0 sats \ 16 replies \ @didiplaywell OP 28 May \ parent \ on: The Paradox of Bitcoin Adoption bitcoin
I can only repeat again what I said, because you did not disproved my point, only forked the discussion to something different: here we are discussing the paradox in the process bitcoin of becoming a unit of account, not how exchanges work. You can use anything for exchanges, yes, that's obvious. That's not in discussion. What's in discussion is how to arrive to bitcoin being a unit of account. That's the key concept absent in your observations. Of course I know that 1 X = 1 X, you are missing the point right then and there on why the expression 1 BTC = 1 BTC is used: it's an euphemism of bitcoin becoming a unit of account. For as long as from the trading pair the part fixed for reference is not bitcoin but USD, USD is the unit of account, not BTC. Yes, again, I know you can invert the equation, but that's not what's done in practice, you can't deny that that's how the market works: in real life, you take one side as parameter.
It's important to get the base line right and that we are in mutual agreement of what is actually discussed here.
What you refer to as 1BTC = 1BTC is essentially: BTC become a standard unit of measurement for common trade.
The argument I have is, having 1BTC = 1BTC (the default standard unit of measurement) will still be volatile because everything else would be volatile.
One example is how hyper inflation causes the merchant to keep updating their price.
This isn't limited to hyper inflation, but high volatility as well.
And that's really it.
The volatility will not be better even if BTC become the sole currency / unit of account of the nation.
A trade is a mutual trade that provide value to both parties. eg a trade of a bitcoin for a house, is a trade for and from bitcoin. It is not a one way thinking like you implied.
A trade is a trade of value. If one side is extreme volatile and you fix it as the unit of measurement, then the other side has to adjust accordingly to maintain that equal exchange of value.
For the seller of the house, he/she has to consider what the bitcoin value is, same for the buyer of the house, because he is trading in for the Bitcoin.
As for whether bitcoin will become more volatile as it gets adopted as the sole unit of account in a nation, it's possible, but hardly important when 97.5% of currency transaction (and thus value) is from FX trading.
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The problem in your argument is that you use hyperinflation as an example of what can happen to bitcoin. That applies to fiat, not to bitcoin. Bitcoin can only lead to deflation if it becomes the unit of account of the economy. The volatility of fiat is due to it's cycles of emission and regression by imposed interests rates. Nothing of that applies to bitcoin.
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You are conflating some core economics and you have to understand this, or else you are wasting your time in thinking up all these arguments.
Bitcoin will always be volatile, especially short term due to its rigid supply. Any change in demand will move its price significantly and vice versa.
And volatility implies high level of imperfect price discovery and market psychology, bitcoin is the same. That's why FX market is this liquid.
So no, you can never have Bitcoin with no volatility, it's literally possible because value is a derivative of different needs and wants for everyone.
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"Bitcoin will always be volatile, especially short term due to its rigid supply. Any change in demand will move its price significantly and vice versa." I'm not arguing against this, this is precisely what I proposed as a cause of the paradox of the idea of bitcoin becoming a base unit of account. We are saying the exact same thing.
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No it's not.
Your argument is that it will no longer be volatile once it become units of account for an economy.
I am saying Bitcoin will always be volatile, even if it become the ONLY unit of account (as currency) in the world because it will just make everything else equally volatile.
You cannot fix volatility.
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You are confusing two types of volatility. One is the volatility fiat suffers, which is always inflationary. The other is the volatility Bitcoin will have if becoming the base unit of account, which is the exact opposite, it's deflationary. There is no comparison whatsoever.
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Volatility is not a trend, it's called volatility because it is movements variance along the trend.
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Yes, exactly. My point remains the exact same.