We’ve talked a lot over the past several days about Bitcoin and gold (see here for instance).
One of the points we’ve been keen on making is a simple one: the fact that there is a finite supply of something apparently isn’t a good enough reason to assign value to whatever it is that’s finite. If what you want to say about gold is that it’s an inflation hedge and has value because there’s a finite supply of it, then it is incumbent upon you to explain to me why other things for which there is a finite supply are not also inflation hedges with value.
The same goes for the “it’s expensive to find/produce” argument. All kinds of things are expensive to find and/or produce. Not all of those things are “inflation hedges with value.”
In the final analysis, it seems difficult to get around the idea that gold’s value is merely a matter of convention – an enduring historical accident predicated almost entirely upon humanity’s fascination with shiny things that are yellow. There is absolutely nothing to say that preference won’t one day change.
The same goes for Bitcoin. People are fascinated with it, and that’s fine. But there is nothing unique about the characteristics of Bitcoin. Other things are finite, other things are expensive to produce, and other things can and do employ the same technology.
For more on this, read below for the latest from Bloomberg’s Mark Cudmore…
Via Bloomberg
Okay, bitcoin fans — answer me one key question: why does belief in the power of blockchain technology mean you should invest in bitcoin? Blockchain will be massively disruptive for many industries, most notably the financial sector. Adoption has been slow and many investors are underestimating the impact. But does that mean you should buy bitcoin specifically?
Bitcoin is finite, but that doesn’t necessarily equate to value — my signature is finite and it has no value. Bitcoin is also expensive to produce, but so what? If I buy some new supercars and grind them into dust that’s an expensive process too, but that dust will not have value.
It’s also highly questionable as a store of value. Three falls of at least 30% so far this year have killed that idea. And finally, as an effective means of exchange it’s terrible. It’s expensive and slow to use and as of July, just three of the top 500 online retailers accepted it, even fewer than a year earlier.
Blockchain technology and cryptocurrencies are part of our future. That makes sense. That doesn’t mean bitcoin itself has any value. It’s also important to emphasize that, like any bubble based on the Greater Fool Theory, there’s no logical limit to how far it can rise, so fighting the bubble could be just as foolhardy as investing in it.
Belief in blockchain is not a reason to invest in Bitcoin. The reason is belief in its utility, community and marketing cache and therefore its continued adoption. There will be many contenders for use in the crypto world and many winners and losers. I look at the track record of the BTC community in iterating the software to grow. The same way one might look at the progress in Google, facebook or netflix as their tech has become more useful and more user friendly.
If governments try to shut it down there will be an impact to utility but of course there is not likely to be broad international consensus so long term I expect that to be a fools errand akin to outlawing possession of gold or alcohol or weed.
Too many people seem to overlook that you need more than a fancy piece of code to launch and implement a new crypto. Exchanges need to write code to support it. Software needs to be written for cellphones. Hard wallets need to be made. Everything needs testing. This only occurs if the crypto actually provides utility. So far BTC and LTC have solid track records and communities so I am willing to wager on them.
The thing to note about blockchain is that it isn’t inherently foolproof. It takes a lot of time, testing and debugging to make sure it’s solid. The open source nature of BTC is a huge strength. It forces it to adapt rapidly and only tolerate perfection. Private blockchains and their ICO’s etc that are closed code… well I see no reason to invest in them. If any gained real steam I expect it wouldn’t take long for a hacker group to find a weakness in the code, syphon off a ton of funds, dump them for cash and kill it off.
What you just described does not equate to value in the hundreds of billions. That’s what we’re really talking about here. Not that it’s useless, totally worthless, not disruptive, or any other argument you care to make.
Certainly, but do angel investors put down money for something that is currently worth millions? I would consider present day investment in crypto angel investing. There is potential but you have to put in way more than you will be making up front to get it moving. I would say that today BTC has a reasonable buy price of $1000 to $1500 as they cost around $1k to mine and they provide some utility on top of that. I bought in around $200 expecting it to get to $1000 about now. I expect it will drop to around that range before the next step up in value growth and speculation begins. If the real utility and adoption continues then realistic valuations of $100k are possible, if adoption and progress slows then its value will trend much lower. Overall though Bitcoin especially is designed to evolve as needed over time and that is a big reason I have some expectation of its success. An iterating evolutionary open source process should produce the strongest outcomes short of well… the equivalent of a meteor strike.