Bitcoiners, don’t celebrate just yet.
My analysis of why bitcoin is not now, and never will be, a medium of exchange or a money, still stands. I explained why here, and that still stands.
The only thing I was wrong about was my optimistic prediction that bitcoin will ride high until the next great general depression. Turns out it will die way sooner than that.
Devil’s Advocate: Well, oh mighty prophet, I see you were totally wrong. You predicted bitcoin would keep on rising until the next great recession. And yet, here it is October 2014, and bitcoin is in a steady decline since last December, with no end in sight.
Smiling Dave: Indeed I did predict that. And I goofed. You will remember that the article makes two assumptions. It takes as a given that there are actually people out there besides hoarders, buying things with bitcoins. It also assumes confidence among the hoarders that everything will be fine.
Both those assumptions, it turns out, are no longer true. Which is why bitcoin has been dropping like a stone since December 2013
That article assumed there were people actually using bitcoin to buy stuff. And there were, for a while, the Silk Road drug buyer crowd. But after the Silk Road got closed down, there was nobody left who wanted to use bitcoins to actually pay for things with them. It was those people who would drive up the price constantly, as explained in my analysis in that article.
But there are no such people anymore. Turns out only the Silk Roaders were using their bitcoins. Everyone else was a hoarder.
DA: You believed all the hype from the bitcoin crowd, how overstock.com is accepting bitcoin, and how some tiny village in Germany has a few students using it, when your common sense should have told you that no one has a reason to buy things with bitcoin, unless he’s buying drugs. Why should he?
SD: So now all we have left are the hoarders.
And of those hoarders, some of them got a real scare when mtgox stole so many millions. They realized they were unprotected. Their profits, they were told, would be taxed. There were hoarders who thought they could use bitcoin to smuggle their money outside their repressive countries. But Russia and China cracked down on them. And a top bitcoin guy announced that bitcoin gives you no secrecy and security at all. So they figured the time has come to cash out. Bitcoin had its day, I made my money, it’s unsafe and unsecret, time to move on.
Which started a snowball effect that is ongoing to this day. Nobody wants to hoard even more bitcoins, or at least the ones who do are outweighed by the ever increasing number of those who see the thing falling like a stone and want out. That’s why we see the optimists buying when it drops so much every day, and they raise it a little. But that precipitates an even greater number to opt out while the opting is good.
DA: So you were wrong all along about bitcoin, hey?
SD: Not exactly. My analysis of why it is not now, and never will be, a medium of exchange or a money, still stands. The only thing I was wrong about was my optimistic prediction that bitcoin will ride high until the next great general depression. Turns out it will die way sooner than that.
Enjoy all my articles about bitcoin here.