem.

Sounds like gold or Western Union would’ve worked too. And if it was illegal then Bitcoin might’ve been a bad idea because it’s easy to track.

@kraphael

Bitcoin is a global, digital store of value secured by an unmuteable code and the law of thermodynamics owned by nobody.

Bitcoin is a store of unpredictable value, secured by code that is changed from time to time if the super-majority* agrees to it, e.g. in November 14th 2021 with the “Taproot” update. The law of thermodynamics means that the electricity used to mine the Bitcoin is turned into heat, nothing more.

/* Super-majority is indeed hard to reach as it is nodes (some of which are more important than others [e.g. large CEX nodes] & mining pools, so it’s relatively secure and they have to “signal” changes ahead of time to gauge support and avoid a cluster-fork-f#%&*.

Right now this would make it impossible to increase mining rewards or post-pone the halvening or the like, anything that would increase the final maximum supply. I wouldn’t want to predict if the same is true in 100 years though. Maybe the majority agrees that some constant inflation is good for business?

@kraphael

It’s price is determined by liquidity and adoption. Adoption is growing exponentially. Liquidity is - as we all know - very low for the forseable future.

When I read liquidity, I understand trading volume and order book depths. Higher is better. I think liquidity is low now because trust in exchanges evaporated and interest in Bitcoin is lower as a result of the lower prices.
If you are talking about supply, that is up to existing Bitcoin holders as well, not just miners.
The Crypto DCA crowd needs to absorb the “base-load” selling pressure from miners so that the price doesn’t go down.

Summary

I mean it’s way more complicated than that with many many moving pieces.
Simply put what matters in the end is that FIAT inflows over a longer time-frame need to cover miners expenses and CEX transaction fees (FIAT outflows for energy and other costs).

And nobody knows how many people will buy or sell in the future.

Point being:

@marcel-burkhard

Nobody knows what the Bitcoin price will do next.

Adoption has only been growing exponentially if the price is going up and while it is going up. Check Google Trends etc. - the Statista survey you posted is from 2019.

@kraphael

A technical indicator: Blue to yellow = trend is up, Yellow to blue = trend is down. Trend is still down:

A trend has no predictive capabilities.

@johndoe1

What’s the genuine use case for bitcoin?

Speculation.

Fees (sats/bytes * $/BTC) are too high to use any of the other features for real use cases.

[kraphael]

Hmm ok, so what is your honest view on bitcoin? It’s all just a worthless, evil Ponzi scheme for criminals to prey on the innocent and should be banned? Do you disagree on the whole concept? Should gold also be outlawed?

[marcel-burkhard]

It’s a zero/negative sum game where some people win and some people lose.
I don’t think it needs to be banned much in the same way that I don’t think gambling needs to be banned.

I believe a distributed append-only database, something like Hyperledger Fabric, can be useful for some cases, e.g. shipment monitoring where two or more institutions run the nodes and if they tried to falsify/forge data it would be obvious to the other parties and their relationship would suffer (and the parties are known and can be sued). Let’s imagine Galaxus, Post and Zur Rose or something like that.
But not with fees or Proof of Work or any other game theory aspects - that would likely make it too expensive.

I believe the Bitcoin blockchain can have no real use cases outside of gambling because of the oracle problem (connection to real world “data” or events isn’t possible to do trustless, and when you use oracles you have a new point of failure that can and will be exploited as has been demonstrated on Ethereum a lot).

Just my current opinion though, maybe someone comes up with something.

[kraphael]

Would you change your mind if we’d continue to see more and more adoption? If maybe in 5 years 5% of all the people would have a lighting wallet on their phone? Something as easy to use like TWINT but on a truly global scale and open model without banks or other counter parties in between that every person in the world with a smartphone can use?

[marcel-burkhard]

Without counter parties there are no lightning channels.

[kraphael]

OK but it’s a trustless system ruled by open source software instead of banks and politicians. And yes it’s not perfect yet.

[marcel-burkhard]

Let’s entertain the idea that 5% of all people would use it - 5% of people are 400 million users.

It would be interesting to see if it works. But presumably the transaction capacity on L1 chain at roughly ~300 thousand/day (for opening/closing lightning channels) wouldn’t be sufficient. There will always be some people with unbalanced channels, or people that need to close the channel to use the funds in another way, or make a bigger channel or an additional channel, people who spend less than they make, buy a car, et cetera. Let’s assume it’s enough to further the thought experiment.

TWINT, Venmo, etc. are free C2C (B2C is another story). Why should I lock up funds (in a “currency” that could have wild swings in price) for Lightning to facilitate transfers between friends (splitting bills and stuff), pay presumably high transaction fees on L1 for closing and reopening channels from time to time and routing fees (insignificant but >0), when I get the same thing elsewhere for free (for domestic transfers)?

For cross-border payments it makes slightly more sense, but only really if you have to circumvent capital controls or other bans because otherwise using something like Revolut is still easier and potentially cheaper. And I think I have to add here that Lightning wouldn’t work well for remittances as those tend to be very one-sided so the channels wouldn’t live long.

If you live in a hypothetical Bitcoin Lightning city, where you get your salary on the lightning network and pay your rent on the lightning network and all people have one month’s worth of money saved (to fund a channel) and usually spend their entire salary - then it would work fine (assuming the routing would actually scale up that well). But if you save money for retirement every month you have an unbalanced channel.

Or with the TWINT analogy. If I now have a 500 CHF spending limit, I would need to lock-up an equivalent amount of BTC to be able to spend that much. But if I only get paid 50 CHF/month on TWINT while spending 500 CHF/month (e.g. salary not paid on TWINT, just some friends sending money or some Ricardo sales or whatever), I would have to do transactions on the actual Bitcoin L1 chain almost every month, because I can only spend the 500 CHF I locked up once, not monthly. Or I lock up even more money (e.g. 6000 CHF worth of BTC so it’s enough for a year).

This money could otherwise be invested and earn you interest.

I don’t see this getting adopted on a broader scale.

[kraphael]

@marcel-burkhard

Why should I lock up funds (in a “currency” that could have wild swings in price) for Lightning to facilitate transfers between friends (splitting bills and stuff)

Because they have like most people in the world no bank account. It is also expected that the volatility bitcoin continues to go down as the adoption grows.

@marcel-burkhard

But if you save money for retirement every month you have an unbalanced channel.

Longterm savings would be stored directly on the bitcoin blockchain.

@marcel-burkhard

Revolut is still easier and potentially cheaper.

I use and like Revolut for many years now, but basically they are the same as a bank. It’s a company that can disappear like any other, their CEO Nikolay Storonsky gives me the creeps and I don’t like to put too much money there.

Blockchain will come one way or the other into the mainstream financial system, it’s just so much superior to the current one. All the problems you have mentioned will be solved quite easily with a CBDC, like a digital dollar or yuan. But that’s a future that worries me a lot, it’s total control by the state of nearly every aspect of your life.
I’d prefer a world with all the technical issues of Bitcoin that you have identified correctly, but IMHO can all be solved. It’s an insurance for me that’s why around 10% of my liquid net worth is in crypto and gold. That’s why I’ll invest in Bitcoin longterm.

@marcel-burkhard

A trend has no predictive capabilities.

I disagree, if a trend is strong and identified early it can be traded.
Your conviction VT is also based on the observation of its longterm trend.

@nabalzbhf

What’s the expected real interest rate on Bitcoin that you envision? What economic activity funds it?

Just the difference to the devaluation of your local currency. It doesn’t fund any economic activity except a store of value controlled by you and nobody else. It might replace your bank and therefore generate value to you and society.

[nabalzbhf]

@kraphael

Longterm savings would be stored directly on the bitcoin blockchain.

What’s the expected real interest rate on Bitcoin that you envision? What economic activity funds it?

[San_Francisco]

@nabalzbhf

What economic activity funds it?

Not activity but rising cost of electricity.

[marcel-burkhard]

@kraphael

Because they have like most people in the world no bank account.

Apparently, most people in the world have a bank account, while “only” 1.7 billion adults don’t. There could be various reasons for that, maybe they live too far away from the nearest bank and have no internet access, or they simply don’t want an account.

An estimated 37 per cent of the world’s population – or 2.9 billion people – have still never used the Internet.
https://www.itu.int/hub/2021/11/facts-and-figures-2021-2-9-billion-people-still-offline/

Whereas the number of people that don’t use the internet is higher. If they had good mobile coverage, they have access to lightning wallets but also mobile banking.

Side note

Of course there’s also people with internet and no bank account and people with bank accounts and no internet.

So the target audience is previously unbanked people with relatively stable internet access, that don’t trust their local currency and have enough savings (that they don’t want to invest but keep in BTC)?

56% of Americans can’t cover a $1,000 emergency expense with savings
https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-cover-a-1000-emergency-expense-with-savings.html

I’m not sure that’s a large cohort of the unbanked population.

@kraphael

Longterm savings would be stored directly on the bitcoin blockchain.

That doesn’t actually matter, for the Lightning (payment) channel thought experiment it’s still an unbalanced channel.

@kraphael

CEO Nikolay Storonsky gives me the creeps and I don’t like to put too much money there

The good thing is you don’t have to keep money in there, but you still get to use it.

@kraphael

All the problems you have mentioned will be solved quite easily with a CBDC

Or without a CBDC. Most of the currency is already digital with only a low percentage being actual currency in circulation (notes, coins). I agree, that a CBDC gives too much control to the state.

@kraphael

I’d prefer a world with all the technical issues of Bitcoin that you have identified correctly, but IMHO can all be solved.

It’s been 14 years since the inception of Bitcoin and I don’t see a solution yet. Also, didn’t you say the code was immutable?

@kraphael

It’s an insurance for me that’s why around 10% of my liquid net worth is in crypto and gold.

I agree on the gold allocation. But I would replace crypto with silver.

@kraphael

I disagree, if a trend is strong and identified early it can be traded.

Everything can be traded, but the outcome might be pure luck. It’s really hard to tell. If you consistently make money with trading, while dodging exchanges that go bust - congratulations. But ultimately you’re still just playing against other speculators and you were better at predicting their next move than they were at predicting yours.

@kraphael

Your conviction VT is also based on the observation of its longterm trend.

Unfortunately, I’m too arrogant and try to time & beat the markets and thus am not invested in VT.

[kraphael]

@marcel-burkhard

It’s been 14 years since the inception of Bitcoin and I don’t see a solution yet. Also, didn’t you say the code was immutable?

The lighting network as a layer 2 solution is still pretty new and evolving, many early bugs have been eliminated in the meantime. Wallets are still pretty buggy but are improving

@marcel-burkhard

Unfortunately, I’m too arrogant and try to time & beat the markets and thus am not invested in VT.

OK interesting, so you are an active trader, but you don’t trade trends. I assume you trade fundamentals instead. So how do you determine the right price (intrinsic value) for precious metals?

@marcel-burkhard

Everything can be traded, but the outcome might be pure luck.

It’s not pure luck but it can go wrong for sure. I trade rather longer timeframes (several months) and don’t keep anything on exchanges, my stop losses are pretty tight so if a trade goes wrong I cut it quickly. If it goes right it might 2x or more.

@marcel-burkhard

But I would replace crypto with silver.

I also like silver and I always have a 1 kg bar on my desk, it’s my lucky charm.

@marcel-burkhard

Whereas the number of people that don’t use the internet is higher.

I am also invested in a small solar power plant in rural Mali. Since they have power source many also have a (smart-)phone

[Giff]

I see a couple of examples of transition from blue to yellow which would not have turned very good for your portfolio…

[kraphael]

There are some false signals but the important thing is that you ride the big moves up and evade the big moves down. It doesn’t work in a choppy market or with low volatility assets.

[Giff]

Sure, but I still don’t get how one can reliably tell when one or the other are is starting.

[kraphael]

You don’t, but you get out of the trade without hodling down to -95% (or -100%) and wait for the next trend reversal, that’s the idea. It will not perfectly time tops and bottoms, but it will protect your money especially with risky investments like crypto or growth stocks that might go to 0.