Bitcoin: Is This Time Really Different?

Blockchain is here to stay. Bitcoin, maybe not so much.

Just because bitcoin made a new all-time high of $19,920 on Monday (enthusiasts round that up to $20,000… close but no cigar), which is “about” $137 higher than its previous high back in 2017 (all over the Internet you’ll get different prices for the old high, hence the “about,” from BBC news), it doesn’t mean squat.

Why not? Because bitcoin is like ether, or Ethereum if you prefer; it’s made up. It’s made out of, make that mined” out of, thin air.

That doesn’t mean it isn’t a store of value, though it isn’t. It doesn’t mean it isn’t digital gold, though it isn’t. And it doesn’t mean it isn’t perfectly “permissionless,” perfectly fungible, perfectly private bearer e-cash, though it isn’t.

And it certainly doesn’t mean the price of bitcoin can’t go a lot higher, because it can.

Here’s what I mean…

This Time Isn’t Different

Bitcoin is a token coin in the asset class realm of digital currencies, and as long as an “asset” is tradable, its price can go as high as the next fool is willing to pay for it.

I’m not saying anyone who likes bitcoin or owns it is a fool; far from it, actually. Bitcoin is a fantastic trading vehicle that can, and has, made a lot of people very rich. But it’s also ruined a lot of believers.

Let me put that in recent historical perspective.

According to CoinDesk, on January 3, 2017 bitcoin was $1,019.09.

It “closed” (the way CoinDesk prices it) on December 18, 2017 at $19,395.84, its all-time high according to CD. Not $19,783 as the BBC saw it or $20,000 as enthusiastic followers saw it.

That’s a gain of $18,376.75 or 1,800% in a year. You read that right.

One year later, on December 17, 2018 bitcoin changed hands at $3,199.17. That’s a loss of $16,196.67 per coin, or 83.5% in a year. You also read that right.

So much for being a store of value.

Now bitcoin’s back up, close to $20,000, which is about a 165% gain this year. And people, meaning enthusiasts, owners of bitcoins, traders, and of course bitcoin promoters like the Winklevoss twins and Michael Novogratz, are all rah, rah, “this time is different.”

No, it isn’t.

Yes, bitcoin’s becoming more “accepted,” as in accepted as a form of payment or to be paid out.

PayPal now facilitates transactions in bitcoin. Square is doing the same. Visa just started offering a credit card that rewards users in bitcoin, as opposed to airline miles or cash. They already have a Coinbase deal that lets users spend in bitcoin with a Visa debit card.

As a digital currency, it’s the biggest, best-known, most widely used, and “most likely to succeed.”

But that doesn’t mean its price will go up.

Bitcoin Enthusiasts Beware

This time being different is about its greater acceptance, not that it will go to $200,000 a coin, as Tyler Winklevoss said it could on CNBC.

The rise in bitcoin is exactly like any other asset that can be traded; it can also be manipulated.

Interestingly, someone whom I don’t want to quote, because I don’t want him to be ridiculed just because he’s promoting bitcoin for a living and must be an idiot, just said that the rise in bitcoin in 2017 on higher volumes was due to retail demand, while the rise in 2020 driven by lower volume due to institutional allocation means it is less speculative.

What? First of all, this person’s analysis based on “weighted hourly volume” over a four-day period around the highs in 2017 and 2020, is idiotic. A four-day period? Oh, that’s statistically valid… not. And how does he know it was institutional buying, or “allocation” that drove the price up in 2020?

Seriously, it’s that kind of analysis and idiocy that too often surrounds bitcoin and worries me and should worry bitcoin enthusiasts and holders.

I’m all for a digital currency. A few of them would be fine by me if they were safe, transparent, and all the things global currencies should be.

Just not a central bank digital currency. Which is what we’re going to get from China, the Federal Reserve eventually, and other central banks.

That’s why, as much as I respect bitcoin and other digital currencies, and moreover blockchain, coins, unless they are “of the Realm,” aren’t going to go where they could go.

Central banks, using the power and auspices of governments they serve, will kill them if they ever threaten the currency of the Realm. So, really, how high can any of them ever go?

End of story.

Sincerely,

— Shah

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Source: Total Wealth