Will Bitcoin Evolve into an Alternative Currency After the Volatility Stabilizes?
Understanding the Misconceptions Surrounding Bitcoin and Cryptocurrencies
The wild swings in the value of Bitcoin seem to be abating, leaving many to wonder if it will become an alternative currency as intended. To answer this, it's crucial to debunk some common misconceptions about Bitcoin and cryptocurrencies in general.
Market Phenomena vs. State-Run Monopolies
One of the primary misconceptions is that volatility and appreciation are detrimental. In reality, these are natural market phenomena. Financial markets inherently experience appreciation, depreciation, and volatility. Second-order derivatives with respect to time of the exchange rate against a basket of major currencies reveal that these phenomena are part of a working market. Relativistic cryptos operate within this dynamic environment, showing the market-clearing adjustments that are essential for a healthy economy.
Contrast this with state-run monopolies like central banks, which peg the fiat currency to its former self through CPI (Consumer Price Index) and money supply mechanisms, which are rife with corruption. This is not market stabilization; it’s price fixing aimed at artificially propelling the purchasing power retention of the currency. This creates a state of economic relativistic ignorance, often referred to as money illusion. The main political rationale is to cushion economic shocks and prevent social unrest through implicit taxation, despite the substantial costs to society.
Cryptocurrencies as Alternatives, Not Replacements
The idea that cryptocurrencies aim to replace fiat currencies is another misconception. Currencies compete, and there is no one-size-fits-all solution. Any currency, whether state-owned fiat or decentralized crypto, can innovate and evolve to meet different needs. This is not a quest to replace one with another but a continuous competition among different currencies. All different currencies are essentially alternatives, serving different needs and contexts.
Dispelling Conventional Wisdom on Financial Markets
Two common misconceptions about financial markets—namely the forex markets—need to be addressed. The first is the idea that once the volatility diminishes, the “leveling out” or the notion that “what goes up must come down” is a definitive pattern. There is no actionable information in appreciation curves that can be used to make such determinations. Financial markets are recursive, complex systems, and they don’t follow simple patterns that can be reliably predicted. The only concrete information available is the current exchange rate.
The second misconception is that accurate predictions about the future of Bitcoin or any other financial instrument can be made with certainty. This is a reversal of the gambler’s fallacy, and predicting future outcomes is inherently challenging. Anybody with actionable information on the future of Bitcoin would have no incentive to share it since it wouldn’t be profitable to do so. Besides, few people are altruistic clairvoyants, and most are likely to be blabbermouths, pump-and-dumpers, or scammers. Don't fall for their claims.
Proper Vocabulary and Terminology
To use proper terminology, the correct phrase is “the Bitcoin,” not “Bitcoin” or “BitCoin,” similar to how “the euro,” “the yen,” or “one of the twenty-one dollars” are used. Understanding the difference between value and exchange rate is also critical. Value and exchange rate are not the same thing, and exchange rates are ratios influenced by multiple factors, not a single one.
In conclusion, as the volatility of Bitcoin appears to be settling, the market is showing signs of natural adjustments. The key is to understand the differences between healthy market dynamics and the manipulations of state-run monopolies. Bitcoin's future as an alternative currency will depend on how it continues to innovate and compete within the global financial landscape.