Most People Get Bitcoin Volatility Completely Wrong

Why is something that’s so incredibly
predictable as far as supply, why does
the price go all over the place? And the
answer of course is because of demand is
even if the supply is predictable, the
demand is not. So let me give you an
example of a hypothetical asset. Let’s
say I launch a stock on the stock
market. And this is the Joel stock.
Here’s how it works. I just announced to
the world. You know, there’s no good way
of doing this, otherwise it’d be a fun
experiment. But I announced to the world
that there’s this stock trades under
this ticker Joel Jel. And it has this
unique characteristic that on day one,
it pays a dividend of $1 on day one. On
day two, it pays a dividend of $2. On
day three, $3 all the way through day
10,000. And on day 10,000, it pays
$1,000 dividend. And then after that,
zero. It’s worthless after that. Now,
that would be the most predictable stock
that has ever existed in the world
because on every single day for a
thousand days, you know exactly how much
it’s going to pay you in a dividend and
and you know that at the end it’s going
to be zero. Okay. So, what would happen?
You would think something that is
completely predictable like that would
be have a linear sort of price rise or
price fall, but that’s not what would
happen. So this thing is announced and
the very first thing that would happen
is people would think ah it must be a
scam. Joel’s not really going to do it.
And so but somebody somebody’s going to
come along and they’re going to pay 50
cents for this stock that is going to
pay a dollar on the first day. You know
like before it even launches somebody’s
going to pay 50 cents for it thinking
maybe I’ll get lucky and he will pay a
dollar on the first day. So now you have
a stock that should be worth at least a
dollar but it’s it’s trading at 50 cents
right because people are not sure the
dollar will get paid. Well, as c soon as
the first dollar gets paid on day one,
speculators are going to jump in, which,
you know, there’s nothing wrong with
speculation. And in fact, all investing
is speculation to some degree. And
somebody’s going to jump in and say,
“Wait a second. If he paid a dollar on
day one, I’ll bet he’s actually going to
follow through with $2 on day two.” And
so, what’s going to happen? Well,
somebody’s immediately going to bid the
stock to a buck 50 or $2. Well, then
somebody’s going to say, “Hey, but wait
a second. This stock is actually super
valuable because he’s going to pay $3 on
day three, $4 on day four, all the way
to $1,000 on day a thousand. So,
somebody’s gonna say, “Hey, this total
thing is going to pay out $500,000 over
the course of its life. That’s at least
worth $100,000.” So, the price very
early is going to spike from basically
nothing to $100,000. And then people are
going to freak out and say, “Yeah, but
what if Joel doesn’t actually pay what
he said he’s going to pay all the way
through day 1000?” And so the price is
going to crash from $100,000, you know,
way down to $50 or something crazy. And
then people are going to say, “Oh, wait,
but he does keep paying. You know, we’re
only on day whatever 20, but on day 20
he’s actually paying out the 20 bucks.
Maybe that means on day a,000 he will
pay out the $1,000. So then the price is
going to zoom from 50 bucks up to
$200,000. And then it’s going to crash
down to, you know, $100,000. Then it’s
going to zoom to $350,000. Then it’s
going to crash to $200,000. And it’s
going to go all over the place. And
towards the end of the thousand days,
people are going to speculate, hey,
maybe it’s going to keep going past the
thousand days. So, some people are going
to be bidding on the fact that they
think even though the whole thing is
programmed to not pay anything after a
thousand days, they’re going to think,
hey, maybe Joel will just keep it going.
So, people are going to bid the stock
way high in anticipation. Then, when it
becomes clear that no, he said it goes
to zero after a thousand days, it’s
going to crash again. So when you take a
step back and you look at that price
over that time, it’s going to be
extremely volatile. Even though in
retrospect when the all the dust settles
and it became clear that the whole thing
worked just as planned, a dollar on the
first day, $2 on the second day, all the
way through $1,000 on day a,000 and then
it goes to zero. Even though it did
completely 100% the predictable thing it
was supposed to do, if you look at the
stock chart over those thousand days, it
would be absolutely all over the place.
So that’s an example of something that
is completely predictable, but that the
human psychological behavior of people
anticipating whether it’s going to
happen all the way through the thousand
days, whether it’s going to continue
past the thousand days and buying it in
anticipation that hey, if I buy it on
day four, I can get the value of all the
days from day five through day 1000. And
so they’re going to bid the price way
past technically the $4 you’re supposed
to get on day four. very predictable
things can be very um very unpredictable
as far as value based on demand. So
Bitcoin works the same way. Even though
the supply of Bitcoin is completely
predictable and even though you know we
know in the year 2140 that there’s going
to be 21 million and the value of
Bitcoin you know it never goes to zero
because the Bitcoin unlike my stock
example Bitcoin never goes away and in
my stock example it just goes away at
day a thousand. Bitcoin never goes away
when it reaches 21 million coins. They
continue to circulate for the rest of
you know human existence.