The price of Bitcoin has reached a new milestone. One bitcoin is now worth about $10,000, at least as of right now. It will likely change significantly one way or the other by the time you are reading this.
For the cryptocurrency fans who don’t like the government currencies, they sure are celebrating a lot because of measuring Bitcoin in U.S. dollars. Of course, I have to admit that I would probably be bragging about gold – or more so the bad U.S. dollar – if an ounce of gold were to hit, say, $5,000.
In Bitcoin’s run toward $10,000, I have even read comments by Bitcoin enthusiasts attacking gold bugs. They say that they have been vindicated and that gold bugs have been all wrong. This is somewhat curious, given that gold bugs and Bitcoin enthusiasts can overlap. You don’t have to be one or the other, although most will have a preference for one or the other.
If you invested in Bitcoin early, then you have done really well. But it isn’t because Bitcoin is money. It is because you can trade your bitcoins for more money. Your purchasing power in dollars has gone up.
Bitcoin enthusiasts seem to be declaring victory. But there isn’t a defined finish line here. There were people predicting a housing bust in 2004. Think of the person in 2006 making fun of this prediction. “Ha, ha – You predicted a housing bust two years ago and prices have gone up another 30% since then.”
Bitcoin is a major bubble. We just don’t know when it is going to pop. It could go to $20,000 or $100,000 first. Nobody knows. There is little historical basis for any of this, other than previous bubbles and busts.
A bitcoin is only worth something because some people are deeming it worth something. It is subjective. Unfortunately, other than serving its current role as a speculation, a bitcoin is not useful at all. It is basically a digit somewhere, similar to the majority of dollars in circulation. Dollars are mostly digital. But at least with dollars, it is imposed by the government, which means it would take a lot to remove it as a form of money.
What makes Bitcoin so special? There is technology that has gone into it, but this doesn’t mean anything in terms of why a bitcoin is valuable. This is why there are now thousands of digital currencies that were made up out of nothing. You too can start a cryptocurrency. Just create your own digital coins and tell the world how many are available and just how great they will be.
This whole thing reminds me of Tulip mania. There is a difference though. At least if you paid a lot for a tulip bulb, you could at least get a nice looking flower out of the deal.
I know this is harsh. As I’ve said before, I am sympathetic to those who promote cryptocurrencies because at least they are opposing the fiat government money that is forced on us. Still, I don’t want to see people get burned by this speculation. Therefore, if you do “invest” in Bitcoin, know that your investment could quickly go to zero. You are not trading one form of money for another. You are speculating.
There is a story about Joseph Kennedy knowing a stock market crash was imminent in 1929 when a shoeshine boy was giving him stock advice. This was a sign that the bubble was near its peak. Whether or not this story is true, the idea of it rings true.
I have read several comments in different forums over the last couple of weeks with people asking about Bitcoin. They say they have never bought Bitcoin and wonder the best way to go about doing it. They wonder whether now is a good time to get in, even though they missed the initial run.
I am not saying that a crash is imminent. Bubbles can go on for a while. They can last longer than some short sellers can remain solvent (to paraphrase Keynes).
If you are going to buy Bitcoin with your U.S. dollars or some other government currency, then please understand that Bitcoin is not money. It is hard to even call it an investment. It is a speculation. There is nothing wrong with speculating, just as there is nothing wrong with going to the casino. Just understand what you are getting into and that you could lose all of your money.