As we fix our time preference as a society, it is important that we do the same for our price predictions.
Price is the most important signal which is given to participants in an economy. Money is a tool similar to a ruler, where we measure the value of different things in comparison to a fixed measuring instrument. Changes in prices can signal both supply and demand changes, and help economic actors efficiently make decisions which are best for themselves and fit within the real action of the market.
We need money to have an efficient economy and a world with specialization. Often times, two market participants do not have mutual needs which they can fulfill for each other in a barter form of trade. If I make shoes and my neighbor makes pants, we can only trade if I happen to want his pants at the same time that he wants my shoes. With money, we introduce a medium of exchange which is a representation of value instead of the actual valuable good itself. As long as the society around us agrees with our consensus of money, we can conduct a trade. Now my neighbor could buy my shoes, but I don’t have to get pants in exchange. Instead, I get a measurement of the value of my shoes which I can exchange in the future for a different good or service from someone else.
When looked at from this lens, the problem with our current form of money becomes apparent. Money which is ‘soft’ and can be created or destroyed easily provides for a very weak form of measurment. How can I accurately price things efficiently in a market if I don’t know how many units are on my ruler? How can I store the value of the goods or services I produce across time if there can be significant changes to the supply and therefore value of my money in the future? This weak form of money creates lots of inefficient price signals, and allows that economic message to be distorted by whoever has the ability to aquire currency the easiest. I can acquire currency, but it takes me lots of labor to do so. I am not able to manipulate the price of assets or goods easily, because it would be very hard for me to acquire the money to do so. The Federal Reserve however, can produce an infinite amount of money with no real effort required. They can then sell this money to the government, which can choose which price signals to distort for their own gain.
Bitcoin is the antithesis of this soft money system. It has a perfectly fixed supply, fair distribution system, and allows for efficient pricing of goods and services along with the storage of that value across time.
It is humorous to price Bitcoin primarly against the current monetary unit of account, although I can understand why it is done. Bitcoin is still not at a level of social consensus where it can demand that goods and services are priced against it, so it must rely on the pricing of the old form of money if it is to be used as a medium of exchange. But seeing as we are destined to have to create more U.S. Dollars to service our debts and run our system of government, the trends which have occurred in the past are likely to continue. Let's look at how things will be priced in the long run.
In the long run, Bitcoin will become the primary store of value, medium of exchange, and unit of account. Society favors the hardest money, and there has never been a harder form of money in our long history. As more of the effects of poor pricing signal and misallocation of resources radiate through the fiat economy, Bitcoin will become a better and better tool of measuring real economic value. One Bitcoin will not ever really have meaning when priced in U.S. Dollars at a certain point. Instead, oil, stocks, gold, housing, and all other valuable goods will be priced using it as a ruler. One Bitcoin will simply equal one Bitcoin, in the same way that we don’t discuss a million dollars as 40 Bitcoins or 2.2 houses or something silly like that.
As time progresses, the natural deflation in prices that advancements in technology and human efficiency create will start to shine through again. Increases in prices of goods will be real economic signals for scarcity or increases in demand, and will be able to be interpreted by market participants in an effective way again. Oil, over time, trends down against Bitcoin, and would only ever rise in price under circumstances of real increased demand or real scarcity, which would send signals to either change behaviors or produce more, creating a better future world.
Right now, equities markets have been becoming much cheaper when priced in Bitcoin. They will continue to do so until they are efficiently priced as well. Once they become efficiently priced, I would assume they would act in a similar way to how they act against the M2 money supply now. When there is more demand for equities and people want to own parts of companies, their price will rise. This would be a signal for a strong economy and good times. When hardship comes and there is economic failure, their prices will fall, and the signal will be given to save and be conservative. There would be much less investment in equities as a portion of global wealth, as people would only own a company if they had an interest in its goals or thought it would provide positive real value to society, a much higher bar than we have now.
Price is an integral tool to what we do as a society. We must fix our price signals, create money which is an effective store of value over time, and practice low time preference behavior to create a better world for tomorrow. The price of Bitcoin will continue its volatile path upwards versus the dollar, with huge drawdowns mixed in. But the ultimate price of Bitcoin will be measured not against the dollar, but against what you wish to buy with it.
