[The following is by TDV’s Senior Analyst, Ed Bugos]
To all you bitcoin haters out there, please note the truth: It’s here to stay.
So many have predicted bitcoin’s demise, but the recent bitcoin rally surely reversed some of these opinions, as well it should.
Yes, bitcoin is an alternative digital currency, but that doesn’t invalidate its usefulness. It’s not a government currency but a private currency and that makes all the difference in the world.
Sure it’s not gold or silver, but not all private money needs to be gold and silver. The primary characteristic of money is that it is voluntarily “accepted” by enough people to have utility.
And there is already significant utility in bitcoin.
Whereas current money shipment methodologies are expensive or time-consuming, one can ship bitcoin from one place to another almost instantaneously. Additionally, there are a growing number of banking facilities that will allow conversion of bitcoin to dollars, euros or other currencies automatically. One can then take the card to a local ATM for cash (like this Bitcoin ATM card which we just featured to subscribers in the October issue of TDV).
It is true, of course, that there are numerous questions about bitcoin beginning with its development. The idea that a single brilliant man could simply write a paper, deposit it on the Internet and find that it has sparked a digital currency revolution is at least suspect if not downright unbelievable. Speculation continues on about who is “Satoshi Nakamoto”.
But no matter the questions, the “value” of bitcoin has to do with its private nature (it is not controlled by government central banks), its expanding ease of use via conversion facilities and the convenience with which it can be sent and received.
These provide powerful incentives for bitcoin’s use and also offer a reason as to why bitcoin has retained value and recently saw a strong rise from under US$250 to over US$500 (and has currently stabilized near $380).
Bitcoin “haters” were sure that the currency’s decline from US$1,000 to less than US$200 was a sign of its demise. But bitcoin hasn’t gone anywhere. Its user base continues to expand and this recent advance in bitcoin’s value is just one more sign that the currency has rationalized and that it is “trading” not just plummeting. Bitcoin is real. It is here to stay.
The trend of total transaction volumes in the chart below speaks for itself.
If you thought that its rise to $1k was a bubble wait until you see what happens when all those dollar holders try to fit in this small door. Gold bugs are familiar with that phrase; traditionally it applied to the gold share sector. But Bitcoin’s door, in terms of market capitalization, is even smaller. That’s the reason for its volatility. This will change as the door widens… or, as is said by the establishment, due to “integrating the traditional financial establishment with the bitcoin network.” As its circulation and market cap increase its volatility will decrease in time.
You see that with companies that emerge from nothing and grow into something real. The law of large numbers eventually takes care of the volatility. You shouldn’t need to be all that educated to see this. You just have to not be mentally challenged.
The bitcoin bubble was pretty small at its $12 billion high in 2013 by most standards. There are not too many bubble trends historically that peaked out at such a small valuation confined to such a small segment of the general population. It’s just not rational to call it a bubble.
A lot of people, maybe especially traders, tend to automatically ascribe the term “bubble” to anything that goes up, even if it goes up for real… for fundamental reasons. How many times have we seen mining discoveries soar, and then soar, and then soar some more. Granted, not as often as we’ve seen them collapse. But even those that collapse weren’t really “bubbles.”
Regarding Bitcoin, it may just turn out that the market was right at its $1,000 valuation.
We don’t think it is. We think it would be more right much higher.
It is an emerging concept. And like all emerging concepts it destroys old obsolete ones in its wake. TDV Editor-in-Chief Jeff made millions breaking the brokerage monopoly on information (news and quotes) and bringing that to the retail investor when he founded Stockhouse.com.
He wasn’t the only one but he was part of that change. Stockhouse financial is now the largest hub in Canada. In these cases the market just saw far ahead, although it may have done that within a bubble environment and got overzealous in that period. A bubble is a mania and usually involves a broad segment of the population. Its unique characteristic is that it is fundamentally caused by the printing press and the manipulation of interest rates. Economists have various theories about how bubbles are caused. Bitcoin fits none of them so far.
In no theory I have heard does it say that something is a bubble just because it goes up by so much. But then, I don’t define bear markets by the 20% rule either.
The bottom line for bitcoin is a simple one. People are accepting the currency because it isn’t subject to central bank debasement (being private and decentralized) and because of its growing ease of use and currency conversion. And they are doing it voluntarily. Its ascent, like language, is spontaneous, not forced, like those fiat dollars we’re accustomed to using.
That’s as it should be with money.
The biggest growth of bitcoin is yet to come. The modern derivatives market is well over a thousand trillion in nominal transactions. This sort of recklessness dooms central bank monopoly money sooner or later – probably sooner. A handful of men can debase the world’s mainstream currencies and are well on their way to doing so.
When the debasement is complete, nothing will be left standing – not savings, not speculative investments, not retirement funds, nothing.
Government promises regarding health care, pensions, etc., will prove to be the chimeras that they have been historically. Government is the very worst guarantor of value.
The private marketplace on the other hand provides value and utility. When the big crash comes, as it must, there will only be a few repositories of value left standing. Gold and silver will be two of them. Chances are bitcoin may be a third. If so, its value should rise from the current price per coin to hundreds of thousands of dollars or even millions – depending on the severity of the crack-up of the world’s currently accepted currencies.
Jeff Berwick has already stated that if bitcoin ends up replacing the US dollar it will be worth, in today’s dollars, over $1 million per bitcoin. And recently, Tuur Demeester (a past Anarchast guest of Jeff’s) wrote in an article entitled, “Bitcoin: Why It Now Belongs In Every Portfolio” about what bitcoin’s price could be if it reached certain milestones.
Here are some of them here:
Whether bitcoin achieves those milestones or not, however, the crack-up in fiat currencies and the financial system is coming. There are not many private monetary facilities. To deny the coming worldwide financial crisis and crack-up is to deny history. All government-run money always ends up the same way: worthless. All that is in question is the timeline.
Our take would be that the coming final debasement is going to arrive sooner rather than later. And when it does, there will not be many options. Barter will be one of them. Precious metals a second and, very possibly, bitcoin.
So for all you bitcoin haters out there, there are significant reasons to hold and use bitcoin. They are growing every day even while the world’s larger financial system grows ever more unstable.
You keep buying and holding the “safe haven” of dollars. We’ll take our chances with bitcoin.
[Editor’s Note: In the last week Ed Bugos and Jeff Berwick put out an alert to TDV subscribers elucidating on where this latest bitcoin rally is headed. Subscribe to TDV to get access to one of the only financial newsletters that covers bitcoin in any depth. And, has been covering it since $3 in 2011]