Why bitcoin is so successful
https://www.reddit.com/r/Bitcoin/comments/7850ce/why_bitcoin_is_so_successful/
- Systemic liquidity resistance.
Many people who buy bitcoin aren't professional investors who set a "sell corridor", always sell at 90% or 110%, for example. the "HODL" meme that flies around here is a good example. some of these bitcoin investors are dreamers that want exponential payoffs and will hold onto the bitcoin despite the fact that they bought it at around 4.9k and it dropped to 3.2k (in September, 2017).
some of these coin investors are people who bought or mined 10~50 bitcoins when they were cheap/easy to mine back then, when they were in their teens, and never looked at its price until they heard about it in the news again. some of these people probably have lost access to these bitcoins to be honest.
some are people who went all in with their investment. these people have always wanted to buy stocks or derivatives but any exchange would require quite a bit of paper work so they never got around to it. you can imagine if they haven't even bothered to go through the exchange paperwork, they probably never bothered to get a lot of "financial expertise" through reading "professional investment guides". now bitcoin comes along and anyone can buy, they go all in, they simply can't afford to realize their loss when bitcoin dives, but when bitcoin rises, they are being rewarded for their "irrational behavior", they are gamblers.
these people have a common characteristic: an unsymmetric risk profile, they don't care if the price drops to 0, but they believe the price will go to something like 10,000, so any new historical high reaffirms their belief and any dip is just a temporary setback in their opinion and some of these irrational investors would simply purchase more during the dip if they have the money. this isn't the case in the financial world where a lot of trades are automatically executed because unlike these bitcoin investors, computers aren't biased, AI and seasoned investment managers are almost completely unbiased and they are the product of "traditional financial theory", they don't believe in sustainable exponential growth.
These people and their bitcoins provide a minimum liquidity threshold that not a single other investment instrument has: a healthy company can default for attracting too many short sellers, a bond can default, an exchange can default, a bank can default from a bank run, even a country can default. bitcoin will always retain some value, as a "systemic bank run" is simply impossible to achieve in the bitcoin world.
- " The People / Anti-establishment" movement.
the success of bitcoin is closely resembled by a recent event: the election of Donald Trump. you know what would people say to you if you said "I think the POTUS will be Trump in 2017" at the end of 2014? people will laugh at you and call you a lunatic. well, the same would happen if you said "i think bitcoin will be over $6000 in 2017" at the end of 2014 (when bitcoin dropped like a rock to 300ish from almost 1k). Trump's success is a direct result of him tapping into "the people", i.e., people who are sick and tired of being governed by political figures who they perceived as crooks. Trump comes along and says things that no other politician dare to say, guess what, people wanted a change and voted for him over the establishment that Hillary represented (if Bernie had won the Democratic nomination, Trump would have lost in a landslide). You see how far people would go simply for "a change"? they would even vote Trump! (don't get me wrong, I support Trump myself but I am trying to illustrate a point). Bitcoin is a currency that is not regulated by any government, but simply by an algorithm. And to use the Trump example again, the exponential climb of bitcoin to its supporters is equivalent to, "Trump gets elected, and every person that elected Trump suddenly finds themselves richer by $10,000", guess who would easily get elected again in that scenario? Trump! Elections happen once every four years, but bitcoin is traded/used every single second, and people vote by buying/using bitcoin.
- Money laundering.
The sad truth is, every bitcoin investor is indirectly helping out a criminal (e.g, terrorism, drug lord, hacking group) or an exile (e.g., Julian Assange) in some way. but rest assured, some anti-money laundering rules will be set soon i think. even though i think anti-money laundering rules will be set, i also realize that some academic opinions on this issue is interesting, for example, Dr.Rahn says that "In a world largely without “money,” the notion of money laundering as a crime becomes absurd."
- Resistance to hyperinflation, weak GDP growth and war.
guess who buy bitcoins in addition to first world country "geeks"? people from war-torn countries or countries that are struggling/collapsing. before bitcoin, people from those places would buy gold but it is hard to purchase in bulk. bitcoin appears to be the equivalent of gold in terms of the "limited quantity" feature, however, bitcoin can be bought in a much easier / more discrete fashion.
- Resistance to negative news due to its value being proportional to the number of people know about it.
Because even negative news means someone somewhere is talking about bitcoin. contrary to other investments in the market where any regulation restriction or "negative news" would bring down the price. But for bitcoin, it will be the opposite, because for example, if an authority(e.g., IMF or the US government) comes up with an anti-money laundering regulation against bitcoin, many bitcoin investors will not see it as a restriction, but the exact opposite: they will see it as an affirmative message that says "bitcoin is a real currency, and it will be huge, which is why governments are starting to set up rules around it, this means more and more regulated companies will have no choice but to accept it". a classic example is when China banned bitcoin, for any other public company that has operations in China, this would have been a huge blow that would have required monthly, if not years to recover from, but for bitcoin, it did drop for a bit, but it quickly recovered and made some more exponential jumps shortly afterwards. the bottom line is, the more people know about bitcoin, the more potential value it carries. But of course, once its popularity passes a certain threshold, negative news such as "Country XYZ bans bitcoin" would cause a dip that is a lot harder to recover from.
- precious-metal-and-liquid-currency 2-in-1.
look at any precious metal, or diamond, the resale opportunity is extremely limited for average investors, the bid-ask spread, and the limited ways to carry them around make them illiquid. but the upside is, precious metal will always carry a value so they have inherent resistance to inflation, sure the value can drop, sometimes significantly, but there will never be a time when people say a 2 carat diamond is worth nothing, because it is nice looking piece of object that is worth at least something.
next, let's look at any currency, they don't last forever like precious metal, but the government behind any currency can simply print more money whenever they feel the need to, to not only cope with inflation, but also replace existing bills that can no longer physically circulate due to various reasons. with that being said, any currency would have an inherent insolvency risk associated with it, because countries, like companies, can just say "f*** it, we declare bankrupt". sure the chance of the USA or Japan does that is extremely slim, but there is still a chance that a $100 country XYZ bill will be worth nothing some day (to a non-collector of course) because country XYZ is no longer in existence due to natural disaster, war, debt, or some other reason.
bitcoin has the best of both worlds: it doesn't have inflation, it will always be worth something and you can spend it easily.
- Digital circulation, i.e., smart.
with more and more people carrying digital devices / smart phones, bitcoin taps into the digital revolution wave with its unique "no transaction cost" feature. once bitcoin's price stabilizes and becomes better regulated, all stores will welcome it. if you think the growth you have seen so far is unbelievable, imagine what would happen when bitcoin finally becomes a wide accepted currency, well, i mean, during the months that lead up to it. because maybe its price would have stabilized by the time walmart starts accepting bitcoin.
- Bitcoin is a company that is 100% owner's equity with 100% operating efficiency.
no asset, no liability, no overhead cost, no pension plan, no retiree health plan. it is a company that doesn't have any accounting/administration/consulting expenses. it generates revenue through non-traditional means, such as forks and inherent deflation, it will also generate revenue through fees after all 21 million bitcoins have been mined. right now it is a startup that is going through high volatility, but once its price is stabilized, it will be the new Apple/google/microsoft, i.e., a large-cap company with steady income stream.