Former Wall Street Analyst Says “Hodling” Killed Bitcoin as an Electronic Cash System
In a blog post, the former Wall Street Analyst, Jon Horvath, talks about how hodling has killed Bitcoin as a digital peer-to-peer electronic cash system.
He started his post saying that he is pro Bicoin and support of this virtual currency and that he is not evaluating the Hodling strategy from an investor perspective. In the article he will be analysing how Bitcoin has progressed towards becoming what Satoshi described as a digital peer-to-peer electronic cash system.
He said that hodling Bitcoin did not help increase the number of transactions that on the blockchain and that the number of transactions would not catch up to the market capitalization.
According to a survey from Chainalysis, cryptocurrency processors show that hodling is not a good strategy to help Bitcoin become a means of payment. In the survey, they analysed 17 different payment processors that show that in December they registered over $400 million dollars per month. However, the number of Bitcoin transactions has been declining after it.
He explains that currencies have an evolution pattern that starts from currencies being a store of value, evolving into a means of exchange and after it becoming a unit of account.
The author of ‘The Bullish Case for Bitcoin,’ Vijay Boyapati, explains that currencies, to be considered as a means of exchange, need to be durable, portable, fungible, verifiable, divisible and established in history. However, he decided to introduce a new important attribute: censorship resistance.
Censorship resistance, as Mr. Horvath explains, is ‘how difficult is it for an external party, such as a corporation or state, to prevent the owner of the good from keeping and using it.’ So, having something that is censorship resistant means that it has high levels of portability.
Nonetheless, there is a problem in holding. He says that an inflationary currency cannot be used as a store of value because holding it means that the user loses value over time. If the asset is deflationary, there are no incentives to use it as a means of exchange. Holding a currency is a drag on the economy for him. Because of Bitcoin’s volatility, it is impossible to use it as a unit of account.
Horvath says that Bitcoin has all the attributes of a store of value, but lacks stability and established history. Bitcoin will take years before it can be considered as an established currency.
But the author explains that there are some niche payment applications that cryptocurrencies can be used for. One of these points he marks is the transmission of fiat currencies. It can be through cross border payments, wealth transfer or capital flight from some countries.
For the analyst, the greater app for Bitcoin is Greater Fool Trading. It offers trading of Bitcoin in on-line casinos. There are several casinos listed and have tens of billions of dollars of market capitalization.
He calls that application Greater Fool Trading because Bitcoin has no intrinsic value. Assets and securities do have cash flows that are related to dividends, rental payments and interest payments. In the case of Bitcoin, users need to believe that in the future, someone would buy that Bitcoin for a greater price.
About it he mentioned:
“When you buy Bitcoin today for $6,300 there are no earnings or cash flows that lend support to that $6,300 level, so you have to believe that someone will buy that Bitcoin from you at a higher price in the future. The seller, unless they need to raise cash for some reason, most likely believes the opposite and that is why they are selling.”
He explains that the value of Bitcoin increases when it is broadly disseminated and when more transactions are processed.
Horvath says that the market capitalization of cryptocurrencies is not the one that we see, since it does not work in the same way as assets with cash flows or other assets with intrinsic value.
Nonetheless, the author of the post says that there are some positive things about Bitcoin’s price in the short and middle term. He mentioned that Morgan Stanley and BOAML will join Goldman Sachs in offering their Bitcoin derivative products and clearing Bitcoin futures.
At the time of writing, Bitcoin is the most valuable virtual currency with $115 billion dollars market capitalization. Each Bitcoin can be bought for $6,700 dollars.