Ever wondered why haircuts keep getting more expensive? Let’s take this seemingly random question as a gateway to understanding Bitcoin’s long-term price potential and why it probably won’t serve as a mainstream currency anytime soon.
The barbering industry has some quirks that make it fascinating. Productivity here is nearly impossible to improve. A haircut that took 30 minutes in 1950 still takes roughly the same amount of time today. Sure, the tools have improved, but they haven’t revolutionized efficiency. Haircuts are inherently one-on-one services; you can’t mass-produce them, and machines can’t fully replace human labor.
Globalization doesn’t help either. You can’t ship your hair to a country with cheaper labor, get it cut, and ship it back. Meanwhile, factory production efficiency has likely increased tenfold since the 1950s due to automation, informatization, and mechanization, but hairdressing remains largely unchanged.
Still, barbers need to earn a wage comparable to the social average, or no one would take the job. This dynamic forces the industry to innovate in small ways, think 10 yuan quick cuts or premium styling but that’s another story. Economists call this phenomenon the Baumol effect, or Baumol’s cost disease.
Gold behaves similarly. While industrial technology drives down commodity prices, the supply of gold is limited. Mining gold has natural and policy constraints, which, combined with rising efficiency elsewhere, pushes its price upward.
Remember the gold standard? During that era, gold was indirectly used to price commodities. As production surged, the same 100 units of gold ended up backing far more goods. Commodities fell in price, but gold itself rose. The U.S. eventually abandoned the Bretton Woods system partly because of these pressures. Today, gold has climbed from $170 an ounce in the 1970s to over $3,000 far outpacing the roughly 3% annual inflation rate.
Why Bitcoin Could Rise Like Gold
Bitcoin mirrors this dynamic. Mining relies on computing power, which may grow exponentially, but Bitcoin’s block time remains fixed at about 10 minutes due to difficulty adjustments. Most importantly, the total supply of Bitcoin is capped at 21 million.
This scarcity, paired with growing global currency issuance and rising commodity efficiency, means Bitcoin’s value should increase steadily over time. In essence, Bitcoin functions like digital gold: limited supply in a world of increasing production and currency expansion ensures upward price pressure.
Why Bitcoin Can’t Function as a Currency
Despite its value growth, Bitcoin faces fundamental obstacles as a day-to-day currency:
- Deflation will be widespread. As productivity rises, commodity prices will fall relative to Bitcoin. Something worth 1 BTC today might only cost 0.5 BTC in the future. Businesses borrowing money to scale up would face higher real debt burdens, creating financial strain.
- Price volatility disrupts economic planning. Unpredictable inflation and deflation make it difficult for businesses to forecast costs. Central banks provide sophisticated tools to stabilize inflation and maintain predictable markets. As seen in hyperinflation cases like Zimbabwe, unchecked price swings can trigger spiraling economic problems, turning pricing and debt into a negative-sum game or prisoner’s dilemma.
- Central banks can’t act as a lender of last resort. Bitcoin’s supply is fixed. If it were used as a currency or monetary anchor, banks couldn’t print money during crises to support businesses. This inflexibility mirrors why the gold standard eventually faded.
MicroStrategy founder Saylor once said,
“Uselessness will become the future cyber age.”
That may be a distant scenario when global wealth peaks and debt expansion stalls but for now, Bitcoin’s scarcity ensures one thing: its price will almost certainly rise in the long run.
In short, Bitcoin is a store of value, not a practical medium of exchange. Its deflationary nature, volatility, and limited supply make it more like digital gold than a functioning currency but as an investment, it may be one of the most compelling assets in history.
