This is my first article in Steemit but it will not be the last one, because I decided that I had to make a trade with you. My trade is very simple: I share some of my most beloved personal economic thoughts and, in exchange, I get the satisfaction that they might be useful to you. As long as they are useful to someone, I will be happy.
I must warn you that my English is not native, so you may find weird expressions or some lack of sophistication in my way of writing. I hope you understand it and do not disregard an article for that reason. In addition, I cannot guarantee that there are no spelling or grammar errors, even in this article. I will try my best to avoid them.
Who am I?
I am an engineer and an economics enthusiast. I like almost every topic, but gossip and populism. To be more specific, some of my strengths are the design of algorithms, cooking, flying aircraft, photography, sailing boats, learning, investing, electronics, developing software and economics.
What is the purpose of writing this article, but to introduce myself?
I want this article to serve as an introduction to what will come in the next one. I told you I love investing and this time I want you to learn the reason why I invested in Bitcoin in 2013. While doing so I will fly over the concept of fair value, which is the pillar of my next article (quoted yesterday by @simontheravager in his article), which will be a bit technical, but which I hope you will enjoy.
I decided to invest in Bitcoin because I assessed its fair value. My assessment at that time was very simple. These were my thoughts:
I knew a currency takes its value for its demand as a medium of exchange. I knew that a currency is the lubricant to allow for the exchange of goods and services among humans. The better properties of a currency, the higher the probability that people would choose it as the lubricant. I also knew that the will to use a currency instead of another was not only tied to the better properties of one over the other, but also to the acceptance of the currency by other individuals. The more it was accepted, the higher the will to use it, and therefore higher the acceptance. If it was good, that chain reaction might be triggered. Let it have a limited supply and the boom in its price would be guaranteed. For me, the future fair value had to be something in between zero and the total value of currency in circulation in the world (USD, EUR, GBP, etc). In the best case scenario, the total value of currency in circulation would end up in Bitcoin (at that time Bitcoin was the only general purpose currency in the crypto sphere, and the natural assumption was to consider it the Coke of cryptocurrencies, “the only one”). A number in between zero and something enormous is more likely to be big than small. A simple reasoning, which lead to a simple assessment of the fair value, which lead to my investment decision.
It was soon that I started to get the feeling that there was a key variable, which I had access to, that gave me confidence every time the price of Bitcoin plummeted. That variable was the number of transactions per unit of time. Even when the market was crashing, that fantastic metric would only increase. The number of transactions per unit of time was, for me, a close indication of how many trades for goods and services (other currencies included) were taking place. An increasing number of them was my expectation when I decided to invest in Bitcoin for its better properties than fiat money. If more and more people were using it every day for trading goods, services and other currencies, there was an increasing demand.
Increasing Demand for a Limited Supply leads to an Increasing Price
[END OF SIMPLIFICATION WARNING]
I did not pay attention to anything else but this metric for years. When I invested in Dash, in March 2017, I also relayed on this metric. However, everything comes to an end. I had two weeks of intense thinking that lead to a discovery. My discovery was a way to calculate the compounded fair value of a currency.
If you want to know exactly what I mean by fair value and what on Earth is the meaning of the word "compounded" in this context, wait for my next article.