If bitcoin proves to be fundamentally impractical for small, high-volume transactions, why couldn't it still have great value for use in large transactions such as real-estate, yachts, gold, etc. and as a secure store of value?
Because that would be an incredibly small market cap. One fact is the richest 3% control most of the money, but the masses (the 97%) spend most of the money that is spent.
"Exponential and power-law probability distributions of wealth and income in the United Kingdom and the United States" by A. A. Dragulescu and V. M. Yakovenko
I don't understand how you come to the conclusion that it would be an incredibly small market cap. It is already approaching 10 billion dollars, and its use as a store of wealth is minuscule compared to things like gold and offshore bank accounts. Why couldn't it increase in popularity for this purpose tenfold or one hundredfold?
. The logic is presented in that linked thread. I don't know why it is so difficult for readers to comprehend that investors only stay invested while gains accrue. Eventually the supply of greater fools ends, then the value has to be supported by those who hold it not for gain, instead for use as a currency, i.e. its intrinsic value. An investor would sell that point (retaining only enough needed for spending and rest moved to an investment which can accrue more gains), because gains would not continue to accrue and Bitcoin pays no dividend because it has no income (note BitShares is an altcoin that claims it will have an income and pay dividends).
If you could argue that the masses will use it as a currency (which
I think is impossible), then that value could be higher than the current price. However, you are asking what the valuation will be otherwise.
Edit: I did
an estimate of Bitcoin's intrinsic value earlier this year. Compare with the
past performance of wider-eyed estimates.
Why wouldn't investors remain partially invested in bitcoin as a hedge against government confiscation (gold, real estate, bank deposits, cash, can be confiscated) even if the gains stopped accruing? I think that demand will remain and support a very high value. I just don't think your money velocity equations cannot accurately calculate the value of bitcoin because bitcoin is much more than that.
That is a reasonably strong counter-point. I have also thinking there would be a rush into crypto-currencies to avoid the coming wave of confiscations as the global sovereign debt crisis reaches the SHTF end game.
However, I am observing that the vast majority of investment money in Bitcoin is from people who expect gains, and do not expect the doomsday outcome of confiscation. Thus they will exit and since the float is so minuscule even they were a tiny minority, it won't take much cashing out to prick the bubble and send a stampede to the exits.
So our concept of holding value as a safe haven won't work if the value is collapsing.
Thus I am speculating that a collapse of Bitcoin circa 2015 +/- 1 year, will send massive stampede into gold and silver (the capital that wasn't already in Bitcoin when it collapses), assuming there is no viably superior altcoin.