Yes we can, because of the relative opportunity costs of holding Bitcoins and dollars. You may as well say we can’t live in a world in which the market expects stocks to steadily increase in value compared to the dollar. Dollars are far more liquid than Bitcoins (or stocks) and, in equilibrium, you have to pay for that liquidity.
If the market expected the price of Bitcoins to steady increase people would buy Bitcoins today increasing Bitcoin’s price, until the price of Bitcoins was high enough so that people wouldn’t be confident that it would keep increasing.
Again, you are neglecting the cost of holding Bitcoins.
Suppose today a Bitcoin is worth $100, and everyone thinks that Bitcoins will be worth $102 in one year. Anyone could gain an expected $2 by a buy-and-hold strategy on Bitcoins, but that means they will have to hold their money in Bitcoins for the next year, which is not as useful as holding dollars, because it’s much easier to turn their dollars into other assets (or consumption). If people think that this liquidity cost of holding Bitcoins is at least $2, then they will not bid up Bitcoins now.
Moreover, buying-and-holding Bitcoins has an opportunity cost because it means you aren’t (for example) buying stocks, bonds, land, gold, or engaging in immediate consumption. So, if we suppose the market interest rate is 3%, then even though Bitcoins are expected to go up $2 over the next year, no-one is going to bid them up to $102 now, because they can get a $3 return elsewhere.
Implied by your logic:
There can never be expected appreciation (or depreciation) of any asset.
In particular, expected inflation must always be 0.
People value future consumption as highly as present consumption.
As a fraction of total world GDP it is true, relative to the efficient markets hypothesis, that expected inflation must always be 0 and there can never be expected appreciation (or depreciation) of any asset.
And measured in those terms, it is still true that “a world in which the market expects Bitcoins to steadily increase in value compared to the dollar” is impossible for the same reasons James_Miller cited.
Yes, there is a certain amount of appreciation that the world could expect; it could expect Bitcoin to keep up with inflation and the growth of market. But the expected growth of the market takes into account risk, and under a fairly weak analog of the EMH, actual expectations of better-than-market growth would make the price of Bitcoin jump until it reached the same price as other instruments that had that expectation.
As a fraction of total world GDP it is true, relative to the efficient markets hypothesis, that expected inflation must always be 0 and there can never be expected appreciation (or depreciation) of any asset.
No. Suppose we are in a zero-growth economy. If an asset is worth $98 today and is expected to be worth $100 in a year’s time, people will only bid it up to $100 today if they are indifferent between $100 of consumption today and $100 in a year’s time. But people are (rightly) not indifferent, they prefer to consume today—hence even in zero-growth economies, you see a positive real, risk-free rate of interest. And nothing about the liquidity cost depends on a growing economy either.
Yes we can, because of the relative opportunity costs of holding Bitcoins and dollars. You may as well say we can’t live in a world in which the market expects stocks to steadily increase in value compared to the dollar. Dollars are far more liquid than Bitcoins (or stocks) and, in equilibrium, you have to pay for that liquidity.
If the market expected the price of Bitcoins to steady increase people would buy Bitcoins today increasing Bitcoin’s price, until the price of Bitcoins was high enough so that people wouldn’t be confident that it would keep increasing.
Again, you are neglecting the cost of holding Bitcoins.
Suppose today a Bitcoin is worth $100, and everyone thinks that Bitcoins will be worth $102 in one year. Anyone could gain an expected $2 by a buy-and-hold strategy on Bitcoins, but that means they will have to hold their money in Bitcoins for the next year, which is not as useful as holding dollars, because it’s much easier to turn their dollars into other assets (or consumption). If people think that this liquidity cost of holding Bitcoins is at least $2, then they will not bid up Bitcoins now.
Moreover, buying-and-holding Bitcoins has an opportunity cost because it means you aren’t (for example) buying stocks, bonds, land, gold, or engaging in immediate consumption. So, if we suppose the market interest rate is 3%, then even though Bitcoins are expected to go up $2 over the next year, no-one is going to bid them up to $102 now, because they can get a $3 return elsewhere.
Implied by your logic:
There can never be expected appreciation (or depreciation) of any asset.
In particular, expected inflation must always be 0.
People value future consumption as highly as present consumption.
Needless to say, none of these are the case.
As a fraction of total world GDP it is true, relative to the efficient markets hypothesis, that expected inflation must always be 0 and there can never be expected appreciation (or depreciation) of any asset.
And measured in those terms, it is still true that “a world in which the market expects Bitcoins to steadily increase in value compared to the dollar” is impossible for the same reasons James_Miller cited.
Yes, there is a certain amount of appreciation that the world could expect; it could expect Bitcoin to keep up with inflation and the growth of market. But the expected growth of the market takes into account risk, and under a fairly weak analog of the EMH, actual expectations of better-than-market growth would make the price of Bitcoin jump until it reached the same price as other instruments that had that expectation.
No. Suppose we are in a zero-growth economy. If an asset is worth $98 today and is expected to be worth $100 in a year’s time, people will only bid it up to $100 today if they are indifferent between $100 of consumption today and $100 in a year’s time. But people are (rightly) not indifferent, they prefer to consume today—hence even in zero-growth economies, you see a positive real, risk-free rate of interest. And nothing about the liquidity cost depends on a growing economy either.