Why Bitcoin should not be explained with old-school economic tools

Experts are shouting out loud, where Bitcoin is moving, when is it going to explode or implode, how long will it exist, or what is behind it, and more. To make these predictions they use economic theories, analogies to other externally similar systems, aggressive utterances and many other tools.

The existing tools used to predict the future of Bitcoin are built with our experience with centralised economic systems of the past. We have tried and tested our tools for years, with these systems, and modified them continuously, so as to fit with the empirical data available, from these systems.

So what are these tools trying to predict? They are essentially trying to predict the effects of collective human behaviour allowed to play out within similar sets of rules. In short they are trying to predict human behaviour, based on their past observations.

All these systems of past had similar groups of participants and similar equilibrium points. They all contained three groups of people. Victims who were played by the system, Big Players who tried to play the system, and Authorities who were supposed to manipulate the system so that they can minimise, the effects of the games played by the Big Players on the Victims, while being accused by Victims of colluding with Big Players. Every theory of the past were based on the interactions between these groups.

To give an example, a government, with the help of a central bank can, change the interest rate, which will affect inflation, and exchange rate. Or a change in rate of taxation can affect the efficiency and productivity of the whole system. Each of these changes will create responses in both the Victims and Big Players. In a similar way, any trend in the behaviour of these two groups will have corresponding responses, from the Authority. This system will always move between a number of almost predictable equilibrium points.

The tools, though wrong at predicting some of the worst economic catastrophes, in history, let us assume, were right at almost every other chance. What we have is the proof that these rules work with systems we had been seeing for a long time. That is, these tools were, able to fit the empirical data into the theories of the known centralised economic systems. Then we can fairly say that they might not be able to predict Bitcoin or for that matter any of the cryptocurrencies for the time-being. Because we don't have the hard data for these kinds of systems.

In Bitcoin, there is no Authority, that can manipulate the system for better or worse, so the behaviour of the other two kinds of players will vary considerably. If we take, the Authority out, from our known system, the whole dynamics of the three player game changes into a two player game, with a different set of dynamics and behavioural patterns we are not used to. This makes the economic theories we have built obsolete, and the experts of these systems will be at the mercy of this new system, that any theories we have in our hands are at best fictional. The real experts will be those who will learn to keep an open eye and marvel at the new patterns emerging, and converging into new equilibrium points, we never predicted. This could be the disruption of monopoly of expertise.