Helicopter view: On Bitcoin’s Fate and Conceptual Problems

A general overview of Bitcoin and other cryptocurrencies against the background of a fall in their prices and periodic panic in the market

By Prosphero Team

We decided to give you a general view on the situation with Bitcoin and, additionally, to talk about the fate of cryptocurrencies in general. We want to do it right now, when the next drop in Bitcoin price is beginning, and so familiar panic voices are heard again proclaiming a regrettable fate to the entire crypto industry.

We would like to step away from the casino element though and, instead of discussing future Bitcoin prices (and there will be both new surges and new drops, so there is no sense to focus on middle-term prices, if you are not a trader), show you a bigger picture to reveal the logic of the entire industry’s progress.

Current Context, Perverse Ideals

At the times when crypto veterans were only getting interested in crypto, the idea of Bitcoin becoming digital gold looked like a simple, obvious and the only accurate concept to many people. Bitcoin was just a gold-like equivalent exchange medium (a measure of value), which, securely protected by cryptography, would serve the oncoming digital era.

Along with that, there are more advantages, making it superior to gold: a fixed number of coins; an independent, decentralized and indestructible blockchain; absolute transparency of all transactions and emission as well as adaptation to a network-based environment of the future. Even though with certain reservations, this all is true.

However, now, after some years of development, cryptocurrencies have degenerated into a speculative and highly volatile asset, with Bitcoin being no exception. Extremely poor implementation and use cases of cryptocurrencies in a real-world financial industry are a subject of general conversation now. Bitcoin failed to become what it had to according to its Whitepaper (at least for now). However, it acquired some features of what it was not initially intended to be. Today, cryptocurrencies are a trendy hype and ceaseless pump&dumps, but not a systemic technology to build the world upon. The advent of crypto futures has only further revealed the essence of the ongoing ‘derivatisation’ of the process.

This is how a potential bubble has formed. It was caused by our greed and shortsightedness. Two antagonistic roles (being a revolutionary technology and just another derivative) are so intertwined now in heads of their supporters, that this hinders clear and unambiguous diagnosis of the problem: in a post-truth era, each party sees in blockchain only their own logic of the process.

What to Expect?

Now, let’s discuss a much more important subject – prospects. To really become ‘digital gold’ or a revolutionary financial technology, Bitcoin is to be accepted in this quality by a significant part of the society. And this leads us to Metcalfe’s law as a criterion. But, once again, as for now, we are balancing on an indetermination point: there is a certain percentage of ‘real believers’ (holders), a pretty big share of cranky (and not very much so) speculators and a really HUGE mass of people showing no interest in cryptos at all.

The good news is that the bifurcation point has not been passed yet, and we are still standing at the crossroads, and the progress can drive us in any of the directions. The bad news is that it is the speculative aspect of Bitcoin that we are seriously stuck in for now, which, let’s acknowledge it, is killing the technology itself. Significant deflation of the BTC bubble (and the inevitable deflation of all other shitcoins in chain order) would significantly improve the situation for a proper choice leaving in the game only pragmatists and tech-savvies, even though it may sound painful to speculators.

Then, if there is no public consensus (read – broad acceptance), speculators’ Bitcoin can only claim a role of a savior from currency devaluation within a specific country or a cross-border medium of payment in the circumstances of artificial restrictions of capital transfer (e. g. sanctions). For example, if hyperinflation begins in Russia, BTC investments can, in theory, save your money. Another example: if a country is imposed sanctions upon, it will be able to make payments bypassing the bans within SWIFT (this is what, for example, Iran is going to do now in the face of new American sanctions – buy goods for bitcoins). In this scenario, Bitcoin is just a plaything for marginal countries.

If a new super-crisis and a stock market crash come (which is inevitable in our opinion), big speculators will switch from cryptocurrencies (including Bitcoin) to dollar, which grows. That said, if global markets crash, peripheral currencies of such countries as Brasilia, Russia, India or Turkey will ‘burn’ in a devaluation agony. This is just what we already see in its beginning phase now: with dollar getting stronger, national currencies of all the listed countries have already lost up to 10% of their value – all capitals are flowing to US dollar as a monetary world’s centerpiece.

In its current speculative role, Bitcoin will be relevant to a sinking periphery only, and its price within this kind of scenario will dip inevitably.

Looking around, we can notice a trend to such capital outflow right now: as dollar is getting stronger all over the world, Bitcoin, along with other peripheral currencies, is getting cheaper simultaneously. This logic is proved by existing rates. Bitcoin, just like any other third-world country’s currency, goes down as FRS raises rates.

Conclusion

 That said, Bitcoin (or whatever analogue of it) in its current configuration will never be able to become a ‘protective asset’ for core countries like the USA or those of the Western Europe. Obviously, central banks of these countries will never give up their seigniorage and the inflation tax, which are key to keep their financial stability. Within this paradigm, Bitcoin is more of an element of a proxy war waged by globalism against third-world countries, which successfully destroys their national economies.

A key conclusion: for McAfee’s scenario to come true (and his intimate organ to be saved), it is necessary to perform a quality and massive reconsideration of Bitcoin as a ‘core technology’ of fintech industry rather than just another speculative asset featuring unusual properties, which it has already become in the heads of the majority. The same logic of consideration can be applied to the ICO mechanism too, which is degenerating from a promising alternative capital-raise technology into a rampancy of greed and fraud.

Are there prerequisites for such a reversal in the positioning of Bitcoin in the future? Probably, yes. For example, a significant drop in the asset’s price (60% from its all-times highs for now), moderate regulation and gradual Lightning Network deployment (a technology that will finally solve the scaling problem of Bitcoin) give us a hope to great future of BTC. To conclude, as was mentioned previously, the final battle for the triumph of the crypto is still ahead, and it will happen right in our minds.

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