Why is Bitcoin changing the way we think?
Bitcoin, the majestic internet bean, has caused quite an uproar in the past two years. Who has not heard of the mighty 300% increase in value from March 2020 to December 2020? Bitcoin resonated not only in the public mind, but investors and venture capitalists have also all turned their heads toward the insane revenues taken out of Bitcoin investments. Now even the governments around the world know that Bitcoin is here to stay. So, what is changing? Let me explore further.
This article will be quite economical. If you like what you read, please let me know so I post more of my thoughts on this. Stick around till the end. I finish this article off with a short story that presents a world using Bitcoin with no alternative.
High time preference is a side effect of consumerism driven by inflation.
High time preferences mean that an individual focuses on his well-being in the present. A person having a high-time preference is rather happy to have their product now than in 30 years. But I understand them, it does not work like this anymore, saving has changed. Since our economies have only seen inflation since the invention of fiat currencies, the average consumer knows and feels the rate of inflation decreasing their purchasing power in the future. The average individual has no other alternative than to store their value in inflation-related assets or exchange it against a store of value subject to volatility related to the fiat market.
Moreover, thanks to inflation, the price of products is rising in the long-term, leaving the purchasing power of most of the population exposed to inflationary shifts. As a result, less money is being saved by the average family, more money must be spent on the same amount of goods without getting a significant increase in their wages. Our economies are clearly built on the idea of consumerism and high-time preference.
Low time preference is the result of appreciation in the price of the chosen store of value.
Saving is the best way to explain the features of a low time preference, meaning an individual lies emphasis on his future well-being. Since you expect an appreciation of your value in the long-term, you are more reluctant to consume. This is against all the economic principles we have right now. Consumption is the driving factor of our economy, but more and more people realize that their long-term situation will be worse than the more they spend now. The inflationary monetary system incentivizes consumption through inflation. Sounds like a bad deal now, doesn’t it?
You are right. It is a bad deal in my eyes too. Now let us see how Bitcoin comes into play here and why it has a massive impact on the way we think.
Bitcoin is changing our time-preference
Thanks to Bitcoin, you and I understand that we had no choice. There was only one option for many years, but this is changing. Bitcoin offers an alternative. It provides you more than just an alternative. Besides its other qualities, it gives you a sound store of value too. The more people keep holding their Bitcoin, the higher the price of Bitcoin will go in the long term. It is intuitive and easy to grasp. All you need to do is hold on to it, and it will eventually fire you to the moon. This is due to the scarce nature of Bitcoin. Since there are only 21 Million Bitcoin out there and there cannot be made more, the price of Bitcoin is directly subjected to the demand for it. So, if demand never leaves because people know that all they must do is wait to get more value in the long-term, Bitcoin will be bound to increase in the future. More and more people understand that economics should work this way, not how the governments think it works. Bitcoin changes the consumer.
Bitcoin not only implements the need to save, but it also shows the consumer that their way of living has alternatives to choose from. Bitcoin is the best alternative because it offers an appreciating store of value while being a fully functioning monetary system. This offers opportunities. People start to see how real money should work, and by comparing it to what they have been using before, many begin to understand.
Before we end this, I would like to show you an insight into a short story I am writing:
In a world of Bitcoin
As the door opens, the room full of venture capitalists goes quiet. A small but steady man walks into the room, everyone greets him simultaneously. “Hi, Boss.” The short men sit into the small leather chair at the end of the table. The man to his left (wearing the same suit as the men to his right, just the tie is different) gets up and addresses first the boss and then starts speaking clearly into the room.
Men to his left (Red tie) starts speaking: the situation is concerning. After the last appreciation of the market capitalization, we have seen a backslash as two years ago. We are expecting a depreciation of more than 60% in the coming week.
(Hysterical discussions erupt in the background)
Boss: (slams his fists onto the large wooden table) No one could have foreseen something like this. We thought we could correct the cycle of market corrections and break free of the chains of losing money.
Men to his right (blue tie): We need to save our money! What are we going to do?
Red tie: There is no alternative!
(Hysterical discussions erupt in the background)
If you like to know more about this story, please leave a like or a comment with a short mention that you liked it. Thanks.
To conclude, thanks to Bitcoin’s nature of scarcity and expected appreciation in value, many start to understand how a currency really should work and what a real store of value should be. This increase in interest is directly reflected in the price of Bitcoin. But why is Bitcoin bull-running now during a pandemic? Can I make a living by trading cryptocurrencies?
If you ask yourself questions like this, please check out my website. I have plenty of articles and podcasts that provide you with answers to these questions. I am doing a newsletter, too; the first 100 subscribers are free life-long.
Originally published at http://yvestalksbitcoin.com on January 5, 2021.