Bitcoin's Flat Price, Its Path Back to Cash
A predictable, slow-moving valuation would finally let the token work as a medium of exchange, reviving the everyday-payment purpose its creators intended before speculation buried it.
There is a question bitcoin holders have quietly agreed not to put to one another too directly, and it happens to be the simplest one available. Not whether the price goes up. How much, by when, and measured against what.
The loud answer is a million dollars. A few analysts still pencil bitcoin in for seven figures on the strength of the same network math everyone else uses, and the number gets repeated at conferences with the serene confidence of a weather forecast for yesterday. It is a good applause line. It has been a good applause line for a decade.
The quiet answer is uglier, and it has the inconvenient quality of having actually worked.
Six years ago a former commodities portfolio manager at TCW Group named Claude Erb handed the financial columnist Mark Hulbert a way of pricing bitcoin off Metcalfe’s Law, the old engineer’s rule that a network is worth something like the square of the number of people on it. Plot bitcoin’s price against the fair-value line that rule produces and a stubborn pattern appears. Every time the price has wandered off, above the line or below it, it has wandered back. Not sometimes. Each time. And right now bitcoin is parked almost exactly on top of it.
All of which would be reassuring, if not for what the line does from here.
It flattens.
Run the model forward and bitcoin’s return over the long haul comes in south of one percent a year. Carry it all the way to the end, to the moment more than a century out when the final coin is mined and supply slams into its built-in ceiling, and the annualized gain from today’s price settles at around 0.6 percent. After that the line goes horizontal and stays horizontal. A dip recovers. A bear market ends. The flat line just keeps being flat. That is the destination. Forever turns out to be a long time to underperform a savings account.
Erb himself does not oversell any of it. Bitcoin’s behavior is consistent with the model, he has stressed, which does not prove that it is right or true. Honest of him. But consistency over many years is more than the rival forecasters can claim, and their models share a curious tic: they keep arriving at whatever figure would make the holdings worth the storage trouble. Fair value in their hands is just the current price with an exponent bolted on and the optimism left running.
It is worth remembering how crowded the graveyard of bitcoin price prophecy already is. Model after model has promised a six-figure floor or a seven-figure moon by some specific date, and the dates keep arriving without the prices. Erb’s earns its hearing precisely because it is the rare one that flatters nobody, least of all the audience that tends to commission this sort of forecast.
The flat line is not bitcoin’s obituary. It is the only road back to the thing the project promised in the first place, the use case its own evangelists keep invoking the moment regulators walk in: a medium of exchange. Money. Not a lottery ticket with a podcast attached. Money.
And money is supposed to be boring. That is the entire job description. The dollar sitting in a checking account is a famously dreadful investment, and that is not a defect; it is the precise property that lets a person hand it over for a sandwich without doing arithmetic at the register. The boredom is the utility.
Now layer appreciation on top. A currency everyone expects to be worth more next year is a currency nobody spends this year. Why surrender the magic coin for a burrito today when holding it is supposed to make you rich by Christmas? So the holder holds. Every holder holds. (The maximalist word for this is conviction; the older word is hoarding.) And a thing nobody spends is, by definition, not circulating as money, however reverently it gets described as the future of money.
That is the cul-de-sac the maximalists have talked themselves into, and they walked in cheering.
The tax bill is merely the visible bruise over the deeper injury. Take the model’s own illustration: try buying an ordinary $800 phone with coins picked up years ago at half the price, and the federal government treats the purchase as though a stock had been sold, cost basis and holding period and all. Washington wants its piece of the paper gain. For a buyer in California, Sacramento queues up right behind it for a second helping. A trip to the store becomes a taxable event, line by line, coin by coin. No serious payments system gets built on a foundation that turns lunch into a brokerage statement, and none should be.
So the very appreciation bitcoin’s believers pray for, the number go up that is the whole emotional content of the asset, is the same mechanism that guarantees bitcoin can never become the thing they insist they want it to be. The outcome they are rooting for is the outcome standing in the doorway. Number go up and digital cash are not two compatible features of one clever asset. They are opposites, and the holders quietly chose the first while keeping the slogans of the second.
Read the other direction, Erb’s flat line stops looking like a curse and starts looking like an offer. A price that barely budges is a price a merchant can actually quote and a customer can actually pay. It is the version of bitcoin that circulates instead of sitting in cold storage appreciating, which is only ever a polite synonym for sitting in cold storage waiting to be sold, which is the same as never having been money at all. Store of value and medium of exchange have been at war inside this asset since the beginning, and the model is merely announcing the winner the holders refuse to hear.
They will call a flat forecast a death sentence. It reads more like a diploma.
Send the childish question back down the table, the one the holders would rather not field between the turkey and the pie. What is it really going to be worth? The honest answer carries no string of zeros. It is a shrug. Roughly what it costs today, give or take, for a stretch longer than most countries last.
And the shrug, strange to say, is the bullish case, for anyone in the room brave enough to pick it up. The afternoon bitcoin finally gets dull enough to spend on groceries without phoning an accountant is the afternoon it does the one job it was built to do. The holders already have a name for that afternoon. They call it a crash.
References:
Bitcoin’s long-term return may actually be close to zero, and that could be just what it needs