Simple and bizarre arguments can be contagiously persuasive.

I have invested in Bitcoin (Bitcoin 1.22%) on and off for over 10 years, but I never had the conviction to hold my coins for long. After all, it is doubtful that currencies will ever have real utility in the way a precious metal would, and there is certainly no large nation-state or equivalently powerful actor that supports their value or accepts them as a medium of exchange.

A few years ago, however, I heard an absurd argument that completely ignored all of these concerns, and now I am convinced that I will buy and hold Bitcoin forever.

Value is a social phenomenon

We use dollars as our main currency every day. Despite the fact that a piece of paper with a US president on it will never be inherently useful for any productive industrial purpose, there are many people around the world who recognize that such a piece of paper It’s still valuable.

In fact, people are so deeply convinced that money is valuable that they are usually willing to trade their time, effort, and other resources to acquire it. In other words, there is widespread social consensus that the pieces of paper known as dollars can be exchanged for other people’s resources.

There is still no such consensus on Bitcoin, despite its dramatic strides towards becoming more widely accepted as a store of value. However, there is a popular stereotype that posits the existence of a group of die-hard cryptocurrency enthusiasts who are utterly convinced of the merits of Bitcoin, regardless of what anyone has to say about it, to the point of being delusional.

Detractors will claim that such investors are accumulating Bitcoin out of an inability to discern that digital currencies are in fact useless because they are not useful for making most of the transactions that are needed in dollars to carry out. On this point, the detractors seem to be right; If you’ve ever tried to use Bitcoin to buy a burrito, you probably came home hungry. The financial infrastructure to use it for everyday purchases simply doesn’t exist and doesn’t appear to be on the way.

But the bears miss a much more important point. People with a cult following of Bitcoin are so convinced of its value that they are effectively immune to any attempt to dissuade them, no matter how adept, extensive, or factually correct the objections may be. They just don’t care; their minds are made up and, if we are to believe them, their opinion on the matter is set in stone. They are practically indoctrinated, as they will always be willing to buy Bitcoin from those who no longer believe in it.

And if they can help it, they will never sell a single fraction of Bitcoin. In your opinion, how does the currency mining difficulty increases over time as a result halves that are encoded in the protocol, fewer and fewer new tokens will be added to those in circulation and the price will increase. So for them it is rational to buy at any price, because in the future it will be higher.

Put another way, the existence of these serious Bitcoin aficionados implies that the currency cannot go to zero, as even if the price drops drastically, there will still be individuals who will want to buy it, as long as they have dollars or other currencies to do so. it. . Therefore, there is a floor for the price of Bitcoin.

They think this perpetual purchasing behavior will pay off in the long run. The group that exerts constant upward pressure on the price of the currency is responsible for providing a base level of demand that produces the price action they desire. They invest and evangelize as conscious acts of self-fulfilling prophecy.

So far, they have been handsomely rewarded for their conviction. And, so the absurd argument goes, you don’t even need to believe in the merits of the Bitcoin protocol to see why it’s a good investment – you just need to believe that fanatics exist and they will take care of the rest.

There’s no guarantee it’ll go up forever

Is a relatively small group of evangelists really all that Bitcoin needs to grow forever?

It doesn’t seem right. But it probably is. More investors are adding coins to their portfolios every day, and there will never be more coins than the 21 million described in the protocol.

When taking diehards into account, any growth in the currency’s investor population implies that prices will rise even if new converts are not as convinced. Of course, it’s possible that investors’ conviction is fickle. It is also possible that the value of Bitcoin fall tremendously and never recover, making it a bad investment.

But the optimistic argument is persuasive because it recognizes that a currency’s direct usefulness may be a separate issue from its role as a store of value. Likewise, all that something needs to be a store of value is for other people to believe that it is and to behave accordingly. For Bitcoin, the belief is already there, so I will buy it slowly for some time.

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