The Fed Doesn’t Matter (to Bitcoin)?

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The Fed Doesn’t Matter (to Bitcoin)?

Recently, the crypto community seems to be sticking to the Fed across YouTube. I  enjoy watching the Fed, but in the end I find that “reading the Fed’s tea leaves” is a tedious exercise. 

Using the topics discussed online as a barometer, you would think that the price of Bitcoin depends only on what the Fed is doing. If the Fed raises interest rates by 100 basis points, Bitcoin will fall by 20%, and if  it falls by 100 basis points, Bitcoin will rise by 20%. Security/vulnerabilities of the network doesn`t matter, hash power doesn`t matter, user adoption doesn`t matter, it`s all about what the Fed does. If it`s the Fed that`s driving the prices of Bitcoin and most other assets, then why even invest in any of these assets at all; instead, we should all be putting all our money into Fed coin then.  I think focusing on the Fed, neglects the real drivers of Bitcoin price and it conveniently allows us to turn a blind-eye to the more serious challenges to bitcoin. These challenges are why the bitcoin price is where it is and what`s preventing bitcoin from reaching new all time highs of $100K or more. 

Challenges such as: 

  • How do we make bitcoin easier and more practical for common people to use 
  • How do we reduce the frictions between moving from fiat to bitcoin and vice versa to make it truly usable for remittances 
  • How can we earn the trust of regular people 

That`s why my argument is: we should focus on the fundamentals; it`s the fundamentals of an asset that ultimately drives price, not what the Fed is doing.

The Fed’s policies only help drive speculators inside and outside of Bitcoin, and the Fed  has little impact on Bitcoin’s fundamentals. The Fed’s actions do nothing to improve the protocol or attract everyday users. 

In my opinion, the key basic factors for Bitcoin prices are: 

  1. Network security and vulnerabilities. It is measured by indicators such as hash power, number of miners, and profitability of miners. 
  2. The size of the network. Metcalf’s law, number of nodes, etc. 
  3. Stock-to-flow, supply dynamics measured by Hoddle waves, etc. 
  4. Number of users, number of applications developed to use Bitcoin, adoption of these applications, acceptance of merchants, organic adoption measured by Lightning Network and progress. 

Successful and mass adoption is inevitable, and the collapse of the federal government and the current monetary system is inevitable. We can argue that neither is true. You can’t control what the Fed is doing to disrupt the current financial system, but you can control whether Bitcoin will succeed. It is important to continuously improve these fundamentals. So I think it’s more important to pay attention to some other developments that are happening now  than what the Fed is doing.

Adoption - Results of El Salvador

How is Bitcoin adoption progressing in El Salvador? El Salvador provides  a Petri dish for experimenting with what the Bitcoin economy will look like. I’m paying attention to the reports that came out, NBC reported a bit about it

El Salvador adopted Bitcoin as the national currency, what’s going on with this? –
Link

The conclusion of this report is that people still report that they “do not trust enough technology to use it every day.”  People there still report that they have to deal with turmoil, limited merchant acceptance, and trading friction. 

I think solving these problems is more important to Bitcoin than trying to predict what the Fed will do.  As always, I would love to hear your opinions and counterarguments. 

winwinmike

winwinmike

Researcher, Teacher, Trader, Advisor - Crypto and Blockchain

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