Whatever anyone would do with $400bn worth of an asset?
If Saudi Arabia started buying Bitcoin in bulk, then the price of Bitcoin would go up. This would create demand for the asset that is increasing in value and other people would start buying and holding. Saudi Arabia would not be able to acquire all the Bitcoin, but it doesn't really matter anymore, because now everybody wants it, because it has increased in value.
The fact that cryptocurrency is prone to such fluctuations is a significant part of the reason it's a bad currency. Nobody wants to have a bank account that can halve or double in a few months.
I think most people view Bitcoin as digital gold nowadays. (with the added benefit that the supply is known) I would not use it for short term cash needs, but from a long term store of value it has provided real benefit over a 10 year period. If the monetary supply is going to be dramatically expanded by the Fed, then it is a great way to hedge against the dollar. Couple that with the recession and the likelihood that the effects of the global pandemic is seemingly going to be here for a while, I can't think of a better place to put my money right now.
I doubt "most people" think anything of the kind. Digital pyrite, perhaps. Considering that btc has tanked along with the market (only more so) why would it make a good hedge? BTC is for gambling, and everyone knows it, so when the world gets scary the bottom falls out of cryptocurrency first.
There is no reason to believe BTC will not crash that's more solid than people smiling knowingly and saying "it can't, it's the future". It's not, though.
A global pandemic is a pretty extraordinary event. All markets are going to react poorly. BTC is by its nature more volatile, so it has a tendency to experience more dramatic corrections
It acts as a hedge, because the dollar gets devalued every time the Fed expands its balance sheet. If nothing else happens, then the value of Bitcoin will increase relative to the dollar. This is the same reason why people buy gold. Only with Bitcoin the amount of the commodity that can exist is well known and finite. (i.e. there are not new discoveries of Bitcoin repositories that will suddenly increase the global supply)
Bitcoin is unlike most other cryptocurrency assets (except for maybe Ethereum?), because it has been around for more than 10 years and has become well integrated into the traditional economy. BTC crashing is pretty unlikely at this point. Maybe it gets replaced over the long term by some other asset, but that will take time and not be a sudden event.
BTC is absolutely not well integrated into the traditional economy. Getting it is difficult compared with any real currency, spending is difficult compared with any real currency.
> BTC crashing is pretty unlikely at this point.
BTC just crashed in the last month. It's extremely likely to happen, which you can observe easily because it keeps happening. It's value is not stable. It never has been.
You can buy BTC using USD via exchanges, you can buy BTC futures, you can buy funds that contain BTC along with a mix of other assets. This is what I mean by the traditional economy, NOT you can go down to your neighborhood grocery store and pay for your groceries. The point is that major financial firms have integrated fiat economies and the Bitcoin ecosystem, which makes Bitcoin much more valuable compared to other cryptocurrencies.
When I talk of BTC crashing I'm speaking of the price of BTC going to 0 and never recovering. What you are observing is the volatility of Bitcoin. Bitcoin is a highly volatile asset, but that doesn't mean it still can't provide good long term value. Plotting a linear regression on the price of BTC will show an upward trend and that's over a 10 year period even with all of its ups and downs.
Keep in mind that basically nobody else uses the word "crash" to mean "goes to zero and stays there". Traditional economy is generally a reference to the act of exchanging money for goods and services.
You can use words however you want, but if you want to be understood it's helpful to use the common definition.
I was trying to stay in context with how you originally phrased your response of..
"There is no reason to believe BTC will not crash that's more solid than people smiling knowingly and saying "it can't, it's the future". It's not, though."
This quote implies that BTC lacks long term value, which again I argue that BTC does have long term value for reasons previously stated. Certainly, I understand that sharp declines in value are often described as crashes.
In regards to the term "traditional economy", I actually meant to insert the words "integrated with", so the start of the sentence should have read "This is what I mean by integrated with the traditional economy..."; just an error on my part. The point I'm making is that the integration with the traditional economy is occurring on the backend finance side and adds legitimate value and use to Bitcoin over many other cryptocurrencies.
Bitcoin has had several big moons/busts now, but the software and network has persisted and grown dramatically in size. The long term trend is up. I think it is really hard at this point to make the case that this is a bubble.
Bitcoin is an “asset”, not an intermediary. Saudi doesn’t just sit on their dollars, they buy stuff with it, either actual goods and services or fixed incomes. Since nobody wants bitcoin for their labor and it’s a highly speculative asset that isn’t a particularly good store of value, it doesn’t accomplish either of the key things that are needed.
Bitcoin is both an asset and an intermediary. I don't think it is a good intermediary due to its volatility and tax treatment, but it certainly has and can be used as such.
If you had bought a hundred dollars worth of Bitcoin back in April of 2011 and sold it at it's most recent all time low on December 16th 2018 you would have $320,000. If you sold it today you would have $681,800. Volatile? yes. Good long term store of value? All available data indicates yes.
It's speculative in so far as the software and the network are speculative. The speculative risk of both of these attributes has reduced over time. (i.e. The more time that goes by the more likely that bugs in the protocol will be discovered and the network size and volume has dramatically increased)
The real danger to Bitcoin is probably another cryptocurrency that comes along and does it's job better. This will be very hard though as Bitcoin is essentially the Facebook of the cryptocurrency world. I think that it is possible that this will happen, but it will likely be a process more than an event. Offering holders of Bitcoin to diversify overtime should other cryptocurrencies come into being.
Whether Saudi Arabia should buy it or not is an entirely different matter. IMHO if they have some reserves that they don't think they will likely need to touch for a 5 to 10 year period then I would invest some in it. It would be akin to trading in some of their dollars for Gold. (https://tradingeconomics.com/saudi-arabia/gold-reserves)
If Saudi Arabia started buying Bitcoin in bulk, then the price of Bitcoin would go up. This would create demand for the asset that is increasing in value and other people would start buying and holding. Saudi Arabia would not be able to acquire all the Bitcoin, but it doesn't really matter anymore, because now everybody wants it, because it has increased in value.