Asset DNA: Bitcoin's Speculative Attack on the Dollar
Editor's Note: This article comes fromMengyan Finance (ID: Meng-eyes), reprinted by Odaily with authorization.
Editor's Note: This article comes from
Mengyan Finance (ID: Meng-eyes)
Mengyan Finance (ID: Meng-eyes)
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Notes:
Performance of various assets over time Not all assets are created equal. Some will appreciate in value and others will lose value over time. This is evident in the things we consume, such as the food we eat or the clothes we wear. But the same holds true for assets that don't show significant wear and tear but lose value over time through wear and tear, such as a car with accumulated miles or a building that isn't actively maintained. Notes: Consumption
Stocks: Scarce Assets + Real Earnings OR Growth
Scarce assets: gold, land, some art/collectibles.
Depreciating assets: vehicles, buildings, equipment.
Consumption
Fiat Currencies: Decline by Design
There is something missing from this high-level image: modern money. Until recently, gold was money, losing its association with paper money until 1971. Since 1971, we have been living in a truly anomalous era in human history - a gap of 50 years from the recorded use of hard money 75,000 years ago. For the first time ever, we are running a monetary experiment where the currency is fiat, fiat-only money, not backed by any assets.
Most relevant to our focus, however, is the guiding principle at the core of fiat currencies, which is to decay by design. Central bankers and governments believe that it is best for the economy to spend or invest money rather than store income as savings, and they design currencies to lose 2% of their value each year to impose this assumption.
As Paul Tudor Jones said, "If you own cash in today's world, you should know that central banks have an avowed target of devaluing it by 2% per year". Put simply, this mathematical formula means that the value of the dollar decays exponentially over time due to monetary inflation:"If we incorporate this exponential decay trend into our previous logarithmic view of various asset classes, we get the following graph:"secondary title"Bitcoin: The only thing that is getting less and less"。
The latest to join the ranks of global currency contenders is Bitcoin. Over a period of time, Bitcoin's performance was neither tied to global economic production nor to the policy goal of losing 2% of its value per year.
Instead, Bitcoin's performance is related to increasing scarcity, that is, its design is premised on a simple mathematical concept of decreasing circulation over time. Borrowing the common simplification for land values (
It's the only thing they won't make anymore
), we can say about Bitcoin:
It's the only thing they're getting less and less of
When a great painter dies, the value of their existing work tends to skyrocket upwards. Why is this so? Because the investor can guarantee that the painter's work will be reduced. There will be no new additions to the supply at all. Therefore, all market demand must bid for the existing supply, and everyone knows this, so that the willingness to pay increases to obtain a part of the new scarce work.
This is the economic advantage of Bitcoin. No asset in history has been able to take advantage of mathematics to provide reliable guarantees of a stable supply reduction in the future. Bitcoin was designed to be as scarce as gold, in the same way that the death of a famous painter gave a boost to the increasing scarcity of his life's work. It's just that supply shocks happen every four years, so for holders, there is a stronger incentive to continue to hold to survive each halving.
In short, increased scarcity causes Bitcoin's value to multiply over time. This trend is nothing short of dramatic when we look at Bitcoin’s price history in a linear fashion:
By looking at these same data logarithmically, and tracking how the price of Bitcoin has risen after each halving event, Plan B proposes a convincing stock-to-flow model. This model suggests that the "halving" event itself (and the resulting increase in scarcity by definition) is at the heart of Bitcoin's exponential rise thus far, and ostensibly, in the future as well:
When we restore the above red line to a simplified version of the big picture of asset types, we will get the following chart:
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Speculative Attacks: Exploiting Currency Differences
The two modern currencies we see today have very different DNA. The first, fiat currency, is designed to decrease exponentially in purchasing power over time. The second, Bitcoin, is designed to exponentially increase in purchasing power over time.
This ultra-simplified representation of the essence of the dollar and bitcoin also contains implications for changing the realities of the world economy.
In 2014, Pierre Rochard wrote "Speculative Attack" (Speculative Attack), and in the book he outlined the divergence between the value of the dollar and the value of Bitcoin over time, for bold individuals to borrow dollars to buy Bitcoin, And repaying this debt in the future creates fertile "soil."
Importantly, this is not a recommendation or a guarantee that the mechanisms described above will function accordingly. If the logic of the previous sections of this article is sound, and the economic realities underpinning Bitcoin and the U.S. dollar decisively set them on a different path in the future, then the choice exists.
