I made the lines on this Chart (from crytowatch) to help me think about this first experience that humanity has with a world well-enough connected to experience math, information, and money as essentially of the same essence. That idea came long after I made the chart and it isn't my idea. I recently heard Tim Ferriss interview Nick Szabo and Naval Ravikant and credit goes to them for the idea that money, information, and math share some essential qualities that make them similar.

I think of this chart when I try to develop a big picture of what makes the price do what it does, to understand exactly what it is doing, and why. I see some general principles that make something based on consensus, popularity, and value rise in price, geometrically. The chart is a log scale chart, which means that a straight line on it, like the longest one I drew, indicates a fixed change in percentage over a fixed amount of time. For example, this chart shows five bottoms before 2014 that show the same doubling-in-about-11-months as the price shows through most of 2016.

The Network Effect

There is a tendency of people who know about something to show it to others effectively enough to get others interested in it. This growth in awareness is directly proportional to the tendency, tempered by the ease with which the idea can be shared. When we talk to people about bitcoin, it makes it a little easier for them to start using it, which drives up demand that little bit, and hence the price. The spreading of awareness will go on having this geometric effect on the price only as long as there are enough people to receive the sharing. When "everyone knows enough" that more knowledge won't generally increase the chance that they'll use it, this effect on the price will tail off. But there are others.

Building Trust and Comfort

Once you start using bitcoin for whatever you use it for, you will slowly find that, at least in some areas, its utility outweighs the inconvenience of all the things that must be done differently to use it. I separate this from the network effect because it's based on experiential knowledge rather than information. Using bitcoin makes you more comfortable with using bitcoin. The more you do anything, the better you get at it. This is one of the principles that encourages me to get comfortable getting out of my comfort zone.

Using anything new, if it turns out to be a benefit, slowly increases demand for it simply because we use it more and more. I think it was in the book Freakonomics that I read about how raising the efficiency of things that use gas actually increases our gas consumption. This is apparently the case because when the efficiency is a tiny bit higher, the gas savings from existing systems are dwarfed by the gas used in the additional ways of using it that have just become economical. Greater efficiency has the same effect as lower prices: demand is increased. For prices, this brings balance (lowering prices increases demand, which raises prices). Greater efficiency must then rely on the price effect to find a balance.

Comfort with a new technology and trust in it both have the same effect as lower prices and higher efficiency. Life, after all, follows the path of least resistance. The rate at which comfort and trust in bitcoin grows is proportional to the number of people who are aware of it. In that sense, this is just a part of the Network Effect, but since the rate at which you become more comfortable with something is different from the rate at which you share it with others, I separate it out.

The Double Effect of Savings

We are taught to save money using the legal tender of our resident overlords. It's a horrible lesson, as anyone familiar with the meaning and dangers of "fiat currency" knows. So once you find something you can trust a bit more than fiat currency to hold your savings, you will find yourself drawn to keeping more and more of your savings in that form. This is related to the trust and comfort effect I describe above, but it provides an extra level of upward pressure on the price because whenever you save anything, you make it unavailable for anyone else - if you're really saving it. In that sense, you are constraining the supply. The average number of bitcoins held by a human being here on our planet can never go above 21,000,000 ÷ 7,500,000,000, or so, which is about 0.0028. Do you have your 280,000 satoshis?

Conclusions and Thoughts

Because of the three effects I describe above, only one of which seems to me like it will ever go away (when the population is saturated with awareness of bitcoin), I see the price doubling about every eleven months. That means I expect this correction to continue, and perhaps level off and start a new bull market that will have us around 2000 again in the first quarter of 2018. The problem is that shit happens. The shenanigans at MtGOX gave us a huge bubble, and there was an earlier one that happened right before (or at?) the beginning of my chart. I think that whatever happens tends to have less and less effect as the number of people and the amount of value stored in bitcoin goes up.