Hey you!
Welcome back to “that’s what she said”, the newsletter that keeps you in the loop of all things web3 — with just the right mix of facts, fun, and a little mystery. Last time, we unearthed the origins of Bitcoin, how mining works, and why the halving ritual has the whole crypto world chanting in anticipation (if you missed that piece, resurrect it from the archives as it’s worth it).
Today, we’re digging into Bitcoin’s shadowy side: how it went from niche experiment to global obsession, why it’s so damn risky, and what’s really behind its wild price swings. We'll also explore a fascinating model that tries to predict Bitcoin's price based on scarcity. Spoiler alert: it's controversial as hell.
So, grab your candy or pumpkin spice latte and let's explore what really haunts the world’s first cryptocurrency. Ready? 🎃
🕸 Popularity
Bitcoin's popularity isn't accidental. As the first cryptocurrency, it had years to establish legitimacy and prove its resilience. It survived crashes, hacks on exchanges, regulatory uncertainty, and countless headlines declaring its death. Yet it kept functioning, kept growing, and kept appreciating in value over the long term.
Brand recognition plays a massive role. Bitcoin receives relentless media coverage, both positive and negative. When celebrities like Elon Musk tweet about it, when countries debate whether to adopt it, or when institutional investors announce positions in it, Bitcoin dominates headlines. This visibility creates a self-reinforcing cycle: attention drives adoption, which creates more attention.
Bitcoin has also cultivated devoted communities of supporters who genuinely believe in its potential to transform money and finance. These aren't just speculators; they're believers in financial sovereignty, decentralisation, and an alternative to traditional monetary systems.
Perhaps most importantly, Bitcoin proved it could work. It demonstrated that decentralised digital currency wasn't just theoretical: it was functional, secure, and valuable. Every cryptocurrency that came after owes its existence to Bitcoin's proof of concept.
🍭 Use Cases
Bitcoin serves multiple purposes in today's economy, though not always the ones originally envisioned:
- Peer-to-peer payments. Bitcoin's original vision was to enable direct payments between individuals without intermediaries. This works particularly well for international transfers, which traditional banking makes slow and expensive. Someone in one country can send Bitcoin to someone in another country within minutes, for a relatively small fee, without dealing with banks, currency conversion, or international wire transfers.
- Investment and store of value. Most Bitcoin isn't actually changing hands frequently. People buy and hold it as an investment, expecting the price to increase over time. This digital gold narrative has gained traction, with investors viewing Bitcoin as a hedge against inflation and currency devaluation. Major financial institutions now offer Bitcoin exposure through various investment products, legitimising it as an asset class.
- Payment for goods and services. Although not yet mainstream, an increasing number of businesses are accepting Bitcoin as a form of payment. El Salvador made history in September 2021 by becoming the first nation to adopt Bitcoin as legal tender, though the implementation has been controversial.
- Cryptocurrency debit cards. One of the easiest ways to spend Bitcoin is by loading it onto a cryptocurrency debit card. These cards automatically convert Bitcoin to local currency at the point of sale, letting you use Bitcoin anywhere that accepts regular debit cards. You can even withdraw cash from ATMs. It's a bridge between the crypto world and everyday commerce.
- Inspiration and foundation. Beyond direct use, Bitcoin's open-source technology has inspired thousands of other projects. Developers study its code, learn from its design decisions, and build new cryptocurrencies and blockchain applications based on lessons learned from Bitcoin. It's the foundation of an entire industry.
The reality is that Bitcoin's use cases have evolved. It started as electronic cash but has become more of a speculative asset and store of value. Whether that's success or failure depends on your perspective. Bitcoin's supporters argue it's maturing into digital gold. Critics say it failed its original purpose.
⚠️ Risks
Bitcoin's revolutionary nature comes with significant risks that anyone considering involvement should understand. The same properties that make it attractive also create vulnerabilities and challenges.
- Volatility and price fluctuations. Bitcoin is extraordinarily volatile. The price can swing 10% in a day, 50% in a month, or 80% over a year. This happens because Bitcoin's market, while substantial, is still relatively small compared to traditional assets like gold or major currencies. Less liquidity means larger price movements with less capital. If Bitcoin had gold's trading volume, it would likely behave more like gold: stable and predictable. But we're not there yet, so volatility rules. This volatility makes Bitcoin problematic as a medium of exchange (who wants to buy coffee with something that might be worth 20% more tomorrow?) and stressful as an investment. The psychological toll of watching your investment halve in value requires an iron stomach. Until Bitcoin achieves massive scale and adoption, expect the rollercoaster to continue.
- Regulatory uncertainty. Governments worldwide are still figuring out how to handle Bitcoin. The answer varies by jurisdiction and changes over time. This regulatory ambiguity creates real risks. New regulations could restrict how Bitcoin is bought, sold, used, or taxed. Countries could ban it outright (though enforcement in a decentralised network is nearly impossible). Large portions of the Bitcoin ecosystem remain unregulated, leaving users without standard consumer protections.
- Security concerns. While the Bitcoin blockchain itself is exceptionally secure, the ecosystem around it is not. Exchanges get hacked. People lose their private keys and permanently lose access to their Bitcoin. Scammers run elaborate schemes promising unrealistic returns. Phishing attacks trick people into sending Bitcoin to fraudsters. The irreversibility of Bitcoin transactions means mistakes are permanent.
- Manipulation and fraud. The relatively young and often unregulated nature of cryptocurrency markets makes them susceptible to manipulation. Pump-and-dump schemes are common: coordinated groups artificially inflate prices through hype and misleading information, then sell at the peak, leaving later buyers with losses. Wash trading (fake volume created by trading with yourself) makes markets appear more liquid than they are. Large holders (whales) can move markets with single trades.
- Environmental concerns. Bitcoin's Proof-of-Work mining consumes enormous amounts of electricity. Critics argue that this energy consumption is environmentally irresponsible, particularly when powered by fossil fuels. While supporters counter that Bitcoin increasingly uses renewable energy and provides economic incentives for developing sustainable power infrastructure, the debate persists. Public opinion about Bitcoin's environmental impact influences its adoption and could lead to regulatory action restricting energy-intensive mining.
- The Could-It-Go-to-Zero question. Theoretically, yes. Bitcoin's value is based entirely on collective belief: if everyone stopped believing in it, the price could collapse to zero. Unlike stocks representing company ownership or bonds promising specific payments, Bitcoin has no intrinsic value floor. Its worth is pure social consensus. However, hyperinflation isn't possible because Bitcoin can't be arbitrarily created. The bigger risks are technological failure (highly unlikely given Bitcoin's track record), being supplanted by superior technology or devastating regulation. History shows that currencies do fail, usually through hyperinflation or displacement by successors. Bitcoin can't hyperinflate, but it could be displaced.
For now, Bitcoin has proven remarkably resilient. It's been declared dead hundreds of times, yet here it is, still functioning and valuable. But past performance doesn't guarantee future results. The risks are real, and anyone involved with Bitcoin should understand them clearly.
👻 Price and Volatility
Let's talk about the elephant in the room: Bitcoin's price moves like it's having an existential crisis. Unlike traditional currencies or stocks, Bitcoin doesn't have a central bank setting interest rates or a company reporting quarterly earnings. Bitcoin's price is pure supply and demand playing out in a global 24/7 market. And that makes things wild.
The Supply Side
There will only ever be 21 million BTC. As of November 2025, about 19.8 million have been mined, and the rest will trickle out slowly over the next century.
Every four years, the halving cuts the rate of new Bitcoin creation in half. The next one hits in 2028, which means even less new supply entering the market. And here's the kicker: an estimated 20–30% of all Bitcoin is lost forever. Forgotten passwords, lost hard drives, deceased owners who never shared their keys. That Bitcoin is gone, effectively making the real supply even tighter than it appears.
So what happens when supply is fixed and shrinking? When demand increases, prices explode upward. When demand drops, they crash hard.
The Demand Side
Demand for Bitcoin comes from everywhere and responds to everything. Let's break it down:
- HODLers and institutions. Long-term believers refuse to sell regardless of price. Companies like Strategy (formerly MicroStrategy) have bought billions of dollars worth and aren't selling. Countries like El Salvador made it legal tender. ETFs now let traditional investors get exposure without touching the blockchain. All of this locks up supply, removing it from circulation.
- Speculators. This is where things get spicy. Traders use leverage, sometimes 100x or more, betting on price movements. Futures markets, options, perpetual swaps. When prices move 5%, leveraged positions get liquidated, forcing automatic selling that pushes prices further, triggering more liquidations. It's a cascade effect that amplifies every move.
- Macro environment. Bitcoin has positioned itself as digital gold. When inflation fears rise or currencies weaken, people rush into Bitcoin as a hedge. When central banks raise interest rates and investors flee risky assets, Bitcoin gets dumped alongside tech stocks. Geopolitical chaos? Bitcoin pumps. Global recession fears? Bitcoin dumps. It's become a barometer for risk appetite.
- Regulatory roulette. Government announcements swing Bitcoin violently. China banned mining in 2021, and Bitcoin crashed 55% in two months. The US approved Bitcoin ETFs in January 2024, and the price jumped 70% in three months.
- Media madness and sentiment. Elon Musk tweets about Bitcoin, and the price moves. Reddit communities coordinate buying frenzies. FUD (Fear, Uncertainty, and Doubt) spreads, causing panic selling. Then FOMO (Fear Of Missing Out) kicks in, and everyone rushes back in. Sentiment drives short-term movements as much as fundamentals.
Why is Bitcoin more volatile (than everything else)?
Bitcoin's volatility isn't a bug. It's a structural feature. Here's why:
- Small market size. Bitcoin's market cap sits around $2 trillion as of November 2025. That sounds huge until you compare it to gold at $27.4 trillion or Apple at around $4 trillion. The market is simply too small to absorb large trades without massive price swings.
- 24/7 trading. Stock markets close. They have circuit breakers that halt trading if things get too crazy. Bitcoin never sleeps. If news breaks at 3 am that an exchange got hacked, the market reacts instantly. There's no timeout, no cooling-off period, no authority to step in and stabilise things.
- Leverage amplifies everything. Billions of dollars in leveraged positions sit on exchanges at any moment. A 5% price drop can liquidate $1 billion in positions, forcing those positions to sell automatically, pushing the price down further, and liquidating more positions. It's a feedback loop that turns small moves into massive swings.
- Big trades move markets. Selling 1,000 BTC? No problem, markets absorb it easily. Selling 10,000 BTC? That can shift the entire market 2–5% because there aren't enough buyers at current prices. This illiquidity means large holders (whales) can't exit positions without moving the market against themselves.
- Narrative-driven pricing. Bitcoin often trades on narrative rather than fundamentals. A rumour about ETF approval? Price pumps before anything official happens. A tweet from a celebrity? Instant 5% move. The price frequently leads the fundamentals, reacting to stories and sentiment rather than concrete data.
🧛♂️ Bitcoin Stock-to-Flow Model
Remember how we talked about Bitcoin's scarcity being one of its defining features? The Stock-to-Flow (S2F) model takes that concept and tries to turn it into a price prediction tool. It's controversial and definitely worth understanding, even if you don't rely on it.
What is the Stock-to-Flow model?
The Stock-to-Flow model is a method used to quantify the scarcity of a commodity. It's been used for decades to assess the value of precious metals like gold and silver, and more recently, it's been applied to Bitcoin. The model is based on two primary concepts:
- Stock: The total amount of the commodity currently available (the supply that has already been mined and is in circulation).
- Flow: The rate at which new supply is produced (the amount of new production over a specific period, like a year).
The Stock-to-Flow ratio is calculated by dividing the stock (current supply) by the flow (annual production). A higher ratio indicates that the commodity is more scarce and, therefore, potentially more valuable. For example, gold has a high Stock-to-Flow ratio, implying its scarcity and value.
Who popularised the Bitcoin S2F model?
A pseudonymous analyst known as PlanB popularised this model for Bitcoin. In March 2019, PlanB published the article "Modelling Bitcoin's Value with Scarcity" on Medium. He plotted Bitcoin’s market cap against its S2F ratio over time and found a striking power-law correlation (R² ~95%). The model predicted Bitcoin would reach $100K+ after the 2020 halving.
How does it work for Bitcoin?
With Bitcoin's capped limit of 21 million coins, the design introduces a deflationary aspect, especially evident during halving events. Every halving cuts the mining reward by half, subsequently reducing the flow of new Bitcoins and increasing the S2F ratio. The model suggests that Bitcoin's value could escalate as its scarcity increases over time, a principle observed in precious metals like gold.
Think of it this way: if you have 100 gold bars in existence (stock) and you mine 2 new bars per year (flow), your S2F ratio is 50. That's high scarcity. If you suddenly start mining 10 bars per year, your ratio drops to 10, making gold less scarce and theoretically less valuable.
Bitcoin works similarly. As halvings reduce the flow of new Bitcoin entering the market, the S2F ratio increases, suggesting the price should rise to reflect that increased scarcity.
Does it actually work?
The S2F model has historically shown a notable correlation with Bitcoin's price. The model predicted substantial price increases following Bitcoin's halving events, and these predictions have been relatively accurate in the past.
However, critics are vocal. Ethereum co-founder Vitalik Buterin has criticised the S2F model, calling it "harmful" due to its potentially misleading predictions. The model's simplification of supply and demand dynamics and its linear prediction method have been pointed out as significant flaws.
The S2F model is best viewed as one tool among many, not a crystal ball. If you're a long-term investor who sees scarcity as a main driving factor of Bitcoin's value, the model offers an interesting framework, but don't forget about technical analysis, market trends, sentiment analysis, and fundamental factors.
The Bitcoin S2F model is quite a complex topic, so if you'd love to learn more about it, let me know, and I might work on a separate article devoted to this model.
Key Takeaways
- Bitcoin's popularity is self-reinforcing. Media attention, institutional adoption, and passionate communities create a cycle where visibility drives adoption, which creates more visibility. Bitcoin proved that decentralised digital currency works, inspiring an entire industry.
- Bitcoin's use cases have evolved. It started as peer-to-peer electronic cash but has morphed into a speculative investment and store of value. Whether this represents success or failure depends on your perspective.
- Volatility is baked into Bitcoin's DNA. With a market cap still small compared to traditional assets, 24/7 trading, leveraged speculation, and narrative-driven price action, Bitcoin's wild swings aren't a bug; they're a feature. Until it achieves massive scale, expect the rollercoaster.
- Risks are real and multifaceted. From regulatory uncertainty to security concerns, from manipulation to environmental criticism, Bitcoin comes with significant challenges.
- Price is pure supply and demand. Bitcoin's fixed supply meets fluctuating demand driven by adoption, speculation, macroeconomic conditions, regulatory news, and sentiment.
- The Stock-to-Flow model is fascinating but flawed. It offers an interesting framework for understanding scarcity's role in Bitcoin's value, and it has shown historical correlation with price movements, but it oversimplifies complex dynamics and shouldn't be your only analytical tool.
Final Thought
Bitcoin is the ghost that refuses to die: buried a hundred times by skeptics, yet it keeps crawling out of the grave, stronger (and somehow richer) every time. It haunts markets with wild swings, lures the brave with promises of freedom, and scares the faint-hearted with volatility that could wake the dead.
Like any good Halloween story, Bitcoin’s tale is full of mystery, obsession, and a touch of madness. Whether you see it as a trick or a treat depends on your courage, but one thing’s certain: it’s not leaving this haunted house called the financial system anytime soon.
If you learnt something new today, pass it on. Share it with your community. Let's spread the knowledge and level up together.
That's a wrap, normies. Next time, we'll yap about private/public keys and wallets. Stay tuned 🌖
Cookies She Left Behind
If you'd love to dig deeper into the topic, I'd also recommend reviewing the below:
- Stock to Flow - A model to predict Bitcoin’s Price? by Whiteboard Crypto
- Modelling Bitcoin Value with Scarcity by PlanB