I did a short post on why Bitcoin has value previously.
Doesn't mean I don't think it's a bubble. It has value cos people think it should have value. Just lika diamonds or gold. They don't serve any real purpose but people just use them as a medium of exchange.
So why do I think Bitcoin is a bubble?
Well. Firstly, there is limited use for it currently. You can buy it, trade with others, but besides that, there's no real use for it. You can hardly use it to buy something. If you bring a block of gold to the coffee shop, assuming that the merchant can identify it is real gold, there's actually a high chance that they would accept gold as payment. Well I would.
Most people are just hoarding Bitcoin cos of the profits that they hear they could make. There's a whole load of traders, speculators and hoarders. Basically, people who are feeding off themselves. How many people are actually merchants who are using it for business transactions? Bitcoin's pricing is too volatile for business transactions, unless you're doing illegal stuff.
If I were to buy Bitcoin now, I'd basically just buy it and just keep it and hope for the best. That's all. And I think many people are doing that, thus, reducing the supply of Bitcoin and jacking up prices.
If you read up on the Great Depression, that's what happened to gold. Basically, when money was backed with gold, people just hoarded the money, cos by keeping the supply of money limited, the value of money increased, causing deflation cos prices fell.
It's like last time there was $1 million worth of notes on the streets, the rich people keeps $900,000 under the bed, there's now only $100,000 worth of notes on the streets. This $100,000 became to be worth more. Meaning prices had to drop. Cos the face value of the money cannot change. So last time there's more money flowing thru the system, $1 can buy 1 loaf of bread, but now, there's less money in the system, money is worth more, so $1 can maybe buy 2 loaves of bread. With no corresponding productivity increase.
Maybe I'm not too good at explaining this part...
So if most people who buy Bitcoin are traders and hoarders, then as more hoarders come into the game, there's less and less Bitcoin being traded. So the newest hoarders will buy it at more and more expensive prices. After a while, there's going to be only a small amount of Bitcoin available for trading cos everyone else is just hoarding it.
That's unless, in future, people actually USE Bitcoin for transactions. If it really becomes a medium of transfer, then I think as more people get on board to use Bitcoin, then I think it will not be a bubble. However, I don't see that happening anytime soon. So currently, I think it's just a novel idea to be owning Bitcoin or Ether or Bitcash, etc etc...
Not to mention, as Bitcoin keeps splitting. They split into Bitcoin and Bitcoin Cash recently. And is expected to split again at the end of the year. The power and reliability of Bitcoin drops. Think about it, if gold were like Bitcoin, and a group of people say, no we won't accept pure gold anymore, we will ONLY accept purple gold. Then a few months later, another group says, no I'm going to ONLY accept white gold, etc etc.
Bitcoin has the potential to split into 10, 20, 30 different types of Bitcoin. If that's the case, then what so unique about Bitcoin? It's going to be just one of the many other cryptocurrencies in the market. Bitcoin is powerful cos it's the first and the one with the most number of people on the system. Once it loses people, then it loses power. That's the whole point about cryptocurrencies. It's about how many people are on the system. See previous post. If Bitcoin keeps fragmenting, which they will, it will end up worthless cos the people left over will be holding bits of every different type of Coin.
How it will end? Duno... When? I also duno.
But what I know is, I probably won't be buying Bitcoin anytime soon, unless I see some indication that Bitcoin or whatever cryptocurrency starts becoming useful as a real medium of exchange.
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Doesn't mean I don't think it's a bubble. It has value cos people think it should have value. Just lika diamonds or gold. They don't serve any real purpose but people just use them as a medium of exchange.
So why do I think Bitcoin is a bubble?
Well. Firstly, there is limited use for it currently. You can buy it, trade with others, but besides that, there's no real use for it. You can hardly use it to buy something. If you bring a block of gold to the coffee shop, assuming that the merchant can identify it is real gold, there's actually a high chance that they would accept gold as payment. Well I would.
Most people are just hoarding Bitcoin cos of the profits that they hear they could make. There's a whole load of traders, speculators and hoarders. Basically, people who are feeding off themselves. How many people are actually merchants who are using it for business transactions? Bitcoin's pricing is too volatile for business transactions, unless you're doing illegal stuff.
If I were to buy Bitcoin now, I'd basically just buy it and just keep it and hope for the best. That's all. And I think many people are doing that, thus, reducing the supply of Bitcoin and jacking up prices.
If you read up on the Great Depression, that's what happened to gold. Basically, when money was backed with gold, people just hoarded the money, cos by keeping the supply of money limited, the value of money increased, causing deflation cos prices fell.
It's like last time there was $1 million worth of notes on the streets, the rich people keeps $900,000 under the bed, there's now only $100,000 worth of notes on the streets. This $100,000 became to be worth more. Meaning prices had to drop. Cos the face value of the money cannot change. So last time there's more money flowing thru the system, $1 can buy 1 loaf of bread, but now, there's less money in the system, money is worth more, so $1 can maybe buy 2 loaves of bread. With no corresponding productivity increase.
Maybe I'm not too good at explaining this part...
So if most people who buy Bitcoin are traders and hoarders, then as more hoarders come into the game, there's less and less Bitcoin being traded. So the newest hoarders will buy it at more and more expensive prices. After a while, there's going to be only a small amount of Bitcoin available for trading cos everyone else is just hoarding it.
That's unless, in future, people actually USE Bitcoin for transactions. If it really becomes a medium of transfer, then I think as more people get on board to use Bitcoin, then I think it will not be a bubble. However, I don't see that happening anytime soon. So currently, I think it's just a novel idea to be owning Bitcoin or Ether or Bitcash, etc etc...
Not to mention, as Bitcoin keeps splitting. They split into Bitcoin and Bitcoin Cash recently. And is expected to split again at the end of the year. The power and reliability of Bitcoin drops. Think about it, if gold were like Bitcoin, and a group of people say, no we won't accept pure gold anymore, we will ONLY accept purple gold. Then a few months later, another group says, no I'm going to ONLY accept white gold, etc etc.
Bitcoin has the potential to split into 10, 20, 30 different types of Bitcoin. If that's the case, then what so unique about Bitcoin? It's going to be just one of the many other cryptocurrencies in the market. Bitcoin is powerful cos it's the first and the one with the most number of people on the system. Once it loses people, then it loses power. That's the whole point about cryptocurrencies. It's about how many people are on the system. See previous post. If Bitcoin keeps fragmenting, which they will, it will end up worthless cos the people left over will be holding bits of every different type of Coin.
How it will end? Duno... When? I also duno.
But what I know is, I probably won't be buying Bitcoin anytime soon, unless I see some indication that Bitcoin or whatever cryptocurrency starts becoming useful as a real medium of exchange.
<<PREVIOUS POST // NEXT POST>>
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