If we are truly after an electronic peer-to-peer cash, we will need to reassess our understanding of cash. The language we use when speaking about currencies needs to change because the idea of currency has changed. Note that money, cash, and currency all mean the same thing for our purposes.
This article builds on some ideas in my two previous articles, here and here.
There is a lot of pressure from mainstream financial authorities to maintain their privilege. They do not like the ways in which cryptocurrencies open up the space. But eventually they realized they could co-opt the potential financial power of the Bitcoin project if they...just...bought it all. And Bitcoin, like it or not, has ascended. It is now accepted.
More and more financial folk are talking about what a great store of value it is. And, at least according to this article in Bitcoin Magazine by someone named Casey, valuations using Bitcoin can help us make sense of other assets as well, even currencies.
This was a main concern, one of the key ingredients of a "proper currency" that Bitcoin was supposedly missing: it is very hard to count in Bitcoin. Who knows how many satoshis a banana costs? Around 400? Depends on the day, you might say, but no, not true, says Casey. We should be better able to understand financial concerns because Bitcoin is currency system agnostic. It is pure value. Casey argues that valuations of Bitcoin denominated in a particular currency are not measures of Bitcoin's value, but rather the value of the currency.
This means that one can account for the value of other assets in Bitcoin, a necessity for currency propriety. And Casey says the only reason we don't know how many satoshis a banana costs is because we've been using other, messier currencies as intermediaries. We haven't revised our understanding of currencies.
I think I get it, especially after this most recent bout of institutional buy-in. These moves were all judgments in favor of long term value storage in the form of Bitcoin, moves meant to stabilize price for its use in the traditional financial system. These institutions are even willing to accept some price volatility in the short term, because these are long term plays. As Casey says, "by envisioning time on a scale beyond that of market cycles and economic quarters, we can see that a store of value’s price discovery is a long-term operation." These are accounting measures, hedges against messy currency issues, but that in itself is warning sign.
"Gold has always been worth gold..."
Wait, isn't this a good thing? Crypto being valued, recognized as important in the modern economy, isn't this what we wanted? Sure, and lots of people are making money, and many other fantastic crypto projects are receiving attention and funding, but at the cost of Bitcoin. In their frenzied and sustained effort to evaluate and control it, our financial systems turned Bitcoin into gold, and the Kings Midas of Bitcoin Core didn't help.
There's a reason we dumped swapping bits of gold around with each other: it sucks. But it's worse with Bitcoin. Buying that banana costs more than the banana itself. The network's transaction market works on gold logic: somewhere along the line it was decided that transactions should be expensive, as if miners were all moving around something terribly heavy.
A Bitcoin that is sluggish and hard to break into meaningfully small pieces is not Bitcoin, nor is it a useful means of exchange. It can't be money.
"Money allows us to express our idea of value"
There's also another trend we can see here, something that underpins most of Casey's argument. The fate of Bitcoin is essentially decided, but how it got here is still very relevant.
Casey makes a distinction between valuations of Bitcoin: there's the value of Bitcoin, and the value of its protocol. One is the cost of one Bitcoin in whatever currency, the other, the total value of transactions stored on the network. These tell us similar but distinct things, pointing to acceptance and utility in addition to "pure" valuation. Measuring stick and distance measured.
It's this "distance measured" that's relevant to us, as it charts the history of Bitcoin's acceptance. But Casey is really more interested in currency valuations of Bitcoin. The article is about price discovery, after all. This is the mechanism whereby a market settles on the price of an asset.
Casey argues that most of our modern stores of value are not allowed to naturally discovery their price. Investment into various assets--stocks, real estate--for their use as long term stores of value has necessitated false levels of support for those assets. A stock once bought should only go up in price, regardless of the performance of the underlying business. Real estate investments, likewise, must mature and gain value or they are no longer useful.
Casey is very pleased that Bitcoin came along, as it does away with all this nonsense. There is nothing underlying the protocol that needs shoring up, they argue. It is pure value, and as such is pure storage of value.
Bitcoin, then, allows us to evaluate the market as a whole and see where our financial tools are misaligned.
But Casey is too optimistic in my opinion. From an outsider perspective, looking at trading histories, it might seem that Bitcoin has indeed discovered its price. It got over the speculative hump of 2017, slowly building up value again to the present day where it has been welcomed with open arms. But look at the image above and tell me that there is no false support.
Institutions are playing the same game with Bitcoin that they have played with all their other stores of value. BTC can no longer drop below a certain price level or institution hedges will be liquidated. There is a vested interest in false support, a practice that makes BTC more and more an elite financial tool, impractical for its originally stated purpose.
HODL Gang?
Casey is obviously a BTC maximalist, so we shouldn't be surprised at their short-sighted reading of the situation. They are illustrating a new instance of the same basic concepts that were applied to gold for the last 500 years. We must have a financial object that we can use to make value judgments about the world, and Casey is not wrong in stating that Bitcoin has become that object. But this isn't something to celebrate.
What are currencies for, after all, but to use, to exchange, to keep economies moving forward? We can see then, that financial institutions are treating Bitcoin as a new gold because this is in their best interest. The openness of the platform was a threat to institutional power, but Bitcoin bars no entry. This accessibility combined with Bitcoin Core's technical blunders have now made it useful only to elites and those with the resources to play. Trustless peer-to-peer exchange of BTC may still be possible but it is entirely impractical.
Enter BCH, Bitcoin in every way except its enshrinement in the mind of the public. There is potential for BCH to serve as the proper currency Bitcoin was meant to be, but it must not be co-opted. Greyscale is already increasing its stock and we can't let speculation and institutional investment get the better of the project.
The original goals outlined in the Bitcoin whitepaper still matter, more so than ever. We need to open the gates to allow more people financial freedom.
I read this article slowly to grasp the information you are sharing and I can tell you got it right especially with the BCH and institutional investment. I got a whole lot of inspiration to write about from here.