All cryptocurrencies that want to replace bitcoin as the standard monetary protocol are in competition with one another. In the end, there are likely to be two outcomes: either they all collapse to zero or one of them succeeds in establishing itself as the new digital currency standard. The cryptocurrency now best positioned to prevail in this battle to the death is bitcoin.
Unlike commodities or equities, currency is a particularly specific form of asset. For instance, it is sufficient to estimate the current value of the future cash flows that the company is anticipated to produce in order to determine the fundamental value of a stock. Whether it’s a bond, a share, or an option, all of these assets have the ability to produce quantifiable cash flows.
In general, riskier assets with low cash flows are undervalued compared to those with high cash flows and lower risk. Then, using financial indicators, it is feasible to compare various assets against one another to decide which course of action is the most appealing given the gap between an asset’s inherent value and its price.
Because Bitcoin doesn’t produce cash flow, it cannot be considered an action. If you didn’t know that, hoarding BTC will never earn you dividends.
Is it a type of raw resource, though? When a raw item is used to satisfy a fundamental need, such as one for energy, shelter, food, etc., it gains value. It is usual practice to assess raw materials using the product’s history as well as pricing averages over extensive time periods. Another area where it appears that bitcoin is not a commodity is the inability to produce items that can be sold on the open market.
Bitcoin in 2022: a subpar currency
Therefore, bitcoin is a form of money. That is, a good that you take in exchange for something because you anticipate using it to pay for something else in the future. A fundamental human need is the need to change one’s purchasing power through time.
It is now a low grade currency because it is not widely used as a means of exchange and is too unstable to maintain purchasing power over time.
One cannot determine the currency’s basic value like one would for equities because it does not produce any financial flows. On the other hand, it is possible to compare different currencies with one another, such as the dollar and bitcoin or the euro and the dollar and bitcoin. Every currency is up for grabs. Ultimately, the best medium of exchange and the best store of value are the currencies. This is especially true between two transactions.
If bitcoin were a good currency in 2022, it would make sure that its consumers could purchase an ever-increasing variety of things with the least amount of fluctuation. Given how unstable short-term purchasing power is for products, it is obvious that this is still not the case. Which leads us to conclude that the BTC is currently a failure.
Bitcoin, entropy, and volatility
Since bitcoin is a form of money, its current “worth” is determined by the price of BTC in the future. As a result, expectations for the price of BTC tomorrow are reflected in the current price. Because more people think BTC will trade at a price above $0 in the future, it is still at $20,000 rather than at zero. And what is causing the currency’s volatility are the sudden changes in people’s expectations for the price of bitcoin in the future.
Central banks are crucial entities for reducing currency volatility since they help to align people’s expectations with one another. Of course, as long as she maintains her credibility, she is able to coordinate these beliefs. Its actions will have the opposite impact and increase entropy if it loses confidence (for instance, by causing inflation). It stands to reason that not all central banks are equally credible: the Fed is not the ECB, which is not the Central Bank of Venezuela.
For this reason, nations aimed to improve the level of independence between central banks and the treasury in the second half of the 20th century. In reality, there was never a divorce, and central banks and states still have a close bond to this day.
