Don’t bet on Bitcoin

Photo Credit: Jake Myser

Bitcoin is on the move again. It’s just reached an all-time high, breaking that $20,000 barrier. It’s fairly proved the doubters wrong. If you were a naysayer, you are now pouring cream over your humble pie.

The fact that Bitcoin is back in the big time brings back visceral memories of its previous peak, around this time in 2017. For some reason, back then, Bitcoin symbolised hope. It’s all anyone was talking about.

Christmas 2017 meant discussing Ethereum with your barista or Ripple with your taxi driver. It was the visible rise of the cretin; armies of morons marauding their way through social media, congratulating themselves on their genius and good. Suddenly, “Crypto Trader” was an acceptable occupation for your Facebook profile.

It was amusing at the time to overhead pseudo-intellectual conversations discussing the relative merits of XRP or ETH. It was a veritable gold rush. Everyone was looking for the next Bitcoin amongst the minority cryptocurrencies out there, like pigs hunting for truffles.

“Alt-Coins” was the moniker for the smaller, rogue cryptocurrencies that people hoped would skyrocket like Bitcoin. Those smaller coins and exchanges were riddled with fraudsters and nonsense. Snoop Dogg released a coin, for heaven’s sake. Initial Coin Offerings (ICOs) were a hilarious shambles that turned smart people into blithering idiots.

Schaudenfrade, melancholic tales of the golden days were commonplace. Everybody knew someone, who knew someone’s cousin, who worked for their butler, who mined some Bitcoin back in 2011. Those were the happy stories, however tenuous.

Then there were people like me, telling real yet heart-breaking stories. You know how they say when you die, the pivotal moments of your life flash before your eyes?

Well, this will flash before mine. Sat in an office in 2011 with a couple of colleagues. One of them was an extremely smart type. An actual geek who came from money. He used to get all the answers on University Challenge, that type of guy.

Geek: “Take my word for it, Phil, you should buy 100 quids worth of Bitcoin”

Me: “Screw it, I will”

I had a go at it, too. Right there and then. On my desktop computer. I got stuck though, I couldn’t figure out how and he had gone home for the day. So, I sacked it — things got a little inconvenient, so I didn’t bother. In darker moments, I wonder if that Bitcoin failure is a nice metaphor for my life. £100 of Bitcoin back then would make me a multi-millionaire right now.

What did I spend the £100 on instead, something worthwhile? Unlikely, probably a series of takeaways and half a night out.

Momentum

So, as you can imagine, I watch the current price trends of Bitcoin with a weird hybrid of envy and cynicism.

I rather think people are missing the point of cryptocurrency, though.

Just because it has reached a decent tradable value, does not mean it has any value.

The singular factor that governs a stock or asset price, is behavioural momentum driving supply and demand. If enough people jump on the bandwagon, Bitcoin will continue to rise; the same way Tesla stock might rise despite hemorrhaging cash on their balance sheet.

Currency

A decent test for cutting through the bullshit, though, is whether people are prepared to use it as currency.

It was, after all, intended to be a rival to gold or fiat-backed currency.

Do you ever look in your wallet and feel glad you have £10 of sterling in it? Of course not, because everyone transacts in sterling. You have no choice, and the relative values of the Euro or Zimbabwean Dollar are irrelevant.

Why, then, is Bitcoin always assigned a dollar value?

Because nobody transacts in it. They just want it so they can swap it for more dollars. So that they can actually buy stuff.

Decimal Points

Later on today, I will buy a Coffee. It will cost £2.50. I will use my card unless I feel a jangling weight in my pocket, and it will be a nice easy transaction.

Let’s say the Bitcoin zealots are right, and the price of a single Bitcoin reaches $1,000,000.

Then my coffee run turns into a bit of a nightmare, doesn’t it? I’m typing in about 6 decimal points to pay for it. And I can’t really remember if I am rich or poor.

Volatility

Right now, nobody is using Bitcoin. I know Paypal recently approved it for transactions, but it is still viewed primarily through a lens of speculation. Remove that volatility, though, and you are left with a poorly performing investment with no residual value that you cannot offload anywhere.

It’s back to the gold rush times of 2017 right now, and I guess, in a few months it will fall again.

As any savvy investor will tell you, it’s all about the price you sell at. Cryptocurrency is no different to any other investment class in that regard.

Be smart and sell up before the smart lads pull their money out. If you get greedy and miss the boat, you might be left with a string of worthless code with nowhere to spend it. That’s a high tariff to pay.