A useless little thought: Why will the price of Bitcoin stabilize and rise in the long run? And why Bitcoin may not become a currency first.
Let's start with an interesting question: Why has hair cutting become increasingly expensive?
The barber industry has many peculiarities; first, productivity is almost impossible to improve. In 1950, it took 30 minutes to cut a hair, and today it still takes 30 minutes. Although the tools have improved, their contribution to efficiency is minimal.
Haircuts cannot be mass-produced; they must be one-on-one services, and machines cannot replace humans.
Haircuts also cannot enjoy the conveniences of globalization; hair cannot be sent to countries with cheap labor to be cut and then sent back.
When factories have improved production efficiency through automation, information technology, and mechanization, from 1950 to now, the efficiency may have increased more than ten times, while the efficiency of haircuts has not changed much.
But the barber's wages must keep up with the social average level, otherwise no one will want to be a barber.
(This will force the barber industry to transform, such as further improving efficiency with 'ten yuan haircuts', justifying high-priced 'styling' services, etc., though this is another topic.)
This phenomenon is known in economics as the 'Baumol Effect' or 'Baumol's Cost Disease'.
The rise in gold prices follows the same reasoning.
Technological advances have greatly improved industrial efficiency and lowered commodity prices.
In contrast, the production of US dollars is constrained by geological conditions, with relatively limited efficiency improvements. Furthermore, mining is also subject to policy restrictions.
Don't forget, during the gold standard era, gold was indirectly used for pricing.
When industrial technology advances faster, under the same conditions, producing 100 commodities and 100 units of gold, after a period of time, producing 1000 commodities corresponds to 100 units of gold, causing commodity prices to fall while gold prices rise.
The rise in gold prices forced the United States to abandon the Bretton Woods system. (That's right, I think many existing explanations reverse the cause and effect.)
After the 1970s, the average annual inflation rate in the United States remained around 3%, while the price of gold rose from $170 per ounce to over $3000 today, far exceeding the 3% annual compound growth rate.
Why will the price of Bitcoin stabilize and rise in the long run?
That's right, the same thing will happen with Bitcoin.
Although Bitcoin mining relies on computing power, this power may experience exponential growth after breaking through a certain singularity.
However, Bitcoin mining rewards are the result of competitive computing power, and the block time is adjusted to remain constant at around 10 minutes.
The key point is that the growth of computing power has no impact on the total supply of Bitcoin, which remains at 21 million coins.
So, when the continuously growing global fiat currency issuance and the increasing efficiency of commodity production correspond to the algorithm-dependent block time and the constant total supply of Bitcoin, the two will rise and fall together, and the price of Bitcoin will only stabilize and rise in the long run, just like gold.
Why can’t Bitcoin become a currency?
Similarly, Bitcoin cannot become a currency under the current credit economic system, just like gold.
The reasons are mainly as follows:
1) Deflation will be widespread. As mentioned earlier, with the development of productivity levels, commodity prices will fall relative to Bitcoin prices, making a commodity that originally cost 1 BTC possibly worth only 0.5 BTC after a period of time.
The problem is that enterprises choose to borrow to expand their scale, but due to the decline in commodity prices compared to Bitcoin prices, actual debts will increase, and the burden will become heavier.
2) Price fluctuations make inflation and deflation difficult to predict. This uncertainty disrupts business production. The modern central banking system has a series of mature methods to stabilize inflation, making data predictable and continuous, which is crucial.
To give an extreme example, why do countries like Zimbabwe experience increasingly high hyperinflation instead of maintaining a relatively high level? Because what is really harmful is the inflation that exceeds expectations.
Because the government inflation rate changes constantly exceed the original expectations, note the word ‘constantly’, everyone will calculate the inflation cost they bear more into their next pricing, turning it into a negative-sum game 'prisoner's dilemma'.
Ultimately leading to more and more inflation.
3) Central banks cannot take on the role of the lender of last resort. Because Bitcoin supply is limited, if it acts as a currency or a currency anchor, banks cannot lend money to businesses through printing money in times of crisis, making flexible currency supply impossible.
This is also the main reason why the gold standard gradually withdrew from the historical stage.
Previously, MicroStrategy founder Saylor said that useless things will become important in the future cyber era, which may be very difficult, so difficult that global wealth reaches a peak and no longer grows, and debt no longer expands; perhaps there will be opportunities then.
But in any case, the price of BTC will definitely rise in the long term.
