What I'm about to discuss is probably the number one most important thing for any long term bitcoin speculator to know. The subject is, do the economics of bitcoin actually work? Before we get to the meat of that subject and it's obvious conclusion, I've noticed a sudden rise lately of people claiming gold and silver are manipulated and bitcoin is a far better form of money because it's harder to keep down or disrupt it's monetary attributes like being a store of value.
A lot of these claims are even from Mike Maloney type people involved in the metals market, who seem to know little to nothing about bitcoin at all and just randomly decided to make the switch while chasing dollar signs. You will soon see why nothing is further from the truth about these claims.
Yes, governments naked short gold and silver with billions/trillions of dollars, but they have to stop once it gets near cost of production. With bitcoin there is no real cost of production floor because cost of production is a dynamic, self referencing variable, so they can destabilize and naked short bitcoin to zero far easier than metals.
What I mean is, gold and silver are mostly a derivative of the oil price, and if someone tries to manipulate silver down and it bankrupts half the miners in the industry, the cost of production doesn't change; hell, the value will then skyrocket due to much less silver entering the market from less miners being active.
As for bitcoin, if you manipulate the price downwards and half the miners have to turn off, you have no reduction in supply, unlike silver. You still have the same amount of coins hitting the market through either a fixed block reward or transaction fees when the block reward is gone.
Even if the cost of production was $1 million per coin beforehand, the fact that you just manipulated the system down to cut cost of production in half means it's impossible to use as a store of value since nobody is forced to buy those older, higher cost of production coins. It's an open entropy system so they can always go pluck fresh new coins off the never ending block reward tree at a lower cost of production for $500k rather than purchasing your $1 million coins (in a post-halving or in-between halvings scenario).
It's a misnomer to claim bitcoin has a finite supply; in practice it has an infinite supply through transaction fee recirculation. This is a critical problem that prevents bitcoin from being a store of value when it's cost of production is some type of self referencing loop and not a derivative of an external variable like oil. Some entity (probably DARPA) tried to fix this problem by attempting to peg bitcoin to global energy costs through proof of work, but the way they did it is kind of short-sighted and doesn't really work in practice when it doesn't replicate the economics of metals as I cited above. Bitcoin is proclaimed as a metals replacement, but the economics are just far worse where the rubber hits the road.
To look at it another way for people who still don't understand: for all intents and purposes, earth is a closed ecosystem. The amount of gold and silver that can be mined is finite, and all the low hanging fruit are always taken first, meaning the cost of production just constantly goes up which allows it to be a store of value. Even if you had an extreme energy breakthrough and energy was almost free, the free market would just plow through all available supply to mine in a short duration, then you would be bound by scarcity after it's all depleted and nothing really changes.
If you believe people will mine gold and silver from asteroids (not gonna happen in your lifetime or the next), then you effectively live in an open ecosystem and you're no longer bound by scarcity, only cost of production. The cost to get that moon gold is always going to be higher than the previous earth gold mined, so metals still work fine as a store of value in this case even in an open ecosystem. If the cost of production of the space gold were to be far lower, you would have a situation resembling infinite supply and no scarcity, and gold would no longer function as money.
I believe thermodynamics, the speed of light, and distances between objects in space all prevent space gold cost of production from ever being low. If you had some type of nearly free energy + autonomous AI, you could have a constant stream of robots mining mars and other planets then delivering the stuff back to earth; but with free energy, free workers, and free materials, that would be a post-scarcity civilization and money based on scarcity would no longer exist in the first place.
If we're talking about a civilization that actually uses money, the ability of your commodity currency's cost of production to crater while operating in an open ecosystem makes it unsuitable for use as money, because when you're flooded with new, endless supply that has a lower cost of production, it simply does not work as a store of value then. Bitcoin with transaction fees recirculated as block reward is the same thing as using gold in an open ecosystem in practice. Since bitcoin doesn't function as a store of value, this means it's also far easier for bankers to financially manipulate it into extinction, unlike gold and silver.
This means bitcoin will have to become the unit of account of something or the world reserve currency of the entire planet or it would likely die. There is nothing to prop up the price against an endless stream of naked shorts from bankers besides sheer speculative interest, which dries up quick in a down market. Bitcoin is currently not the unit of account of anything, but if it were, it would likely be the unit of account of regulatory arbitrage. This is an untenable position because it means the state would inevitably outlaw it, co-opt it with things like chain anchor, or regulate it into the ground where it's virtually the same thing as using fiat.
So that's it folks, for bitcoin it's either all or nothing. It will either become a major unit of account for this planet (where it would inevitably be co-opted by the state) or it will eventually die since it's economic fundamentals like being a store of value are completely inferior to gold and silver.
The fact that western governments are not attempting to stop bitcoin at all while having vermin like Larry Summers and Bernanke promoting it tells you all you really need to know. Whether it was designed this way on purpose or became so by accident, the endgame of bitcoin (if it doesn't die) is going to be a tool of the state to try and force people into a digital only currency they control. I believe they will accomplish this by creating a fixed address alias system wrapper that goes around bitcoin and mandating all transactions have to use it or be considered an illegal launderer.
If you believe the state is not involved in cryptocurrency, think again:
(image - www.istockphoto.com)