As I write this, the price of Bitcoin is approximately $50,000, meaning $50,000 per bitcoin. I have no idea where it goes from here, just like I knew nothing about where it would go years ago.
In March 2020 when stocks started to get rocked, the price of Bitcoin also went down. I thought it might be the end of Bitcoin’s run. But when the Fed stepped in with trillions of dollars, stocks came roaring back, and Bitcoin has done the same.
I have known about Bitcoin for a long time. I wish I had bought some back when I could have easily bought several bitcoins for not a lot of money. It was a speculation then, and it is a speculation now.
I basically thought back then that Bitcoin is a sham. My opinion hasn’t changed much except I with I had taken part in the upside of the sham.
Don’t get me wrong here. I don’t necessarily think there is anything dishonest going on with Bitcoin. As long as it is voluntary, then I have no problem with people buying and selling and trading it. The price is whatever the marketplace determines it is. It has value because consumers demand it.
I am also sympathetic to Bitcoin because it is seen as competition for the dollar. Even though Bitcoin and other crypto currencies are really fiat currencies, at least they provide some competition in a market that desperately needs competition. It also helps that the crypto community tends to be somewhat familiar with the Federal Reserve and how it destroys our purchasing power.
Money
Bitcoin is not money. The Bitcoin advocates can say it is money, but it is not. Sure, a few places accept it as a form of payment, and Tesla may be the newest big player in town. But you can’t walk into Walmart or your local grocery store and pay with Bitcoin. They would look at you like you’re nuts.
Of course, you could try paying with gold or silver and most cashiers probably wouldn’t accept it. You might get the occasional smart one who would take your silver coin and pay the cash necessary into the register, assuming that the silver coin is worth more than the amount owed.
Sure, Walmart could decide to start accepting Bitcoin as a form of payment. My guess is that it would charge a slight premium, and the Bitcoin price would fluctuate wildly based on the current exchange value. In other words, the products on the shelves wouldn’t have Bitcoin prices on them. They would still be priced in dollars. You would just be able to pay in Bitcoin based on the exchange rate. It is also likely that Walmart and other retailers would convert bitcoins received back into dollars rather quickly.
For this same reason, gold and silver aren’t really money either, or at least not in our current world. However, they have a history of being used as money for thousands of years. Plus, gold is still stored by central banks even though the currencies aren’t officially backed by gold. Having gold in the vault provides some artificial backing and a form of reserves. Gold could easily return as a form of money, whether it is with physical gold (and silver) or electronic forms.
The Problems
One of the reasons given by Bitcoin advocates for widespread use of Bitcoin is that it provides privacy. First, not everyone wants privacy. If I make a payment with a credit card and something happens such as receiving a faulty product, I can challenge the charge with my credit card company. In this case, I actually want a trail.
Second, as with everything, the government could outlaw Bitcoin at any time. I’m not saying they could get away with it if sentiment is strong against it, but in emergency economic times, when people are willing to give up their liberty (see the last 12 months), then the government might be able to get away with it. I know some will say that people can continue using Bitcoin, but it doesn’t work that way. If the government decrees that you will get 10 years in prison if you are found trading with Bitcoin, then you can be assured that most people will stop.
Aside from those things and other flaws, there is one other major problem with Bitcoin, and it will be a problem forever. It is something that was made up on a computer.
I understand that the blockchain technology can and will be useful. But Bitcoin itself is really just a bunch of digits in outer space. There is only value right now because people are giving it value. Sure, you could say that about anything, but anything that has been used as a form of money in history had some kind of value to it before being used as money. That is even true of most speculative bubbles. Even tulip bulbs in the Tulip mania had some kind of value.
Gold has all of the qualities of a good form of money. It is divisible. It is portable. It is durable. It is limited in its quantity. It has a high value content for a small amount.
There are many things throughout history that have been used as money, but they typically fell short in one or more areas. Eggs and cigarettes are not durable. A living cow is not divisible (to keep it living). It is also rather burdensome to take your cow to the store to pay for some clothing. Milk could be used as money, but it doesn’t retain its store of value, as it will go bad in a couple of weeks. This is why salt has been used as money to some extent in the past, as it doesn’t go bad. But try paying for a new car in today’s world with hundreds of pounds of salt.
No matter what it is, it always goes back to gold and, to a lesser extent, silver. This is why they became the primary forms of money for thousands of years. The only way that governments and central banks were able to issue fiat currencies was to first issue the currencies backed by silver or gold and then to remove that backing over time.
When you compare gold to Bitcoin, there is one really major difference, and it isn’t just that gold has a physical presence. It is that gold has value outside of being used as money or speculation. It had value before it became money. It is used in industry, and it is used aesthetically, particularly for jewelry.
This is why gold will likely continue to have value no matter what. Bitcoin is nothing. It is a novel idea that someone made up on a computer screen. There have been thousands of more cryptos made up on a computer screen. They provide no material value or information except what the next person is willing to pay for it. And Bitcoin is only more valuable right now because it was the first player.
It is pure speculation, and it will continue to be pure speculation. I don’t know if its next stop will be below $10,000 or above $100,000. Either way, it could happen in the matter of days. It could happen in hours.
If you are feeling lucky, you can speculate on it. You may make a lot of money (i.e., be able to convert it back into U.S. dollars). You may lose your money. It is just a question of how many more people are coming up behind you to try to do the same thing. It is also a question of whether you know when to take your greed off the table. Or as Kenny Rogers said, know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run.
I don’t think Bitcoin is going to survive in the long run. I’ll place my bets on the metals that have been around for thousands of years. When Bitcoin eventually crashes, it is going to be hard. A lot of people are going to be left holding digital versions of cow manure.