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Bitcoin: The truth and fiction

Bitcoin is a virtual non-state currency that is constrained in it's creation and quantity. That much is clear. It is certainly not gold or silver, however those properties may be a benefit or curse. Much remains to be seen.

Currencies across the world are a mess. The US Dollar is almost always referred to by those in finance as the "least dirty shirt in the laundry basket", the "best looking house in a bad neighborhood" or some permutation of the same. Anyone paying attention knows in the long view, the dollar is toast. So are most all Western currencies. They are dying. The argument for pro-dollar is the petro-dollar status, the possible energy boom we are currently experiencing, which may or may not be sustainable, and that the marginal cost for arbitrage of labor has reached it's apex.

In the last several several weeks, the price of bitcoin has gone parabolic. It is currently in some sort of blow off process. Parabolic charts have a predictable end-state: a symmetric crash. Though a crash is not a 100% rule, it is certainly highly likely. The only exception is in a violent hyperinflationary reset. Are we in a hyperinflation reset yet? I don't think so, not yet.

There are many Bitcoin skeptics. Bitcoin is not tangible. That is essentially the crux of the argument with Bitcoin, and it's correct. However that may have positive and negative effects on it's usability. My largest problem with Bitcoin is it's extreme deflationary bias. Bitcoin owners, that lose their key, destroy the bitcoins forever, or at least until someone cracks the key. So compared to a person who stored a cache full of gold coins, hidden secretly in their house; if you did that with Bitcoin, they'd cease to exist for all intents and purposes. With gold, it's still there, and someone will find it eventually. This bias to Bitcoin creates a hyper-deflationary bias to the currency. This effect may be beneficial for a trade, to get rich quick if you can time it right, but certainly it's a tumultous currency system over time. Though it's a good starting point. The thing is, we need a currency that isn't physical. Think of it as the Swiss Franc of our time.

The thing is, metallic currency isn't enough. We need competing currencies to get along in this world. We need currencies to fit every mood and whim, city-state, or decentralized. Though I don't know what the future of Bitcoin will bring, I'm certain that some will be made fantastically wealthy, and some will be financially destroyed, and everything in between. Economics isn't new, and everything has been seen before. Buying into a parabolic rise is dangerous, but it you can time it correctly, more power to you. However, most things that go into a greed induced buy, will fall eventually.

Though I'm certain that Bitcoin will be around for at least a while.

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Bitcoin is more like silver than gold in some ways...

Just under half the silver mined each year is 'consumed' in electronics, and some of this can be recovered by recycling, but at (currently) too expensive of a process relative to the value of the silver.

Much of the rest of the silver used for jewelry and dinnerware is consumed in a different way - through contact with teeth, plates, dishwashers, everyday wear to silver rings etc. Coins minted with a high silver content like the buffalo nickel wore down to indistinguishablity in just a few years of circulation.

About the only silver that doesn't eventually 'disappear' as in your example is investor coins and rounds which aren't handled or circulated that much. Otherwise yes, it is possible for a bitcoin wallet to disappear on its owners death. But big piles of money burn up every day, too - I've seen it.

Don't feed the pandas. Ever.