I posted the below on Facebook last night, but then a few friends encouraged me to post this to here as well. These thoughts were off the top of my head so not super researched, but as I say below, I think they are broadly true at least in outline.
(P.S. Next post on The God Delusion coming very soon!)
I’ve stayed out of the Bitcoin discussions so far, but as someone who has been trading in and out for the past few years, I thought I’d give some quick thoughts now that it’s so much in the public eye.
I am no economist, so if you have a deeper knowledge of some of this stuff, feel free to chime in and tell me where I’m wrong. But what I write below I think is true at least in broad outline.
First, about Bitcoin itself:
-Don’t think in terms of intrinsic value, think in terms of intrinsic utility. Currency is valued when it’s useful. You can no longer cash in a US dollar for gold (you used to be able to), so now its purely a useful fiction. But it’s very useful. So is Bitcoin, for some of the reasons that follow.
-It is immune to inflation (at least of the type caused by money supply increase)
-It is immune to counterfeit (though hacking has been an issue… but hacking is an issue for banks too and any other time your money exists purely virtually)
-It is decentralized and not controlled by any single entity, unlike a fiat currency that rises and falls with its country. I think this needs to be emphasized, especially in light of the net neutrality vote going on. Could any of us imagine how important the global, decentralized nature of the internet would be? Bitcoin is the internet of currency. This is a bold claim, but I think it’s quite possible that the people who don’t “get” Bitcoin are like the people that didn’t “get” why you would want a computer in your home (“it’s only used for scientific calculations!”). I know, that’s bold, but I think it’s at least possible. (P.S. it’s totally understandable not to “get” Bitcoin! It’s super weird and hard even for a techy like me to fully understand.)
-It facilitates quick and easy transactions globally with minimal fees (fiat currency has to go through central banks with sometimes hefty fees)
-It is globally available, 24/7, and its units are more easily divisible than gold. This makes a good store of value for countries with an unstable currency
-It *can* be used to make real purchases for goods, but I honestly think that is not it’s main use. It’s main use (so far at least) is as a gold alternative
Now, my personal thoughts about the Bitcoin bubble as whole:
-It’s legit and also a bubble. It’s both. It’s just like the 90’s dotcom bubble. That was truly a bubble, but it was also the dawn of something brand new that forever changed the world and had real, true value (just go look at an Amazon stock graph from inception…)
-That’s why it’s ridiculous to compare this to the Dutch tulip mania in the 1600’s. Tulips weren’t a new, world-changing technology! Tulip mania was a bubble and NOT legit.
-Soo….. the price could drop horribly at some point. Or it could keep going up — cryptocurrencies only have a fraction of the market cap of gold so far.
-It might not be specifically Bitcoin that survives, it very well might be Ethereum or another cryptocurrency. MySpace was a bubble that popped and faded, but it was also legitimately something new and world-changing, and it just happened that Facebook was the final winner in that battle. The same sort of thing might (probably?) happen here.
Finally, if you’re still saying, “but it has no intrinsic valueeeeee,” let me ask you this. What is the intrinsic value of gold? It’s shiny! People like it because it’s shiny. But is that the reason it’s worth so much? No! It’s worth it because being “shiny” is the bootstrapping property that made it useful as a way of moving money around. But the bigger reason gold has always been a popular currency is that it’s rare. In other words, it’s immune to inflation in the same way Bitcoin is. But Bitcoin is even more convenient than gold to use.
If you want to jump on for the fun, I would suggest investing a *small*, *lose-able* amount of money in Ethereum (or half in Ethereum and half in Bitcoin). Say $500. Or even $100. Be totally prepared to lose it. But then have fun seeing what this world-changing technology (the blockchain) does in the next 5 years and how that might very well positively affect your holdings.
I will leave you with this so that none of us start to take ourselves too seriously: