It partially explains the price of gold, yes. Gold's situation isn't really the same for three reasons: First, gold can be mined if the price goes too high, and higher prices would imply larger amounts of recoverable gold. Second, a lot of the gold on the market is paper gold, theoretical gold that two parties are trading rather than sending large gold bars around, which also adds to the supply. But most of all, unlike the supposed use-case of Bitcoin, gold is not being used as a medium of account or medium of exchange any more, just one store of value among many, so its real competition is not paper gold or mined gold but other stores of value such as platinum, silver, real estate, and many other things being added to the competition for 'stores of value' as the economy grows. If the same fraction of the population tried to store the same fraction of their net assets in gold today as in the 1600s then the price of gold would be vastly higher - or so I would think, I haven't run the numbers. But this in turn means that the share of the economy represented by gold can easily drop further, making it less than a perfect store of value etcetera, although gold has still tended to be a better store of value than fiat currency.
Of course fiat currency is really supposed to be a medium of exchange and account, not a long-term store of value, though dumb people like me tend to use it as a store of value too because it's convenient and we haven't gotten around to setting up anything different and we don't have that much value to store. And then using your medium of exchange and account as a store of value causes recessions and depressions due to the paradox of thrift; when people want to consume in the future instead of the present they try to hold paper money instead of demanding equity in projects with long-term payoffs. On the plus side, central banks can, in principle, easily rectify some part of this problem by printing more money to meet demand for currency when fear rises, and thus make up for velocity slowdowns, keeping NGDP on a level growth path. On the minus side, central banks are stuck in 30-year-old economic thinking and don't keep NGDP on a level growth path. Bitcoin has the potential to make things much, much worse though.
New stocks on the other hand are constantly being created as the economy grows - no particular stock, or set of stocks starting at a fixed time, are guaranteed to grow at the same rate as the global economy.
To paraphrase, you're pointing out that stocks and precious metals come with built-in demand shock absorbers, whereas Bitcoin has none. I'm not totally sure that I accept this point, because I could see alternative cryptocurrencies playing the role of marginal new stocks or newly mined gold. However, even if Bitcoin were unique in having no demand shock absorbers, I'm not sure this matters, because it seems empirically to be the case that these shock absorbers are not always up to the task, and that both stocks and precious metals do experience a great d...
Should you probably donate a bitcoin to your future self?
Bitcoin has been in the news a bit lately. In case anyone hasn't been following recent events, its price hit $266 per coin, toppled to $50, and then climbed back to a rate which has been between $80 and $140.
This goes to show its high volatility at the present time, which means that any individual trade you make will be something of a gamble with a noisy, hard-to-predict outcome. You could be buying in right before a boom or a bust. Buying and then selling at random intervals will probably cost you more money than you make, due to transaction fees. Trying to outsmart the market in the short term with nothing but your own human instincts and powers of induction will probably cost you even more money because Markets are anti-inductive. The most realistic way of making much money with bitcoin -- sans owning your own exchange, having skill and resources for serious technical analysis, a faster-than-usual trading bot, or fantastic luck -- is if you can determine that the current price is very poorly calibrated relative to its future value, and if you buy and hold very long-term.
Market swings constitute a psychological attack, assuming you know and care about them, so employing the buy-and-hold strategy can be more difficult than it looks. However, as it happens, you can render bitcoins almost purely unspendable (i.e. impossible to transfer via the network) for a finite period of time as a technical matter. You could for example create a brainwallet based on a lengthy memorized passphrase with a random value appended to it. The larger that appended value, the (exponentially) greater the amount of processing time needs to be spent to find out what it contains. Having access to the memorized passphrase gives you the overwhelming advantage over a brute force attacker, whereas the appended random value immunizes it against dictionary attacks. (Todo: Find or write a program for this. Prove it works, and move some of my bitcoin holdings to a wallet requiring a day or more to unlock.)
Early adopters with moderate crypto skills could thus have a distinct advantage compared to the average investor and realistically hope to beat the market on that basis if mere human psychology and resistance against short term panic-selling is the fundamental constraint. So that's one consideration that could play to our advantage. Assuming, that is, that bitcoin is worth taking seriously to begin with, and not just a matter of geeky fun.
The question that matters for that consideration (the one that differentiates long term speculation on bitcoin from various speculative bubbles in gold, real estate, tulips, etc.) is this: Of all the possible worlds, where is the probability mass concentrated with respect to the future of bitcoin, in terms of how it will actually be used? Is there an overwhelming tendency for bitcoin to fail and be replaced by other things (e.g. other cryptocurrencies, or fiat dollars) -- or is it actually likely (in at least the minimal sense of "not overwhelmingly unlikely") to turn into a major store of wealth in coming decades?
I rather think it is the latter. But first, let's consider what I believe to be the strongest argument against it, which unpacks to three parts:
Taken together, this seems like a pretty good knock-down argument. It apparently implies, as a matter of basic economic law, that some other cryptocurrency must win over it in the long term, and/or that fiat money will retain its dominance. But the thing to notice is that it's not so effective against bitcoin as a massive store of wealth per se, so much as a currency that will be directly used, in a manner directly analogous to how government-backed monetary units are used. Non-currency forms of wealth which serve some other purpose can safely handle quite a bit more volatility, because their value is not dependent on being trusted as a currency, but rather as a value storage mechanism.
Here is the general scenario that I think holds more probability mass than bitcoin-as-a-traditional-currency, and yet works as a fairly realistic alternative to bitcoin-as-a-flop:
Can this be done? Consider the following more specific scenario as an example:
This is just one example I've come up with, and may not be the best. Various other schemes are possible. (For example, it could be possible for any dollar-owner to convert them back to bitcoin, as opposed to the person who originally minted them.) What the various possible models for doing this have in common is that they allow you to set up currencies which dynamically increase and decrease in supply, depending on how much bitcoin people are willing to invest into them, and how badly people want bitcoins back later on.
A competing scenario to the above would be one in which a better-optimized cryptocurrency protocol implements this, or some other stability-prone algorithm and thus outcompetes the volatile, easily manipulated, "primitive" bitcoin protocol in use today. I used to think I could just jump on the bandwagon when this comes around, maybe strategically sell someone a pizza and end up a millionaire.
However, I've somewhat lost faith in that possibility of late because I realized that bitcoin is much more powerful than it seems, and is capable of substantial self-modification if needed for compatibility with a newer and better system. The only thing locking us to the current protocol is the degree to which bitcoin-owning miners find it in their best interests to continue to use it as it is. A competing algorithm that makes bitcoins more valuable without violating existing expectations would probably not be hard to get people to update to.
Another thing that makes me think bitcoin will tend to self-improve to the point of winning against competitors is that at least some people with substantial assets in bitcoin form are likely to be very proactive in defense thereof. Assuming they remain committed to the long game, and are able to acquire sufficient short-term wealth to pursue their goals, they can do a number of things to defend it against the various plausible attacks: Hiring programmers to improve the client software and render it less hackable, hiring lobbyists to protect it against regulatory interference, employing botnets to attack competitor currencies, slowing down or preventing transactions that appear to be going through anonymizing laundries that could be associated with tax-dodging and illegal drugs, and so forth.
So it seems to me like owning at least one bitcoin and holding onto it for long-term purposes is probably a good idea.