Lately there’s been a lot of chatter about cryptocurrencies. Bitcoin has been going bananas lately and now as of the time of this writing, one Bitcoin is worth nearly $50,000.
At the same time, the most Memeable cryptocurrency around, Dogecoin, has exploded from being worth less than one penny to being worth around 5 cents.
There’s other cryptos like Ethereum and Litecoin and XRP, but really Bitcoin and Dogecoin have emerged as the most popular and well-known cryptocurrencies. Bitcoin “went mainstream” a while back so it is clearly the most well-known crypto, but Dogecoin is becoming a household name.
So what is the future of these coins?
A deflationary currency like Bitcoin has a permanently limited supply. That means rich people, mainly big institutions like Tesla and Goldman Sachs and banks, can buy up tons and tons of Bitcoin and restrict supply even further, which will leave the rest of us fighting over the remaining limited supply and continually driving the price higher and higher, which further benefits the big guys. They just sit there and watch the value of all their bitcoins grow and grow and grow.
Tesla already owns like 1.5% of all Bitcoins in the world. And this is just the beginning.
In the very near future, I fully expect large institutions like corporations, hedge funds and banks to own over 50% of all Bitcoins. Maybe even higher, like 65-70%. And of course they’re never going to spend them, only hoard them so it appreciates in value for them.
They are not buying it to spend it. They’re buying it to hoard it. Why would they spend it? These are elite institutions that rely on the US dollar. They have no interest whatsoever in making Bitcoin the world’s reserve currency. In fact they’re 100% opposed to that happening. They have zero reason to spend their Bitcoins and every reason to hoard them so they appreciate in value.
With an inflationary currency like Dogecoin, yes, rich people can hoard it and restrict the supply, but only to a certain extent. There are 5 billion new Dogecoins mined each year, so there’s enough scarcity to keep it valuable, but not enough scarcity to make hoarding it a real problem.
If Bitcoin somehow became the world’s reserve currency, then we’d all be fighting for scraps of while prices just keep rising and rising and rising. Imagine if in order to buy groceries, you had to pay with Bitcoin. But because the institutions are hoarding it and the masses are fighting over the remaining limited supply, prices will just keep going higher and higher due to the inherent scarcity of Bitcoin. If the thing which you use to pay for basic goods is continually appreciating in value, then basic goods will keep getting more and more expensive.
Say a car costs 0.5 Bitcoin, which is worth, say, $24k today. But then the value of Bitcoin goes up 10%. My car just got 10% more expensive. Or say I buy the car with $24k of Bitcoin and then Bitcoin goes up 20% in 6 months, while my car just depreciated 20% the second I drove it off the lot. I’m an idiot for buying my car with Bitcoin. I should’ve just hoarded it.
Bitcoin is going to be hoarded by big corporations. That’s its future. The rest of us will be fighting over the table scraps.
Because Bitcoin is deflationary and Dogecoin is inflationary, they’re two fundamentally different things. Dogecoin is a currency, Bitcoin is a commodity. Yes, the funny part is: Dogecoin is a more viable currency than Bitcoin is.
And it won’t just be rich people, banks and corporations and hedge funds hoarding Bitcoin–it’ll be governments, too. The total market cap of Bitcoin right now is about $838 billion (all 18.64m Bitcoins in circulation x $49,500 per Bitcoin). Governments like the US, China, EU and Russia could easily buy up all of that if they really wanted to.
There will be tremendous incentives to just hold and hold and hold because you know the price will keep going up.
Dogecoin will (or, I should say, can) ultimately have a more stable value and thus will be much better suited in the long run as a currency. It will never be worth $46k per Dogecoin because that’s not the point here. It’s meant to be an alternative to the US dollar in essence. It’s a digital currency, while Bitcoin is a digital commodity.
Eventually Bitcoin will get so valuable that you’ll be paying 0.000000000000000001 for something. And that’s just not workable.
Right now in February 2021 there’s a little over 2 trillion US dollars in circulation and increasing every day. That’s what makes it an effective currency. The supply is plentiful but not too plentiful (for the moment) meaning we can buy things for like $5. If there was a fixed supply of dollars (i.e. the dollar was deflationary) we’d have to buy things for like 0.000000000001 dollars.
Here’s an example to illustrate my point: in 2010, some poor bastard named Laszlo Hanyecz bought two pizzas with about 10,000 bitcoins. Those bitcoins are now worth over $500 million. The lesson is clear: never spend your bitcoins. Hoard them.
Bitcoin is not a currency. You are an idiot to spend Bitcoin because of its scarcity.
And the numbers show that people aren’t spending their Bitcoins, they’re hoarding them. This article is from about a year ago, but it said that 10.7 million Bitcoins haven’t moved in over a year. At the time it was 60% of the total supply of Bitcoin. People aren’t spending them because they know it’s smarter to hoard them.
This is not a bug, it’s a feature. It’s not going to change. It’s the nature of a deflationary coin like Bitcoin to be hoarded.
A good thing about Doge is that there’s not a lot of institutional ownership, meaning the big hedge funds and i-banks can’t crash the market whenever they feel like. It’s mostly smaller individuals and retail investors, meaning we are not pawns in someone else’s game. It really is the people’s cryptocurrency.
Yes, the top 10 largest Doge wallets comprise nearly half of all 128 billion Dogecoins:
But while Doge has a daily trading volume of about 40-60 billion on average, which is only between 1/3 and 1/2 of the total float, over the long term, there is no real incentive to hoard Dogecoin. Once it realizes its full value, which I think will be around a dollar, it’ll stay there and fluctuate very little, kinda like the US dollar or the Euro. It’s a currency, so people will want to just go ahead and spend it. You’re not going to have that worry in the back of your mind that it’s going to keep appreciating after you spend it.
And it will start to be accepted in more places. It already has an $6.4 billion market cap. That’s an $6.4 billion market just waiting to be tapped into. The larger it gets, the more places will want to accept it and tap into that market size, and the more valuable it will become. Once it gets going, watch out. It’ll be unstoppable, like a glorious cycle: Dogecoin goes up in value because more places are accepting it, more places accept it because its market cap is going up. It will shoot in value up to around a dollar, maybe more, before ultimately settling like a normal currency does.
Or maybe it has already realized its full potential and 5 cents is where it’s going to stay, more or less. Who knows.
Doge will be much more stable than a normal currency because it’s not tied to a government or a country’s economic fortunes. With the US dollar, you have to worry about the US’s national debt and our scheming politicians. But with Dogecoin, it’s completely market-driven and its value has nothing to do with politicians and governments.
There are currently incentives to hoard Dogecoin because it’s in its early stage of being introduced to the world. It’s in the speculative stage. It’s not yet a fully mature and widely accepted currency, so its primary value is as a speculative asset. But once it gets big enough, it will become more of a currency, and will stop going up like gangbusters. There will be no real reason to hoard it anymore.
Is there any real reason to hoard US dollars? No, absolutely not. You are constantly seeking return on your US dollars by way of investment because the US dollar is constantly losing value due to inflation. If you just stash all your money away in your mattress, in 20 years you’ll have lost a ton of money because of inflation. So there’s no incentive to hoard it, in fact you will have every incentive not to hoard it. Inflation encourages spending and investment and increases the velocity of money.
Bitcoin on the other hand will have a very low velocity. By definition.
In no way am I saying that this renders Bitcoin worthless or useless or anything like that. I’m saying the opposite. Bitcoin is only going to appreciate in value due to the hoarding and scarcity. You should buy it because it’s only going to go up in value.
But that’s really it.
Bitcoin is not a currency. It’s just not.
But here’s the thing: when it becomes clear that Bitcoin isn’t a currency but is instead a commodity, then what’s the point of it? What function will it have? People don’t spend them because they keep going up in value.
But if there’s a stronger incentive to hoard it than there is to spend it, then what’s the actual value of it? It just becomes a greater fool speculative asset. You’re buying it because you believe you’ll be able to sell it for more money than you bought it for at a later date. That’s it.
But there really won’t be any true rationale for you to want it. How many people out there are buying Bitcoin with the intent of spending it? Very very few.
Really, all I can think of is people who will use it to buy drugs and illegal guns and money laundering and human trafficking and other bad things in the online Black Market. Remember Silk Road?
But if the primary reason to spend Bitcoin is for illegal activities, then surely the governments of the world will crack down hard on it.
The intrinsic value of a currency is that you can exchange it for goods and services, but Bitcoin isn’t ideal for this. The intrinsic value of a commodity is that it has utility beyond just being a speculative asset. But Bitcoin really isn’t a true commodity like oil or gold or diamonds or corn or natural gas. It’s just a file on your computer. It doesn’t do anything for you.
Gold’s value comes from the fact that it’s hard to mine and obtain, so it’s scarce, but gold has many uses. Jewelery, electronics, machinery, dental fillings, etc. So gold has real, intrinsic value as a natural resource.
Bitcoin doesn’t. Just because it’s hard to mine doesn’t mean it’s intrinsically valuable.
It has no intrinsic value. It’ll be easier to spend Dogecoin and so it will be preferable as a currency. Why would I want to spend Bitcoin if I know the value is appreciating? It would be dumb of me to pay $1000 for something in Bitcoin when there’s a strong likelihood that that $1000 worth of Bitcoin will worth $1100 in 6 months, and the item I’m buying is still going to still just be worth $1000 in 6 months. There’s a strong incentive to hoard Bitcoin and not spend it as long as the value is going up and up.
Dogecoin will likely settle at a fair value someday in the future and then stay close to there like a regular currency. It’ll be stable and I’ll be able to spend it without worrying that it’ll be worth a lot more in a week or a month.
And so this is what I’m getting at with Bitcoin: if it’s not suitable to be spent, then what’s the real value in it? You are only going to spend $45k on a Bitcoin because you think it’ll be worth $60k down the road. And then you’ll flip it for USD when you actually want to spend that money. Or even dogecoin.
People say it has inherent value because it’s hard to mine, but so is money in grand theft auto online. I spend a lot of time and computing power earning this money in an online game, it’s not that much different from Bitcoin. It’s Monopoly money really.
The only difference between someone spending 30 hours a week playing GTA online and making $10 million in GTA money vs me spending 30 hours a week mining Bitcoin is the price people will pay for that GTA money vs the price people will pay for my Bitcoin.
So eventually it’ll come to a point with Bitcoin where people say, “Wait, why are we holding this again?”
Nobody finds Bitcoin valuable or useful. But they buy it and hold it because they believe everybody else thinks it’s valuable. There will come a day in the future where people start to realize that nobody actually values Bitcoin inherently and wants it for anything other than flipping for more USD down the road.
And then it goes back to this: if it’s not suitable as a currency and it’s not inherently valuable as a commodity, then where does the value come from?
It’s going to create a vicious cycle. Hoarding causes the value to spike, but then all the people hoarding it realize it has no inherent value, so Bitcoin tanks in value, then people buy the dip, maybe they start spending it because it’s not appreciating anymore, then Bitcoin gains inherent value again as a currency, so then the big institutions start hoarding it again and it starts appreciating in value again. That’s the cycle of Bitcoin.
But it’s basically just like, “I have Bitcoin. I’m not spending it and I’m not selling it.”
Why not?
Because it’s value is going to keep going up and up.
Why’s that?
Because other people will want it and it’s scarce.
Why do other people want it?
Because it’s going up in value!
So it’s going up in value because people want it, and people only want it because it’s going up in value.
If either stops being true then the whole thing collapses.
It’s a self-licking ice cream cone. It’s a “useless machine”.
See how there’s no “there” there?
It’s gonna be like that moment in Looney Tunes when Wile E. Coyote is running off the cliff and his feet are still moving but then he finally looks down and realizes he’s not on the ground anymore and he plummets.
Bitcoin only works if it’s a viable currency, but since it’s deflationary it’ll inevitably be subject to scarcity and thus hoarding. There’s almost 8 billion people on earth and only 21 million bitcoins. Demand for bitcoins will always far outweigh supply, which means it won’t be wise to spend Bitcoin, which means it really doesn’t have any true intrinsic value.
There’s 8 billion people and still 2 trillion US dollars aren’t enough for them. We’re all still spending every waking moment trying to obtain more dollars. There’s still massive demand for dollars despite there being $2 trillion of them out there.
That’s why I’m not worried about Dogecoin having 128 billion in circulation and 5 billion new ones mined every year. If you could spend Dogecoin on Amazon, 128 billion wouldn’t be anywhere near enough to meet demand.
That’s just the way I see it. I’m sure there are very smart people who know way more than I do about cryptos and Bitcoin and the world in general who will disagree with me on this. I look forward to being proven wrong. I want someone to come along and show me why I’m wrong about Bitcoin. I own a little bit of Bitcoin so I’m all ears. I want my Bitcoin to go up.
But I also know I’ve never considered spending my Bitcoin. Why? Because I think the value is going to go up. It’s stupid of me to spend it.
Dogecoin has exploded in popularity. It’s already probably the second most well known crypto currency behind Bitcoin, and because it has a cuddly dog as its mascot it’s non-threatening. It feels accessible. It feels like the average person can understand it and handle it. Name brand recognition is huge for a cryptocurrency.
Girls can get into it. Cryptos in general are a very male-dominated field. It just seems like video games, and girls really aren’t into it like guys are. But girls can easily get in to Dogecoin. It’s cute, it’s funny, and it’s accessible. And in case you forgot, girls are half the world’s population and spend just as much–if not more–money than guys do.
Saying “Dogecoin was started as joke!” is not a valid criticism. We’re way past that point now. It’s got a market cap of over $5 billion. That is not a joke.
“But it’s got a silly name! Who could ever take Dogecoin seriously?”
And? Vietnam’s currency is called the dong.
The whole irony of Dogecoin is that it shows what a joke all other currencies are: they are nothing more than units that can be exchanged for goods and services. A currency can be anything, even a coin named after a cute dog meme, so long as a large number of people value it and accept it as valid tender.
It doesn’t matter what the currency is, it only matters that people see it as legitimate.