Subject: Re: OT: Bitcoin FOMO
This might be true, I don't know, but it doesn't seem to have happened yet to gold, also a capital asset with no earnings or coupons, which has been around a long time.

Actually, yes it has. The cool thing about bugs liking to hold gold is the conceptually beautiful inherent contradiction of their reasoning: on the one hand, they like the fact that gold tends to hold its real purchasing power (despite a lot of transient squiggles) over extremely long time frames, which is pretty impressive. On the other hand, they want to make money, which isn't possible because the purchasing power of gold has been flat for millennia.

It has reached the point that, barring some cyclical squiggles, everybody who wants gold already has it, so the price is net flat over remarkable time frames. (some gets dug up, some gets dissipated, but both of those are pretty small relative to the mainstream gold market of folks just holding the same-old nuggets and trading among themselves).

Nobody sane holds gold because of the long run up-trend in price (real purchasing power), because there plainly isn't one. It has charms that bitcoin doesn't, like being pretty and some valid industrial uses, but its use as a speculative asset forever has the same problem: without continually increasing demand, there is no prospect whatsoever of continually increasing real price.

Without any prospect of a continually increasing price, bitcoin (without any of the several relative advantages of gold) will struggle to have ever-increasing demand, or even constant demand, from prospective holders. There is nothing wrong with that. A finite demand can support a substantial price, granted. But at some point, once price tops out when demand tops out, a lot of the putative reason for holding will be more obviously hopeless.


In any case, even if it is true, if the main threat to Bitcoin's price is sated world demand, I would guess, as you say, that it's far off in the future. Corporate, institutional and sovereign demand are just now ramping up. The demand curve looks to be at a relatively early stage.

One hears that a lot from fans. There is soon-to-be-unlocked incremental demand from XXX and YYY. OK. Even to the extent it's true, there are only a few XXX and YYY left. The list will end. Then what? Besides, most sources of plausible future incremental demand are institutions trying to make a buck on hidden end-user demand, which is already relatively saturated. The middlemen will at some point be due for a shakeout.

Bottom line: Nobody holds it except those expecting the price to go up. Some more individuals or institutions may join in on that idea, but the rising saturation will end, and with it the rising price trend. Sure, it could stabilize at a high price, no argument. It might even have some remaining merits as a store of value at that point. But I would remain quite skeptical of the long run price trajectory when the #1 reason people and (by extension) institutions hold it--expectation of rising price--no longer applies. Without the main reason to hold it, why would you? Without that demand from greed for profits, what holds the price up? More to the point, if you KNOW that the heat-death of rising future demand is coming sooner or later, which seems pretty obvious, why play the game now? A momentum play like a meme stock? As always, the exit can get crowded, and it's rare to have a solid reason to think you're smarter than the average bear.

In short, the only reason to hold it, being a capital good, is because the price has been going up from rising demand. We've all seen how that story always ends. *Always*. Some people will still want a Princess the Bear Beanie Baby and be willing to pay up for it, but most won't. The price rise will halt, and peak.

None of the above suggests that the price of bitcoin is going to zero any time soon. But when you think about it--you know the incremental demand driving the price rises will halt, MUST halt--there is no other sensible reason to be a buyer or holder. The price of *any* static capital good will rise so long as demand rises relative to supply, but that trajectory must end for every one of them. The *only* reason to hold is a rising price, and we know that this only reason to hold is going away.

And, needless to say, the belief system underpinning the "story" could entirely falter and collapse rather than merely topping out. At that point the price of bitcoin will be a function of its true underlying utility (SFA for lawful use cases), not a pleasant thought for current holders.

Jim