By Sofianopoulos Panagiotis
Let’s say the price of Bitcoin goes to $1 million, which I imagine covers even the most fundamentalist supporters of the well-known cryptocurrency. What will have happened, to reach this price? What factors would have led to such a big rise?
A combination of the following factors:
- An increasing number of companies will have gradually followed the example of MicroStrategy and TESLA, allocating part of their money/ cash reserves to buy bitcoin, for whatever reason: either with a small portion of their cash, for diversification, or for speculation since they observed the general rise in the price of Bitcoin. We are not interested in the reason why they acquired them, but interested in the hypothesis that many companies, finally bought bitcoin.
- An increasing number of individuals will increase their placements (purchases) on Bitcoin, as they will consider it the new and best gold.
- Bitcoin, as a means of transactions, will have gradually expanded greatly and will have “conquer” a significant space, as money, as a mean of payments. It may not have prevailed over the US dollar or even the euro, which will still exist, but many people will use bitcoin to trade, buy goods and services, and also sell. Bitcoin will have become globally, a widespread alternative currency, mainstream as the most widely used digital currency.
- A lot of speculators and traders will have placed on Bitcoin, precisely because they will like its strong long-term uptrend. Of course, they will be indifferent, much or less, to the Bitcoin’s functional use, their interest will have been purely speculative.
- Big Wall Street players will have gotten into it, because they saw a great opportunity to make a profit, as in the previous point 4.
All of the above points will have contributed to the rise of Bitcoin to $1 million, i.e. 1 BTC = 1,000,000 USD.
I am describing a hypothetical scenario, which would be the “paradise”, for every Bitcoin’s supporter / fan.
But what would happen then? Given that Bitcoin would have prevailed so much, and “conquered” the economy and society in various ways (with each of the five points mentioned above), what would have been the consequences?
Let’s take a look at each of the previous five factors, each of which would have contributed to this astronomical rise of Bitcoin. Let’s deep into each of them.
- Factor 1
An increasing number of companies will have gradually followed the example of MicroStrategy and TESLA, using their money to buy bitcoin.
Consequences: Since many companies would have some of their cash reserves to buy bitcoin, they would have limited their cash available for investment. By investing less, in the long run, they would become less competitive than their competitors. Gradually, since they would not modernize as much as other companies that would invest almost all of their “surplus”, their financial results would shrink (to those that engaged with Bitcoin), and in fact, some of them would close, at least in terms of their own productive activity.
Of course, they could change into some kind of “investment” type of companies, since by placing them on Bitcoin, they would make a profit (easily and comfortably). But this, would led in big lay-offs compared to their previous status, where they would operate as industries, and in any case, as enterprises producing a product or service.
As a result, unemployment will rise to unprecedented levels. The people, as unemployed, will have no money, not even for the essentials, so there would be riots, uprisings, in general an environment that would be disastrous for the economy and society.
When the economy and society were destroyed, do you think that the plenty of companies that would have invested heavily in Bitcoin, and would have been widely and strongly involved in it, would continue to hold their bitcoins? … to do them, what, in a collapsing economy? And wouldn’t the value of Bitcoin, in this environment, collapse as well?
- Factor 2
An increasing number of individuals will increase their placements (purchases) on Bitcoin, as they will consider it the new and best gold.
Consequences: Since this would happen worldwide, and due to the rise of Bitcoin, they would be happy as the common people, the vast majority of the middle and lower classes, would have become rich. Their money would be systematically invested in Bitcoin for a number of years, and in order to make a profit, they would constantly buy with their small surplus, and would never sell. Therefore, all this amount of money, collectively and globally, and cumulatively hoarded, would disappear from consumption, this money would go out of consumption, and out of the system of the economy.
As a result, the sales of many companies worldwide will decrease, they will shrink, unemployment will rise, and possibly will occur a shortage of goods. Because in order to increase GDP, an increase in consumption is required, and it is also a determining factor. But if more and more money were “stored” in Bitcoin worldwide, imagine in the long run what a blow, it would be to consumption, and its effects on the wider economy.
At the same time, the accumulation of individuals in bitcoin, that is, constantly buying with their ‘surplus’ and not selling, would limit the money, which otherwise, be channeled by individuals, into productive investments, e.g. in the financing of enterprises, which would invest in increased production, new products, etc. And the reduced investments, especially in the long run, strike a blow to the GDP, and obviously, to the wider prosperity of the society, which it undermines it.
- Factor 3
Bitcoin, as a means of transaction/money, will have gradually expanded greatly and will have ‘conquered’ a significant space, as money, as a means of purchases.
Consequences: Since Bitcoin would be widely used as a money / transaction mean, as a deflationary it is, it would bring deflation. A deflationary situation is multiple times worse than a (hyper)inflationary situation. The bitcoins that will exist in a few years, will be 21 million and that’s it. If we subtract what has been lost forever, around 5 million, we will have a total of around 16 million bitcoins, for the whole world. Because the number of currencies will not be able to increase (what bitcoiners refer to, as a serious advantage of BTC, that it will be 21 million and nothing more then) it will affect businesses, companies and merchants, to compete on the lower price base. But then, the profit motive shrinks.
The deflation that Bitcoin would bring with its rise, would have drastically reduced the incentive for investment and production from producers part: They could not claim a higher price with a modified / advanced product, as they would operate in a deflationary environment, which will only favor competition on the basis of the lowest price. Imagine Apple would have to launch the iPhone in such an environment, which, in fact (and not in this hypothetical environment I describe) launched it, because it could sell it much more expensive, so that by selling much more expensive, it could cover and fund the Research for new products…
Returning to our hypothetical example, with the consequences, if deflationary Bitcoin had become mainstream as money / trading medium, it would be very negative for consumption, because from consumers’ point of view, if the money I have today, “tomorrow” will have more purchasing power, then why should I consume today, and not consume tomorrow, since tomorrow due to falling prices (deflation) I will be able to buy more with the same money?
For those who don’t know, let me say that for the economy, the best is an environment of low and controlled inflation. Because when such an environment prevails, whoever has money, thoughts that at some point and due to inflation, my money will have a lower value, so it is good not to have it to ‘sit’ somewhere, stored, and seems better to invest them somewhere, in order to have a better return, thus, to maintain their purchasing power or to increase it.
- Factor 4
Many speculators and traders will have placed on Bitcoin, precisely because they will like its strong long-term uptrend. Of course, they will be indifferent to the Bitcoin functional use, their interest will have been purely speculative.
Consequences: A lot of speculators and traders, would put money in bitcoin. This money, again, would not be productive, that is, it would not go to companies that make investments, that research and innovate, that offer employment. This money would be ousted of the real economy. The more money that ousted, the more negative the consequence on the real economy.
- Factor 5
Big Wall Street players will have gotten into Bitcoin, because they, too, saw a great opportunity to make a profit.
Consequences: The same consequences as in the previous point (4). Moreover, because, as we have said, they, the big Wall Street players, do it purely for profit / speculative reasons, as they strengthen the uptrend, so they will strengthen the downtrend – it is no coincidence that their slogan is “Bulls make money, bears make money, pigs get slaughtered”- they are not loyal to stock, Bitcoin or any asset; they are speculators. And guess who will be “slaughtered”…
Conclusions from all the above:
From all of the above, I imagine you understand that the more Bitcoin goes up and / or expands, the more dangerous it becomes for the economy and society, and in fact in various ways.
Because if it really went up a lot, with the rise fueled by all above five factors (and this is what bitcoiners say, to support the BTC’s price-rise), it would lead to deflation, which is much worse than (hyper)inflation. Because if it went up too much, it would reduce the speed of money… Follow the following example: Imagine that all the money is 100 Cash Units (CU) and I am the only one to have it, and you do not. Won’t you be penniless? But if, out of these 100 CU, I give you 50, you will no longer be penniless, but you and I will have 50 CU each. If we then, give each of us, from 25 CU to other two people, we will be four people total, with 25 CU each. Now, we will be able to exchange products between us, through money (CU). We will all prosper when money moves. But a money that is hoarded, like Bitcoin, that does not serve the financing of real investments, then this will be a wide behavior in society, will bring the reduction of money circulation, which ultimately brings poverty.
Also, the rise of Bitcoin to $1 million, would lead, worldwide, in the reduction of consumption, reduction of production, reduction of innovation, reduction of employment.
Bitcoin is becoming destructive for the majority of people, the lower and middle class. Because even in a collapsing economy and society in serious trouble, the very few rich people, would have enough money and assets and productive means, to continue to live satisfactorily. It’s the middle and lower class, 60% of the world’s population, maybe more, that would have a survival problem.
I guess you understand, that Bitcoin, if it ever succeeded, would eventually bring disaster, and therefore, you can not call it a currency / asset, which is good for the masses of people. Because through the disaster, a reset in the economy would be made. But do you think the reset would be done in terms of equality and social justice or would the then powerful people, impose their own terms in this “jungle” that had been created? … thus, strengthening their position against the large by terms of % population, middle and lower class?
Fortunately, of course, all of the above is impossible to happen, because society, worldwide, with the citizens that make up the world community and the institutions of government, has a sense of its own interest, and has the will and means, in order to achieve self-preservation. The society, consisting, worldwide, of the citizens and the institutions of government (States), sees the dangers, and because they do not want to “commit suicide”, they prevent them effectively and timely.
Therefore, I am certain, that either the citizens or the institutions of government / States, will do what is necessary in a timely and effective manner, in order to avoid the risk of disaster that would occur for economy and society if Bitcoin, as I started the article, continued its upward trend, and supported by the five factors I mentioned in the beginning of the article, Bitcoin kept rise, up to $1 million (currently valued at around $55 thousand).
The prevention, possibly, of this catastrophic risk for the society will be undertaken and imposed by the institutions and not by the citizens, as the citizens are “stoned” from the huge book profits, caused by the rise of Bitcoin and do not have the knowledge, to realize the future disastrous consequences if Bitcoin continued to rise for another ten years, and became kind of mainstream. Institutions have the means to identify the dangers, they also have the means to prevent them. However, the citizens have not, also, adopted Bitcoin; they don’t use it for transactions, although it’s a 12 year product.
Dear readers, do you consider it a coincidence, the consecutive and repeated warnings, especially from central bankers / central banks around the world, that those involved with cryptocurrencies (basically = Bitcoin), can lose up to all their money? Or do you think that this is all they can do (verbal warnings) and will not follow, if and when needed, other moves, which will become apparent or others that will remain hidden? Have you watched the scalable / staggered actions e.g. in China, depending on developments?
And of course, the higher the Bitcoin will rise (compared to current levels), the closer the risk of disaster comes, and there will be less space and ability to react (from society). Not to mention Bitcoin’s huge environmental consequences…
With all the above in mind, I’m reaching at another multi-way finding, that contributes to my spherical view that Bitcoin by the year 2030, will be vanish or zombified (its value will fall to a few euros, maybe cents, it will become a “zombie”).
…for those, considering investing in bitcoin and other cryptos too.
Bilingual book (English and Greek) – Βιβλίο δίγλωσσο (στα Αγγλικά και στα Ελληνικά)