A little useless thought: Why does the price of Bitcoin tend to rise steadily in the long term? And why might Bitcoin not be able to become a currency?

Let's start with an interesting question: Why have haircuts become increasingly expensive?

The haircut industry has many peculiarities. First, productivity is almost impossible to improve. In 1950, it took 30 minutes to get a haircut, and today it still takes 30 minutes. Although tools have improved, their contribution to efficiency is minimal.

Haircuts cannot be mass-produced; they require one-on-one service, and machines cannot replace human labor.

Haircuts also cannot enjoy the conveniences of globalization; you cannot send hair to a country with cheaper labor to get it cut and then send it back.

While factories have seen production efficiency improve by more than ten times from 1950 to today due to automation, information technology, and mechanization, the efficiency of haircuts has not changed much.

However, hairdressers' wages must keep pace with the average social level; otherwise, no one would want to be a hairdresser.

(This will force the haircut industry to transform, such as further improving efficiency with "ten yuan quick cuts" or justifying high-priced "styling" services, but that’s another topic.)

This phenomenon is known in economics as the "Baumol effect" or "Baumol's cost disease."

The rise in gold prices follows the same reasoning.

Technological advancements have significantly increased industrial efficiency, leading to a decrease in commodity prices.

In contrast, the production of the US dollar is constrained by geological conditions, with limited relative efficiency improvements. Additionally, mining is subject to policy restrictions.

Don't forget that during the gold standard era, gold was indirectly used for pricing.

As industrial technology advances more rapidly, producing 100 goods and 100 units of gold under the same conditions will eventually lead to producing 1,000 goods corresponding to 100 units of gold, resulting in a drop in commodity prices and a rise in gold prices.

The increase in gold prices forced the United States to abandon the Bretton Woods system. (Indeed, I believe many existing explanations have inverted the cause-and-effect relationship.)

After the 1970s, the average annual inflation rate in the United States remained around 3%, while the price of gold rose from $170 per ounce to over $3,000 today, far exceeding the annual 3% compound growth rate.

Why does the price of Bitcoin tend to rise steadily in the long term?

Indeed, the same thing will happen with Bitcoin.

Although Bitcoin mining relies on computing power, which may experience exponential growth after breaking through a certain singularity, the mining rewards are the result of competition among computing powers, and the block time is adjusted to remain constant at around 10 minutes.

The key point is that the growth of computing power has no impact on the total supply of Bitcoin, which remains at 21 million coins.

Therefore, when the continuously increasing global fiat currency issuance and the ever-growing commodity production efficiency correspond to Bitcoin, which relies on algorithms to maintain block time and has a constant total supply, the two will balance each other out, leading to a long-term stable rise in Bitcoin's price, similar to gold.

Why can't Bitcoin become a currency?

Similarly, like gold, Bitcoin cannot currently become a currency under the existing credit economic system.

The reasons are mainly as follows:

1) Deflation will be widespread. As mentioned earlier, with the development of productivity levels, commodity prices will fall relative to Bitcoin prices, meaning that a product originally worth 1 BTC may only be worth 0.5 BTC after some time.

The problem is that businesses choose to borrow to expand, but since commodity prices fall compared to Bitcoin prices, the actual debt increases, and the burden becomes heavier.

2) Price fluctuations make inflation and deflation difficult to predict. This uncertainty disrupts production for businesses. Modern central banking systems have a series of mature methods to stabilize inflation, making data predictable and continuous, which is crucial.

For an extreme example, why do countries like Zimbabwe experience increasingly severe hyperinflation rather than maintaining a relatively high level? Because what is truly harmful is inflation that exceeds expectations.

As the government's inflation levels continuously exceed original expectations—note the word "continuously"—everyone will factor in the inflation costs they bear when pricing next time, leading to a negative-sum game "prisoner's dilemma."

This ultimately results in inflation spiraling out of control.

3) Central banks cannot assume the role of a lender of last resort. Because Bitcoin's supply is limited, if it were to serve as a currency or a currency anchor, banks would be unable to lend money to businesses during crises by printing money, thus failing to achieve flexible monetary supply.

This is also a primary reason why the gold standard gradually exited the historical stage.

Previously, MicroStrategy founder Saylor mentioned that uselessness would become the future in the cyber era, which may be very difficult—difficult to the point where global wealth reaches a peak and no longer grows, and debt no longer expands; perhaps there will be opportunities then.

But in any case, the price of BTC will certainly rise in the long term.

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