Participate with me, if you will, on a simple mental exercise about supply and economics.
As bitcoin approaches $12,000 (may have even passed it by now) there is much hubbub and discussion about it, from some economists that are old and don't understand crypto-currencies to vested-interest parties who will champion cryptocurrencies to enrich themselves. But to more simply understand bitcoin (or any crypto-currency) let us simply do what we all learned in the 4th grade and....
divide.
To be literal, the exchange rate for all currencies should be a simple division between the global supplies of currencies. You take the number of yen, you take the number of dollars, you divide them into each other and you have the LITERAL exchange rate of the currency pair. You take the number of Euros, the number of Rubles, divide and that's the literal exchange rate. Naturally there's other future-looking variables that determine the value of a currency. If you're a leftist moron living in Venezuela or an idiot tyrant who hates white people in Zimbabwe, you'll just print off more money (because that always worked) and that will negatively affect the exchange rate of your currency. But in a literal sense the global supply of any two things should be their literal and mathematically precise exchange rate.
Carats of diamonds to tons of dirt.
US dollars to barrels of oil.
Silver to cement.
It can be done for anything.
However, bitcoin presents an even easier calculation. Whereas the amount of cement made and the ounces of silver mined is yet to be determined, bitcoin is finite in that there will only be 21 million of them ever in existence. So you only need to take the supply of any currency and find out how many units of that currency there is globally per bitcoin and you in theory have a price (inter-currency demand differences duly noted). And with roughly 4 trillion in US dollars in circulation that gives us
$186,000 US dollars per bitcoin.
Now there are other arguments as to why bitcoicn and cryptocurrencies have value. And (though I own bitcoin) I'm not terribly sure it has yet reached the full faith and acceptance as a universally accepted medium of exchange. But to introduce some simple math into the debate we need to realize we HAVE tripled the money supply since the financial crisis and the debate I contend is not so much the value of cryptocurrencies or bitcoin, but rather the declining value of paper money we keep printing off.
This isn't to say that tomorrow the price of bitcoin should be $186,000. It may or may not. I'm merely pointing out there's 186,000 dollars out there in the world for every bitcoin...and that number is increasing as we print ourselves out of financial deficits.
I'll leave the speculation about bitcoin's price to the rest of you to discuss.
~ archived since 2018 ~
