It's a thought exercise about scarcity. We understand the normal dynamics of scarcity rather easily, it's less thought of on the flip side. It's good for in demand things to be scarce but not TOO scarce , one of bitcoins strongest pillars is its scarcity and it may also be its undoing. I'm not going to insult the IQ of crypto community because I know there are some very bright and talented people involved but our vulnerabilities that most catch us off guard can come from a perceived strength. I'm not going to get too philosophical with this nor am I making a prediction, but simply where my mind goes when thinking about the dynamics.
I see. So I won't sperg out in this thread too much as I try to keep this stuff in the Bitcoin thread, but I would say that scarcity in the context of Bitcoin is quite different than something like water. Its true that there is a finite and ever decreasing total amount of available Bitcoin supply (lost wallets/keys would theoretically be destroying max possible supply constantly). However the negative aspects of a capped supply can be largely negated if one allows for a couple assumptions;
1. Bitcoin is infinitely divisible (it is)
2. The network continues to function
3. Transactions can continue, via L1 or otherwise, with an ever decreasing amount of available supply and an ever increasing monetary value.
If you're willing to accept these assumptions then Bitcoin will continue to serve its primary purpose, un-censorable, permission-less, self-sovereign medium of exchange. Accretive USD value is just a consequence of Gresham's Law (bad money is spent to hoard good money). Stated another way $ value of Bitcoin as a "reserve asset" or savings vehicle is just a temporary state of transition between systems of account.
IMO, we're living inside a system thats being eaten by another system so its really hard to see beyond that event horizon. Your point about this happening too fast however is well taken and I completely agree. It is better for everyone involved if this occurs over 20-30 year rather than 2-3. Wealth inequality will likely be MUCH worse the faster this goes. However Bitcoin is probably better distributed than any monetary system in history as far as being "fair". The gold was never distributed evenly, but the rich inevitably squander their advantage (see Spain after they retrieved massive wealth in gold from the Americas early on). Bitcoin won't be any different... but it might be tough for a while.
Worth remembering too that goods and services are still required and desired and will be paid for. We're going through the Gresham phase where essentially nobody is spending the "good" money, but it doesn't last forever. Also some of the stuff I expect Trump and his team to do (reducing 'crypto' regulation, enabling Stablecoins, etc) is going to significantly boost the dollar and slow down this whole process. For USD holders at least, good luck everyone else.
EDIT: If the concern is inflationary currency vs an effectively deflationary (or at least ever decreasing inflation rate until finally 0% inflation in supply) its a good point as its entirely new. Jeff Booth has done a fair amount of work on this topic which is outlined in his book Price of Tomorrow
