Recently the Bitcoin market had another fit of madness: from 1242 it plunged all the way to well below half, then rebounded to 1000 and fell again. A lot of newcomers could no longer sit still, and one after another quite a few people also came to ask me what I made of it. What can I make of it? Obviously, I am not a candlestick expert, and I can’t analyze the market; such a frenzied market is even less something I can get a grip on. I myself tried taking one coin and flipping it high and low, but it failed as well, and instead I lost some…… My understanding of the market is entirely qualitative.
Although I am a firm long-term holder, I also keep an eye on the market, and occasionally offer a few opinions. People always say: since you Bitcoin people are idealists, why pay attention to the market? How are you any different from speculators? In fact, I think Bitcoin’s idealistic monetary revolution is not at odds with investment and speculation in the first place. But those who label us as speculators seem to imagine that idealism ought to mean risking one’s head and spilling one’s blood for the revolutionary cause, throwing everything aside; the moment one talks about money or the market, that is hypocrisy, no different from speculators. This mindset is very likely a distortion produced by Chinese textbook-style revolutionary education. In fact, scientific revolutions and technological revolutions go without saying; even in religious and political revolutions, the leaders and participants do not necessarily need to sacrifice themselves for righteousness. Real life, and the pursuit of improving one’s wealth and quality of life, in most cases does not conflict with ideals and the cause they serve.
So yes, Bitcoin idealists are also speculators, and that is fine too; the difference is that idealists, beyond measuring gains and losses by the standards of existing value, also have a broader reference point. In other words, besides the world in which we live now, we must also take into account our wealth and life in the future Bitcoin world. More concretely, the most obvious difference is that a typical Bitcoin player will place more weight on measuring his wealth and his investment gains and losses in terms of Bitcoin quantity. Doing the same few rounds of short-term trading, a Bitcoin player treats the final increase in the number of coins held as victory and glory, while the ordinary speculator only knows how to measure investment returns in renminbi.
Of course, there are also people who are especially detached from fame and profit and disdain market rises and falls. But even for such people, it is normal to pay occasional attention to market fluctuations. I have said that if Bitcoin has opened the curtain on a magnificent monetary revolution or financial revolution, then the ups and downs of the market can probably be regarded as the “background music” of this grand drama. Although there is not much substantive content to focus on, anyone immersed in this spectacle cannot avoid being affected by it and having their emotions stirred. And those outside the theater often first hear the music rise and fall in startling bursts before entering to see what is going on.
So in any case, the madness of speculators has its advantages too: wild swings in the market will attract the attention of more and more people, and among them there will always be some who walk into the theater. Some will not understand much of the deeper meaning and will leave after listening for a while, but there will always be more and more people who understand the epic plot and become intoxicated by it, eventually becoming part of the stage itself.
And at any time, those temporary spectators who are merely passing by, looking on for fun and cheering along, are also indispensable; in fact, they are always the majority. People always say that most of those buying and selling Bitcoin right now are investment-driven, profit-seeking, and therefore somehow bad. But if not, then what? Look at those financiers gaming the foreign exchange market—when they buy and sell currency, are they not also seeking profit? Aren’t most people who buy and sell gold and silver also investing? The stock market goes without saying. What good thing does not attract profit-seekers? And how could Bitcoin, which esteems freedom, possibly reject free market behavior? Whatever the purpose of the profit-seekers, building a large market and a large scale is the necessary road Bitcoin must take to grow.
There are always many people saying that excessive volatility is bad for Bitcoin’s monetary character. Indeed, if in the span of one night it can surge or plunge by 50 percent, then it is unwise for anyone to make long-term contracts denominated in Bitcoin. But is this an inherent flaw? Those who say that even a rise too fast is a sin—ordinary people aside, when scholars say such things, I always feel that either they are pretending to be obtuse, or they have ulterior motives. A sufficiently large market cap is the prerequisite for stable value, and a rapid rise is the necessary path to faster convergence on stable value. Could these economists really not understand that? At the current market cap, what can achieve stability? The larger the market, the more capital and forces contend within it, and value will become increasingly stable. A year and a bit ago it could fall from 32 dollars to 2 dollars; half a year ago it could fall from 266 to the fifties; now it has fallen from 1242 to the fives hundreds. Although the fluctuations are still very large, it is obvious that as the market climbs, volatility will naturally diminish over time.
If a government wants to issue a new currency, it can promulgate a decree fixing a dead exchange rate and collect gold, silver, or old currency from the public. The new currency will have a “stable” price overnight. That is precisely the characteristic of fiat money. But as a free currency, Bitcoin’s stable value must, in a free market, be gradually established through the spontaneous game of all participants.
If this balance grown within the market is eventually achieved, its volatility may still be greater than that of a fiat system under continuous artificial intervention, but its “stability” will probably be more enduring and reliable. It is like a naturally formed ecological balance: although there may be droughts and floods, making it hard to predict, it is more stable and full of vitality. An artificially created greenhouse may be more constant and easier to control and predict, but as an ecosystem it is in fact extremely thin and fragile.
So what market cap must Bitcoin reach before it becomes stable? At present, even if we reckon it at 1000 dollars, Bitcoin’s total market cap is only a little over ten billion dollars, while the A-share market has a scale of more than ten trillion. Just the “fat-finger” incident of a medium-sized brokerage like Everbright can instantly cause a 340 billion yuan fluctuation in A-share market cap. Compared with that, what is Bitcoin’s current fluctuation, in absolute terms, really worth? At the present market cap, the entry of a small institution or a big tycoon can trigger a major surge, so at this stage it is impossible to prevent these investors from stirring up the Bitcoin market. But we have already seen that from 10 dollars to 100 dollars to 1000 dollars, the magnitude of each Bitcoin crash has been shrinking.
If I absolutely had to set a target level, my answer would be: probably around a market cap of 20 million. Of course, the unit is B. Only when people use Bitcoin to measure value will Bitcoin’s revolution have succeeded. At that point the relationship between Bitcoin and ordinary goods will become relatively stable, and then the question we must ask is: when does fiat money fall enough to find its bottom? Of course, there is no bottom.
So why do I say that if Bitcoin keeps rising, it will become more and more stable? Is it impossible that it rises to some point and then suddenly crashes, with the price falling all the way to zero, just like the “tulip bubble” that skeptics love to mention?
I have never wanted to defend Bitcoin by saying it is not a bubble, or that it is not a Ponzi scheme. The key is: even if it is a bubble, so what? If a bubble takes decades or centuries to burst, or if a bubble can burst once every half year and then be blown even larger again, then so what if it is a bubble? The crucial point is that Bitcoin is a new kind of bubble: it may crash countless times, but it can never be wiped out all at once.
Traditional bubbles or Ponzi schemes may collapse to extinction in two situations: first, their center of belief is wiped out and they collapse from the top of the pyramid downward, for example when the fake accounts of a Ponzi company are exposed, or the mastermind of a scam is arrested; then the entire scheme loses momentum, people’s confidence collapses, and it is irreversibly destroyed. The second situation is universal participation: when almost all the possible downstream recruits have already been recruited and there is no next wave of bag-holders to pass the burden to, then the entire chain will also collapse beyond saving.
But Bitcoin is precisely able to prevent these two situations. First, it is a decentralized network structure, not a pyramid structure, so the destruction of any single center cannot trigger a total collapse of confidence. Never mind Silk Road being shut down; even if Satoshi Nakamoto were found and shot, or Satoshi Nakamoto stepped forward and said let’s all break up, that still would not destroy everyone’s confidence. If a net has a hole torn in it, it is still a net; damaging any one place will not cause the whole thing to collapse.
Second, if Bitcoin truly reached its ultimate climax, with universal participation and all possible downstream recruits having already been found, with everyone participating in Bitcoin, then what would happen? Precisely that Bitcoin would have succeeded. If Bitcoin really became widespread in every household, then there would be no need to keep finding other people to buy Bitcoin with renminbi; the users of Bitcoin could trade among themselves in Bitcoin. So “universal participation” is not at all the moment when a bubble finally bursts; it is the moment when Bitcoin finally succeeds.
Before that, the road to Bitcoin’s popularization may encounter many twists and turns, and may ultimately still fail to reach universal participation, remaining confined to a small circle. But no matter how small that circle is, it can never disappear completely.
For example, at the very least I will always remain firmly bullish. Even if I were to sell everything I own and go all in, I could probably guarantee that Bitcoin’s price would not fall below 0.01 yuan, because if it fell below 0.01 yuan, then buying up all the Bitcoin in existence would only cost a little over 100,000 yuan. If there were ten die-hard fans like me in the world, then it would probably not fall below 0.1 yuan; add a few more tycoon-level fans, and what then? A dollar can always be guaranteed, right?
I do not care where the bottom of Bitcoin is; I only make this qualitative judgment: the difference between 1 and 0 is enormous. Knowing that Bitcoin’s price will not go to zero is enough.
In fact, if the revolution by which Bitcoin overthrows the fiat monetary system fails, the worst outcome for Bitcoin would be nothing more than becoming a collectible within a niche player circle. But if that happens, its price might well be pushed even higher. Because if its circulation volume and turnover rate both decrease, its scarcity will become even more apparent. Right now, many fans already treat Bitcoin as a collectible, especially by engraving their own messages into the blockchain or on Coinbase. Some people may never spend their “virgin block” in their entire lives, and without spending it, they can proclaim ownership through signatures and thus win renown within the circle of enthusiasts. A stamp issue of several million copies (some say 800,000) of the Gengshen Monkey Stamp has already been pushed up to 12,000 per copy; could the circle of Bitcoin enthusiasts in the future even be worse than the stamp-collecting circle? Whatever Bitcoin’s final fate may be, in the history of the Internet and the history of money, its historical status is absolutely beyond dispute. As a collectible commemorating a monetary revolution or as a technical masterpiece to admire and play with, its value will also not go to zero. There will always be some admirers who take pride in holding it. Perhaps you do not understand why anyone would admire Bitcoin, just as I also do not quite understand why so many people admire stamp collecting, but the facts are exasperating: in this world there are always so many “fools.”
Does that mean that if Bitcoin is to succeed, everyone must be turned into a die-hard fan of Bitcoin? That is neither necessary nor possible. In fact, just as most people do not really understand the history of the renminbi or the dollar or the mechanisms by which they are issued, most people will not fully understand the history and technology of Bitcoin either. Even so, these things may still become widespread across society. For what determines the confidence of ordinary market participants is often not profound ideas and thought, but their neighbors. It is the customs and environment of the market. On the surface, Bitcoin’s road to revolution lies in the spread of its ideas and technology within elite culture, but beneath the iceberg lies in fact a social movement of subtle and gradual “changing customs and habits.” As more and more people begin to enter the world of Bitcoin, a fashion trend will be set in motion. Many of those who follow this trend may not be rational at all, but only blindly conforming. Yet as long as this fashion truly accords with the development of the times, then it may well become popular.
Therefore I am not the least afraid of how many irrational participants there are in the market right now: many people chase rises and sell into declines, simply following the crowd blindly. But that does not affect the big picture. From now until the moment Bitcoin succeeds in becoming widespread, “following the crowd” will remain the main form of participation. It is only by more and more people following the crowd and joining in that what the trend points toward can ultimately achieve success.
Translated from the Chinese original with AI assistance. The original text is authoritative.
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