Cycles and inevitability \ stacker news ~bitcoin

17.5k sats \ 26 comments \ @elvismercury 30 Nov 2023 bitcoin

(The second post in the meta-experiment series of the Broken Money book club, part 5. Check out the first.)

Everyone knows that btc has been subject to price gyrations of enormous magnitude, and that these cycles are somehow fundamental to its nature. Lyn writes about these as invariable features of adoption and monetization:

Unlike other technologies such as electricity, washing machines, televisions, computers, and phones, a new type of emerging money most likely cannot be widely adopted quickly. This is because if too many people adopt it at once, it drives up the price and incentivizes leveraged buyers to enter it. This leverage eventually causes a bubble to form and to pop, which sets the price back and disillusions people for a while until it builds the next base and grows from there. Due to the attachment of leverage, Bitcoin cannot realistically have a fast and smooth adoption curve like non-monetary technologies can. (p. 324)

I'm not comfortable with attributing this cylic nature to leverage, although it seems clear that leverage must play a part. But the general pattern seems to be:

btc price is relatively stable
because it's stable, it's predictable and useful to some people
stability also affords time and mental attention to build infrastructure outside of the lens of mania; btc becomes more useful as a result of this building; and it becomes useful in more contexts
stability causes the apocalyptic memories of the last cycle to dissipate
people buy btc, including people who've never bought it before, driving the price up and leading to bubble for all the usual reasons
bubble pops, many people sell, investors are ruined, the larger world loses interest
btc price is relatively stable

It seems to me that leverage would magnify step 5 -- the price would go up higher, faster; but even with no leverage, the steps would all be the same, and the cyclical pattern would still unfold in the way we've come to expect.

Leverage aside, do these steps capture the salient features of a cycle? What else happens during the different cycle phases? What's special, interesting, distinct about the version of the cycle that we're currently in? Is there a new narrative that we should take into account? Is Lyn right, and we're stuck with these until full btc monetization, or can you think of particular dynamics that could interrupt the customary cyclical pattern?

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708 sats \ 10 replies \ @siggy47 30 Nov 2023

I wonder if there is evidence that would support your theory that there's a correlation between bitcoin price stability and increased adoption? Also, is there a correlation between btc price stability and more speculative interest? This isn't as obvious, since most newbies want big fiat gains and want to see some NGU first.

554 sats \ 0 replies \ @elvismercury OP 30 Nov 2023

Wrt the former, you're right, evidence needed. I was thinking of this in terms of 'real' adoption by e.g., people in developing world, who can't afford a lot of downward volatility. You hear the point asserted but I don't have the data to prove it.

Wrt the latter, I think you're right: I think most speculative interest hooks in once things start moving. Unless you're Michael Saylor.

Would be really good to know how much of this Saylor himself kicks up, actually, as per today's announcement.

420 sats \ 2 replies \ @SimpleStacker 30 Nov 2023

I'm curious. What good measures of adoption do we really have? Sales of hardware wallets? New addresses? Trouble with these is that these are likely to go up during periods of rampant speculation, which is not true adoption.

Addresses with long-term hodling? One issue here is that a lot of speculators might jump in, then just leave their addresses inactive until the next bull market.

Do we have metrics for actual economic transactions using bitcoins? Like sales of gift cards? This might be a good metric and is likely to increase during times of price stability.

Number of merchants accepting Bitcoin as payments?

228 sats \ 1 reply \ @siggy47 30 Nov 2023

Real adoption? It's tough. I doubt any chain analysis would provide real nsight. Number of merchants would be a valuable indicator. LN nodes and transactions, maybe. Merchant sales volume? BTC map growth? Nostr zap growth. Podcasting 2.0 growth?

866 sats \ 0 replies \ @elvismercury OP 1 Dec 2023

LN nodes with non-zero channel balances (to skip all the Umbrel / MyNode installations) would be decent, I think, but probably undersell it quite a bit. I like nostr zap growth -- SN total zaps would be good, too, since there's a real innovation on SN made possible by the entire btc ecosystem.

I wonder if that's gettable through the API? I bet it is.

420 sats \ 5 replies \ @Bitman 30 Nov 2023

Perhaps I'm confused here but on your first point - when you ask for evidence of price stability and increased adoption (as opposed to high prices.

I know that when something has a high price there doesn't seem to be any volatility anymore - as the view is zoomed out more. I don't think I'm describing this very well am I... I hope you can understand what I mean.

However, perhaps I'm missing what you're saying about evidence (and especially increased adoption) here...

249 sats \ 4 replies \ @siggy47 30 Nov 2023

What I'm talking about is something that shows that when the price is stable, more people decide to use bitcoin. @elvismercury brought up a good point that this may be the case in developing countries, and especially if the local fiat is experiencing hyperinflation. We can't be certain, though, since USD stable coins seem to get adopted at least as frequently in those situations. Again, I'm just guessing, and that's why I would like evidence. One other thing. I am pretty sure that at high prices, bitcoin has historically been anything but stable. During extreme bubbles and crashes there is a lot of volatility.

441 sats \ 0 replies \ @elvismercury OP 30 Nov 2023

One other thing. I am pretty sure that at high prices, bitcoin has historically been anything but stable. During extreme bubbles and crashes there is a lot of volatility.

Yep. That's another reason for my assumption that, in terms of its actual use as money (e.g., a in its guise as a medium of exchange on relatively short timescales) the best time for most people is during those boring lulls.

Its usage at other times is inherently speculative, regardless of the language people want to employ -- if you're accumulating because you think you'll be able to use it as money in a decade, that's an investment.

866 sats \ 2 replies \ @Bitman 30 Nov 2023

Maybe I'm thinking far beyond my lifetime, but this is how I see it (it's not my hypothesis, but I can only find an obscure source)

If the price drops $5,000 today - sure, all hell breaks loose.

However, if it drops $5,000 when it's 20x what it is today - a $5,000 drop still looks like calm water.

Now, that obscure source, BiTcOiN eCoNoMiSt Charlie Allnut - who was years ahead of his time¹.

Now all that little choppin', them's shallas miss

It might make sense - if it doesn't, it might raise a smile at least ¯_ (ツ) _/¯

Bogart to Hepburn charting the water in The African Queen (1951) ↩

21 sats \ 1 reply \ @siggy47 30 Nov 2023

Great movie. Of course volatility has to be measured by percentage moves, not actual fiat value moves.

866 sats \ 0 replies \ @Bitman 30 Nov 2023

Bogart mainly thought with fiat - Pounds, Shillings and Pence - you know, LSD

261 sats \ 1 reply \ @DcaSignals 30 Nov 2023

What if everyone who owns bitcoin today, convinces just one person to start DCA?

Every bitcoiner is highly incentivized to orange-pill his peers. Due to power of exponentiation, this could eventually speed up adoption.

0 sats \ 0 replies \ @elvismercury OP 30 Nov 2023

That one seems both relatively easy and extraordinarily powerful.

307 sats \ 3 replies \ @davidw 30 Nov 2023

From interactions I have had, and I’m not sure if there is some human psychology involved here, it usually takes 3 strikes before people appreciate the value of Bitcoin or at least are able to start doing some research into it.

Dismiss it
Intrigued but forget about it
Dragged into & buy it

The 3rd stage, the bubble-top, is a key part of the journey for most. It is when people get excited and hopeful of a world takeover and increasing returns.

Following the declines it is when people teach themselves more about sound principles and are now ‘pot committed’. During that final top formation, I would say adoption is probably 5x in sheer numbers what they would be in any other period. Typically the last week of the bubble top, but certainly the last few months.

During the depths of the bear market, maybe it’s about 0.5x a regular adoption curve. But in general I think these cycles accelerate adoption, not hamper it. We just don’t see the rapid appreciation and depreciation in other technology, because they tend to be one-time purchases. Their numbers accumulate on top of another. Once you’re into Bitcoin, it’s rare you get out of it and never enter again, but you may trim your position. You don’t ‘trim’ back your tv once you buy it.

The 2nd stage people may buy too, but will never find the motivation to understand the technology or be compelled to. There is a certain amount of apathy and ignorance. And so the 3rd stage is really actually fundamentally an important human educational experience.

I may try and find data to support my argument but I would take the opposite opinion and argue that adoption would be slower without these boom and busy cycles. Money needs momentum, and periods of strong appreciation. otherwise people won’t think they require it. They’ll treat it like the average lawn-mower, something they can do without. Until they need it most.

497 sats \ 2 replies \ @elvismercury OP 30 Nov 2023

The way you put it makes me think there's cycles within cycles: the macro cycle that I described, and the micro-cycles you described within the hearts of each [pre] bitcoiner. Like epicycles, maybe, that interact in complex ways with the larger rhythms of the world.

I may try and find data to support my argument but I would take the opposite opinion and argue that adoption would be slower without these boom and busy cycles.

I didn't mean to imply otherwise -- I, too, think the cycles are probably, on net, accelerents of global adoption. I think of it like dandelions: there's some accrual, then someone stomps on the dandelion, and the seeds go airborne. There's a period where it looks like all is ruined, but a bunch of the seeds take root, and now there are twenty dandelions.

231 sats \ 1 reply \ @davidw 30 Nov 2023

Exactly. In time terms, we’re probably looking at 4 year cycles within a 16 year cycle, within a ~80 year cycle. But as we layer technologies on top of one another, the cycles for new technologies arguably get shorter in length.

Perhaps previously those would have been 8 year cycles within a 32 year cycle (for example: for gold that’s likely more accurate).

And in the future we’ll have adoption cycles that look like yearly cycles within a 4 year macro cycle.

In some ways I don’t think we are prepared for the pace of innovation to come in the future. Either we go back to cavemen living in the wilderness and are set back a century…or we start operating and innovating at a new level of productivity. A step-change. It’s only natural in that latter scenario for us to draw the conclusion that cycles get compressed if productivity gains also do drastically.

0 sats \ 0 replies \ @elvismercury OP 30 Nov 2023

It's interesting to think about decreasing micro cycle times by the resources that are available.

In 2010 there were certain resources, certain ideas dominate the narrative; certain amount of ambient flow of discussion is happening. In 2023 all of these are profoundly different -- it's one thing to assemble your understanding from bitcointalk, it's another to hear it being discussed publicly, as part of his platform, by a Presidential candidate. The elements of btc understanding start with very different intellectual and cultural capital formations.

This evolution in the ideaspace seems super important. I bet it radically changes the aspects of the micro-cycles within a single person.

228 sats \ 2 replies \ @_stacktoshi 30 Nov 2023

The inevitability of another ATH bubble or just a general leveling up once some form of it pops troubles me for several reasons:

Operation Chokepoint 2.0: who's going to want to jump through extra hoops to "correctly" hold this asset? If the feds are coming down hard on "crypto", that might bleed into the SEC's actions and kiss both of those avenues for a mainstream pump goodbye.
Why isn't this "likelihood" priced in now? Shouldn't we be closer to the ATH right now given inflation expectations?
My speculation doesn't have a great track record, and neither does that of many economic doomers. One thing that's throwing a wrench into my economic projections is just the exponential productivity potential of AI. If that ends up solving many of our geopolitical problems and erasing debt, then perhaps bitcoin and other hard assets become less desirable.
Who's selling into the bubble and how much are they selling? When are they getting back in? Seems like a very short-sighted plan, but some people deserve a little profit taking given the effects of all the many fiat shenanigans over the years. If bankers all lead a comfortable lifestyle, why shouldn't I? Plus, parting with a tiny bit of bitcoin and that getting into the right (diamond) hands might end up sparking something really big.

All of this is to just say, just take every prediction you've heard about the halving and 2024 in general with a grain of salt, fellow humble plebs.

0 sats \ 1 reply \ @elvismercury OP 30 Nov 2023

Seems like a very short-sighted plan, but some people deserve a little profit taking given the effects of all the many fiat shenanigans over the years. I

I am firmly against moral grandstanding against people using their money like ... money. If you want to spend some dough to improve your circumstances, do it. That's what it's for.

Operation Chokepoint 2.0: who's going to want to jump through extra hoops to "correctly" hold this asset? If the feds are coming down hard on "crypto", that might bleed into the SEC's actions and kiss both of those avenues for a mainstream pump goodbye.

Meaning: this is a thing that could get in the way of the next cycle playing out like most of us expect?

0 sats \ 0 replies \ @_stacktoshi 1 Dec 2023

Correct. If the chokehold ramps up, then there will just be fewer bidders for new and existing bitcoin.

228 sats \ 1 reply \ @Coinosphere 1 Dec 2023

What's really amplifying step 5 is the halvening. Suddenly there are half as many new bitcoins being mined each day and they all become more scarce pretty quickly.

It's completely obvious when you look at the long-term chart that this is the biggest driver. All the biggest bull markets started around or soon after the halvening.

0 sats \ 0 replies \ @elvismercury OP 1 Dec 2023

I know a lot of people talk about that, and there's a surface-level obviousness to it that's hard to argue with; but I have my doubts.

Partly because of efficient market theory, which is obviously not perfect, but is usually not stupidly, radically wrong for decades at a time. But mostly because the ambient transacting volume moment to moment is so vastly greater than the block reward. This got hashed out in great depth when PlanB's stock to flow model was all the rage.

I do think the story of the halving, and its arrival every four years, does a ton of work advancing the btc narrative and propagating it across all the talking heads. Which is maybe its principal mechanism of action.

Either way, we'll see shortly, I suppose. I hope you're right, fwiw.

21 sats \ 3 replies \ @Zepasta 30 Nov 2023

bubble pops, many people sell, investors are ruined, the larger world loses interest

Bitcoin is not volatile. Human beings are.

Investing is gambling and those who "sell" btc are still stuck in fiat mindset.

Understanding bitcoin is more crucial than accumulating bitcoin. Without the former, you won't respect the latter. With time they will learn.

3 sats \ 2 replies \ @davidw 30 Nov 2023

At which point do you think they learn?

i.e. What are the common conditions under which people start to take responsibility to understand the principles of money (and Bitcoin)?

470 sats \ 0 replies \ @Zepasta 30 Nov 2023

At which point do you think they learn?

Good question.

I understand that initually these people buy bitcoin for the fiat gains. But as you go down the rabbit hole, you realize bitcoin IS the money. Bitcoin is money's final form.

They must swallow the orange-pill, and the fastest way to do that is by getting rekt or selling their btc and then watching the value go up while they are holding worthless fiat that someone else can create for free.

The greatest investment you can make is in yourself. They will only learn when they put atleast 100+ hours into studying Bitcoin.

To answer your question, they will only learn, when they take the initiative to learn.

3 sats \ 0 replies \ @Longtermwizard 30 Nov 2023

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