Tuesday, September 5, 2017

Crypto-currencies, Bitcoin and bubbles

Last month, I explained that if an investor was looking for volatility he would find it in Bitcoins, but that I had no idea how much they would eventually be worth. A reader of ours was kind enough to point out to me that I was wrong.

According to Arne Wolframm, "there is no crypto-currency mania at all. There is 7 trillion dollars’ worth of gold, but only 44 billion worth of Bitcoin in this world. If there is so much demand for gold as store of value and currency, even though it is much harder to store, transact and divide than BTC, then there is no reason to assume there will be less demand for BTC, which is much easier to store, transact and divide."

Wolframm concluded his email by saying, "So, stop being stubborn and get on board with crypto! (Unless, that is, you can come up with a counter-argument that actually holds water, in which case I would be most grateful if you would share that with me). And yes, do ONLY buy the oldest, original, most secure, most advance, most widely traded, held, mined and accepted type of crypto currency: Bitcoin”

As I said before repeatedly, I do not know whether Bitcoins will be worth one day $500,000, or $1 million (the latest forecast I have seen) or far less than they trade at today (though that would be my guess). But regarding the fact that “it does not matter that” whereas the maximum supply of Bitcoins is fixed but not the number of competing cryptocurrencies I have a different view than Mr. Wolframm. It may be true that market participants choose to get paid in the “most widely accepted currency” except that the most widely accepted currency of the day may not be the most valuable and the most accepted currency tomorrow.

Yet, Wolframm may be right that Bitcoins continue to appreciate in the near term (as they have done so by more than 60% since he wrote to me. Year-to-date, Bitcoins are up by almost 400%). Because the maximum amount of BTC is fixed at 21 million and since we still live in a huge liquidity bubble (just look at the low level of interest rates) in which investors will buy anything that moves up, Bitcoins and other Crypto-currencies may become the favorite global “object of speculation.”

via gloomboomdoom