Loading ...Nothing Profound Just A Different Perspective
I just scanned through a recent article by John Hussman about the price one pays for an investment contributing to the level of one’s return. Nothing new or earth shocking there. But it had me jumping to thoughts about Bitcoin. I have written many times about Bitcoin being worthless and a ponzi scheme that will eventually reflect it’s true value. What I never articulated, or really thought about in investment terms(despite being a business major who studied finance and economics) was the classic definition that Hussman reminded me of valuing a security in terms of it’s discounted cash flow being only worth what that flow will realize into the future. I guess I never thought of Bitcoin that way because I don’t consider Bitcoin a security. A bond, or more likely a stock, or even income generating real estate, generates a stream of income and or discounted cash flow for the stock of a company but Bitcoin generates nothing. It is just the greater fool theory of hoping someone will pay more in the future than what you paid for it. Again, nothing that others haven’t said before. It’s just that Bitcoin isn’t really a security, it isn’t even like a bond which is somone or some entity’s promise to pay you back in the future with interest along the way.
I’m not a business or economics major, but in my estimation isn’t Bitcoin just a currency? What’s the difference between Bitcoin and the US Dollar? They’re both mediums for transactions and their value is whatever you can exchange them for, neither has any intrinsic or substantial value apart from transacting. Not like stocks which ultimately are pieces of a real company’s assets and the other assets you mention. I’ve always seen all cryptos as currency speculation just like any national currency, based on market opinion with no residual value when the market gives up on it. Does this add anything to what you’re saying? I don’t have much of a finance background, I studied Geography.
You asked the right question, “isn’t bitcoin just another currency. Yes, but do you know any currency, not just the dollar, that has appreciated the thousands of percent that bitcoin has. Currencies are a medium of exchange, as you correctly pointed out. I am willing to bet that in the entire history of mankind no currency ever fluctuated more than 50 or 100 percent and then held those gains and those were probably few and far between. A real national currency or international currency for that matter wasn’t meant to be an investment like equities or real estate. Some have become for a brief period of time because crowd psychology speculated on them, just like Dutch Tulip bulbs. Bitcoin will eventually end up worth just as much.
Yes, the volatility makes it unlike any other currency. It moves like a commodity but functions like a currency. Maybe it is a new class of asset. Kind like what the duck billed platypus is to the rest of the zoo animals.