Data Driven or Go Home

Yesterday I wrote on my expectation for how institutional investing will alter bitcoin’s price. I referred to an article by CryptoQuantic. I posted my analysis on Reddit and CryptoQuantic saw it. He requested further comment about why I said I disliked the first part of his article, although I liked the latter part. This article simply pastes my response to him.


OP: some good stuff, esp after “Enter — precious metals”

What did I not like about the section prior? It’s a subjective (ie not data driven, in contrast to the later part) and simplistic stereotyping of a complex social ecology.

It at once misrepresents the parties that exist and also misses important parties that do exist. Specifically:

1 — Believers: Includes real users who are confident in the system. Yet not all believers are hodlers or even want an increasing price. Specifically, miners have an incentive to sell in the futures market (this is the missing party I referred to). Typical users are not all long-term hodlers. Some hold in a cash account eg Coinbase and buy for immediate to avoid price volatility. Lastly, even the hodlers aren’t actually hodlers. True, the community has a remarkable ability to buy the dip, etc, as you say, but plenty of times we have shown the typical manic/panic psychological traits of any market.

2 — Skeptics: Again, believer !== price will go up. Thus, those saying the price will go down are not all saying “But Tulips!” For example, myself. See more below.

3 — Institutional investor: I agree many just want to buy bitcoin and sell at a markup, but this is a service for mutual fund holders and others who need to buy this way or aren’t familiar with or don’t trust Coinbase and other btc intermediaries. Additionally, institutional investors are diverse. Some are bullish and some are bearish on bitcoin. Futures markets are net beneficial because they cause an asset to better track it’s fundamental value. This is a general benefit to the market. Finally, the ability to margin trade, compliance (ew i threw up saying compliance, but still), and the network effect brought in by institutions are all, to varying degrees, benefits to today’s bitcoin community.

Lastly, normal people go back and forth between being a ‘believer’ and a ‘skeptic’ in terms of price valuations. I’m a permanent believer in the value of bitcoin, but I switch sides all the time about whether the price will go up or down from where it is today.

That being said, don’t take me as overly critical. I enjoyed the read, and, as you know from the Reddit discussion, cited it in my own work:

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