My selected highlights from this excellent article. Please note: This was written in 2019. It is now 2023. Almost 2024.
“Often the experts are not experts at all…
…As Vijay Boyapati explained on Stephan Livera’s podcast, 'establishment economists deride the fact that bitcoin is volatile, as if you can go from something that didn’t exist to a stable form of money overnight; it’s completely ludicrous.' What happens between adoption waves is the natural function of price discovery as the market converges on a new equilibrium, which is never static. In bitcoin hype cycles, the rise, fall, stabilization and rise again is almost rhythmic. It is also naturally explained by speculative fear, followed by accumulation of fundamental knowledge and the addition of incremental infrastructure. Rome wasn’t built in a day; in bitcoin, volatility and price discovery are core to the process…
…While bitcoin will continue to steal share in the global competition for store of value because of its superior monetary properties, the function of an economy is to accumulate capital that actually makes our lives better, not money. Money is merely the economic good that allows for coordination to accumulate that capital. Because bitcoin is a fundamentally better form of money, it will gain purchasing power relative to inferior monetary assets (and monetary substitutes) and increasingly take market share in the economic coordination function, despite being less functional as a transactional currency today…
…Bitcoin will also likely induce the de-financialization of the global economy, but it will neither eliminate financial assets nor real assets…
…While failure is a possibility and significant drawdowns are an inevitability, each day that bitcoin doesn’t fail, its survival becomes more and more likely (Lindy Effect). And over time, as bitcoin’s value and liquidity increase due to its fundamental strengths, its purchasing power will also increase in terms of real goods, but as its purchasing power represents a larger and larger share of the economy, its volatility relative to other assets will proportionally decrease…
…The End Game
Bitcoin will become a transactional currency over time but in the interim, it would be far more logical to spend a depreciating asset (dollars, euro, yen, gold) and save an appreciating asset (bitcoin). Establishment economists and central bankers really struggle with this one; but I digress. On bitcoin’s path to full monetization, store of value must come as a logical first order and bitcoin has proven to be an incredible store of value despite its volatility. As adoption matures, volatility will naturally fall, and bitcoin will increasingly become a medium of direct exchange.
Consider the person or business that would demand bitcoin in direct exchange for goods and services. This person or business collectively represent those that have first determined that bitcoin will hold its value over a particular time horizon. If one did not believe in the fundamental demand case for bitcoin as a store of value, why would they trade real-world goods and services in return? Bitcoin will transition to a transactional currency only as its liquidity gradually shifts from other monetary asset to goods and services which will occur along the path to mass adoption. It will not be a flash cut or a binary process. On a more standard path, adoption fuels infrastructure and infrastructure fuels adoption. Transactional infrastructure is already being built but more material investment will only be prioritized as a sufficient number of individuals first adopt bitcoin as a store of wealth.
Ultimately, bitcoin’s lack of a price stability mandate and fixed supply will continue to result in near-term volatility but will drive long-term price stability. It is the literal opposite model pursued by Mark Carney of the BOE, the ECB (and its twitter account), the Federal Reserve, and the Bank of Japan. And, it is why bitcoin is antifragile; there are no bailouts and it’s a market devoid of moral hazard, which drives maximum accountability and long-term efficiency. Central banks manage currencies to mute short-term volatility, which creates the instability that leads to long-term volatility. Volatility in bitcoin is the natural function of monetary adoption and this volatility ultimately strengthens the resilience of the bitcoin network, driving long-term stability. Variation is information.”
https://nakamotoinstitute.org/mempool/bitcoin-is-not-too-volatile/