The digital asset market always likes to discuss general trends, especially around Bitcoin. Today's situation is no different, as the world's largest cryptocurrency fell more than 40% on March 12, and the entire ecosystem's attention was attracted by the price of Bitcoin.
But let's set aside the current situation and look at the long-term trends we observe from the following analysis.
- Google entered the banking industry with a new attitude of "bitcoin killer", and bitcoin was threatened again?
- Market analysis: risk aversion cools, safe-haven asset prices fall
- Babbitt column | The core function of Bitcoin, is it stored value or paid?
- A North Korea you don't know: beauty temptation, hacking money, national mining
- Bridge Water Fund Ray Dalio talks about paradigm shift: Will gold or bitcoin be bought in the next decade?
- Babbitt Column | A Brief History of Blockchain: Where does the blockchain come from and win the Nobel Prize?
Chart source: woobull
The chart above illustrates the comparison of the currency velocity between Bitcoin and the M1 and M2 USD currency stocks. Also according to this icon, it can be shown that the speed of Bitcoin circulation is an indicator of the speed at which Bitcoin is circulating in the digital asset economy. By using M1 and M2 money supply to plot the velocity of Bitcoin and analyze it, where M1 is equal to the value of "approximate cash assets", M2 is equal to "approximate cash assets" and liquid non-cash assets.
In the chart above, it's clear that since 2012, Bitcoin has mediated currency stocks close to M2 USD, not M1, suggesting that it has been used primarily as a savings or investment and not as a payment instrument.
Bitcoin is not used as a payment tool? This is not surprising
Since the introduction of bitcoin as a peer-to-peer electronic cash system, the bitcoin industry has made considerable progress, and many people have become its supporters, supporting bitcoin to replace the future fiat currency system. Over time, Bitcoin has achieved a lot, but it has never been developed as an effective payment method.
However, Bitcoin's growth has been good over the years, but Bitcoin has also been placed in a high deflationary environment. Deflation occurs when the purchasing power of an asset increases significantly in a relatively short period of time.
Over the years, Bitcoin's purchasing power has grown so fast (the higher the price of Bitcoin) that users are reluctant to use Bitcoin as a payment method. Even though the price of Bitcoin has stabilized in the short term, the soaring market in 2017 still makes many people remember it, making them unwilling to use Bitcoin as a payment method and prefer to hold it.
An entrenched "FOMO" culture is constantly being established in the community, and there are narratives that Bitcoin will exceed $ 100,000 in a few years, which will only increase investor interest in holding the world's largest digital asset.
About Bitcoin as a value store
When it comes to bitcoin going above $ 100,000, people believe that the value of the bitcoin they hold will only increase over time.
This particular ideology has caused controversy that Bitcoin is a value storage asset, an asset similar to gold. Due to Bitcoin's scarcity index, this narrative has also increased over time and strengthened over time. Bitcoin's 21 million circulation cap adds bitcoin's hedging properties, and many supporters are starting to see it as a value storage asset.
Civic CEO Vinny Lingham speaks best,
"I always thought that Satoshi Nakamoto originally intended to use Bitcoin for payment, not value storage. That is, he left Bitcoin, so now for better or worse, the community is in control."
Is Bitcoin considered a currency?
Looking at recent developments in the bitcoin field, discussions in the derivatives market or bitcoin ETFs may be higher than in other news reports. However, Bitcoin derivatives and ETFs only explain talking about Bitcoin from an investment or digital goods perspective, not as a payment medium.
For Bitcoin to acquire any form of monetary status, such assets will need to maintain low volatility and stability. Ironically, the implied volatility of Bitcoin has recently surged to an all-time high, a development that suggests that this crypto asset may experience more price turbulence in the near future.
Although this situation has aroused the interest of Bitcoin advocates and investors, it will only continue to weaken the narrative of Bitcoin as a "swap medium."