Editor's Note: The original title was "How much global demand is there for Bitcoin in the future? 》
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As for whether Bitcoin will become a value storage tool, just one thing needs to be clarified- how much global demand for Bitcoin will be in the future?
If an item is to have value storage properties, its supply must be limited and demand must be strong. Bitcoin clearly meets the former condition, but its demand side is still a huge unknown.
Yes, you can say that there is already a demand for bitcoin today, but how confident are you about the strong demand for bitcoin in 10 or 50 years?
Before predicting the demand for bitcoin in the future world, let's first think about why there is demand for bitcoin today, or ask another question: why do you buy bitcoin?
Because you are confident that you can sell for a good price in the future?
This reason is not enough. You must know that everyone who bought junk stocks in the era of the Internet bubble and everyone who bought high-priced housing before the subprime mortgage crisis once believed that they could sell a good price in the future.
As long as you have a basic argument that explains why it appreciates and is not affected by other irrational prosperity, you can buy it for profit , which is what this article is pursuing. Let's find out how much global demand for Bitcoin will be in the future.
1. Will Bitcoin replace some of the demand for gold?
About 2500-3000 tons of gold are mined every year. Although the supply of gold is not as stable and accurately predictable as Bitcoin, the impact of gold supply is too small, and its fluctuation has almost no effect on the price of gold.
The price of gold is almost entirely determined by demand. The demand for gold depends on income levels, interest rates, inflation, and several other macroeconomic and geopolitical factors. A good rule of thumb is that when people are frustrated in the stock market, they will seek refuge in a safe haven like gold.
1. How big is the gold market?
Of all the gold demand, jewelry accounts for about 50% of global gold demand, mostly from India and China; gold bars and coins account for about 25% of demand; electronics, other industrial uses and dentistry account for another 15% of demand; central banks Net purchases account for approximately 5%.
At the same time, the demand for gold from gold ETFs, funds backed by gold, and other financial instruments has soared. These financial instruments allow you to invest in gold without having to worry about the trouble of holding and protecting gold.
At first glance, about half of the demand for gold comes from jewelry, but if you look at the price sensitivity of the jewelry market, you will find that for every 1% increase in gold price, the demand for jewelry will only fall by 0.5%.
If most people who buy gold treat it just like a new pair of jeans, then they should be more sensitive to the price of gold.
In fact, more than 80% of gold buyers choose to buy gold because they believe it is a safe investment. In other words, gold is mainly used to maintain value and fight inflation.
When inflation is out of control, people are willing to pay a higher price for gold; when the market collapses, they are willing to pay a higher price for gold; when people lose confidence in stocks, they also turn to gold for asylum, even though gold itself has no No warranty. This is worth reiterating-there is no guarantee or support for gold.
Gold has strong demand, it is fully capable of absorbing temporary oversupply, is not affected by inflation, and is resistant to volatility to a certain extent. Although the vast majority of investors who invest in gold do not usually expect huge returns from gold, demand for gold still exists.
In the past 20 years, the price of gold has increased by 400% (annual average return is about 8.4%); in the past 10 years, the price of gold has increased at an average annual rate of about 3.5% -in other words, under normal circumstances, investment Gold is just to prevent inflation.
If Bitcoin has similar returns in the next 10 years, would you invest in Bitcoin today? If you are not living in a region where hyperinflation becomes a reality, you may answer "No".
2. Is Bitcoin Digital Gold?
Although people often refer to Bitcoin as digital gold, the average investor's expectations of Bitcoin are very different from gold.
Few people will admit it-the vast majority of people are speculating today, and they want huge returns on their capital in the short or long term. They are certainly not looking for something that simply stores value.
At current valuations, the total value of all mined gold is about $ 9 trillion. At the time of writing, Bitcoin's market capitalization is approximately $ 185 billion.
However, those ideas that expect a certain percentage of the value of gold to be transferred to Bitcoin, thereby making Bitcoin more valuable, are totally unreasonable. And it is wrong to use such fantasies as a reason to invest in Bitcoin.
To be honest, the analogy of digital gold is simply not convincing. Bitcoin is currently not a digital alternative to gold and unlikely in the near future.
As an asset that can maintain value and resist inflation without excessive volatility, its best digital alternatives are gold-backed exchange-traded funds (ETFs) and stablecoins.
Yes, these "digital gold" are centralized.
Yes, you have to rely on middlemen.
Yes, an independent audit is required to verify the authenticity of the gold reserve.
But it provides what people all over the world have always wanted- secure investment. These "digital gold" also provide the same severability as Bitcoin (you can easily buy and sell some shares of the gold ETF), liquidity, and ownership.
If you still don't believe it, just look at what happened in the past five days and you'll know.
The S & P 500 index fell 8% as concerns over the coronavirus increased. Investors flocked to safe-haven assets such as gold and government bonds. What happened to the price of Bitcoin? The drop is more than 9%-there is no characteristic of digital gold at all.
Yes, the analogy of digital gold is very useful. It makes people understand that even digital assets have scarce value. However, this literal interpretation of digital gold is very misleading.
Will Bitcoin replace some reserve currencies?
Where else can the strong, sustainable, long-term demand for Bitcoin come from?
There are more than 80 trillion US dollars of broad currency in the world held in fiat currency, of which about 5 trillion US dollars are circulated in the form of banknotes and coins, and the rest are checking accounts, current accounts, savings accounts, money market accounts Wait.
The US dollar is currently the most popular fiat currency, and nearly two-thirds of China's central bank's foreign exchange reserves are denominated in US dollars. In foreign exchange transactions, about 90% of transactions involve the US dollar, which can be said to be a global currency.
So far, the United States has achieved significant results in controlling dollar inflation. However, the growing U.S. federal budget deficit (currently $ 1.1 trillion) has raised concerns about hidden dollar inflation. Therefore, China has also been proposing to the International Monetary Fund to establish a separate global foreign exchange reserve while realizing diversification of foreign exchange reserves.
It has been suggested in the past that Bitcoin has the potential to become a global reserve currency. However, bitcoin currently does not meet one of the basic requirements for becoming a global currency reserve- it is not an effective medium of transaction due to its extreme volatility.
At the very least, global currency reserves need to be a medium of exchange, a means of value storage, and a unit of account. Currently, Bitcoin does not fall into any of these categories. As a result, the often touted $ 7 trillion global foreign exchange reserve market opportunity is untenable today.
3. Is the demand for Bitcoin remittances globally?
Global remittances total approximately $ 715 billion . India and China are the world's largest recipients of remittances, each accounting for approximately 10% of total remittances. These markets are highly competitive, resulting in relatively low transaction costs.
If you send a large sum of money to India, the transaction cost of a fast and cheap service is about 0.6% -0.7% of the total remittance. However, the average transaction cost of remittances to low- and middle-income countries worldwide is as high as 7% of total remittances.
In particular, the transaction cost of remittances to parts of Africa may exceed 10% of the total remittances. Although the current situation desperately needs to be subverted, it is somewhat impractical to expect participants to convert a significant portion of $ 715 billion from fiat money to bitcoin each year to achieve the goal of low transaction costs.
Personally, I believe that stablecoins, which are as volatile as fiat currencies, may become a back-end service for cheaper global wire transfers. By then, the underlying programmable assets (cryptocurrency), programmable distributed database (blockchain), and decentralized consensus protocols will be largely invisible on the consumer-facing front end.
In other words, customers are less concerned about whether it is supported by assets, whether it is reliable, independent audited, or has other collateral. Without reducing transaction costs, customers have no reason to favor a well-designed incentive mechanism to curb volatility. Lack of trusted systems.
Fourth, is the demand for Bitcoin in e-commerce?
So is there a chance for Bitcoin in the legal e-commerce market?
Every day more and more e-commerce accept Bitcoin payment, which is exciting. However, what basic problem does Bitcoin solve for merchants?
Yes, e-commerce merchants can find companies that process Bitcoin payments (transferring Bitcoin from customers 'wallets to merchants' wallets) to get merchant discounts that are cheaper than credit card payments (usually between 1.5% and 3%) .
But due to the volatility of Bitcoin today, savvy merchants would not want Bitcoin to appear on their balance sheets. This is the hidden cost.
In order to exchange received bitcoins for cash, merchants usually need to withdraw bitcoins to a cryptocurrency exchange (charge a certain fee), then exchange them for cash (charge more fees), and then withdraw from the exchange to Bank accounts.
Even if this limitation is set aside, the current bitcoin cannot be used for large-scale commercial applications. You must know that Visa can process 1700 transactions per second on average, up to 24,000 transactions per second, and the Alipay system can process more than 25 Ten thousand transactions.
All in all, Bitcoin is not yet able to make a meaningful impact on the e-commerce industry.
V. Where Bitcoin is most needed
In the long run, the most in-demand place for bitcoin is actually those bad fiat currencies that suffer from hyperinflation-this number is about $ 6.5 trillion.
Although Bitcoin's volatility is significantly higher than most current fiat currencies, the gap between the two is certainly narrowing. Bitcoin, an asset with precise inflation settings , is a very attractive asset for those who fundamentally do not trust ZF to maintain its currency value.
Many people know that the demand for Bitcoin in countries such as Venezuela has exploded recently. However, whether bitcoin is the asset of choice for protecting savings from high inflation is still inconclusive. In this field, stablecoins of a certain size and widely used will also become Bitcoin competitors.
All in all, Bitcoin has a long way to go before value investors can see its value. Today it is primarily a tool for speculators to bet on the future, and most people actually don't intend to use it.
Bitcoin is definitely an amazing existence, and the Bitcoin community has every right to be proud of itself. But a great technology can create more lasting economic value only if it becomes an excellent product or basic service.
Compared to speculation coming and going, Bitcoin's future needs real demand. If the growing awareness of bitcoin does not allow people to generate stronger demand , events such as the Cyprus banking crisis or Brexit that can stimulate temporary demand will ultimately have little significance for the future development of bitcoin.