We are in very peculiar times at the moment, in particular, we are seeing a huge increase in interest and demand for cryptocurrency. Essentially speaking, this currency is special because it does not require any intermediary to transact and the number of coins that exist in the world cannot be increased or “printed.” That is not the interesting part though, what I would like to expound on is the hype over Bitcoins when its price goes up sharply. I have never seen people get interested in any item when prices go up, instead, common sense dictates that price is exactly inversely proportionate to the value of the asset. This post intends to use an investor’s perspective to analyze this situation and help clarify why I will not be pursuing this asset class.
Bitcoins can be infinitely fractional
Many argue that the number of bitcoins will never increase hence its value can only increase over time due to its rarity. This reasoning is akin to that of Gold’s value proposition and it seems to be legit. However, there can be an infinite amount of other cryptocurrencies created for the exact same purpose. Whereas Gold and other precious metals are all discovered and there will be no other precious metals that can be used to replace Gold. Not to mention that Bitcoin can be broken up into smaller denominations therefore one can imagine that so long as the value of a fractional bitcoin is significant, then it can still be transacted. This debunks the idea of Bitcoins being finite and therefore rare and valuable.
Currencies should not have huge price volatility
The value of Bitcoins is known to be highly volatile because it is traded frequently on the market. Even if the value of the “coin” is internationally recognized, there is a chance that the value of the coins changes too much for banks to use for large asset purchases. At the moment, Bitcoins are only traded from person to person with the US dollar but I presume that if someone wants to use it to purchase a large item or property, there must be some sort of agreement before the final price is decided. If that is the case, I really see no point in using a currency like this when there are obvious alternatives.
Intermediaries are not always a bad idea
Bitcoins are already widely used on the dark web because the transactions are basically untraceable. Without intermediaries, the use of such coins can extend to all sorts of illegal activities and operations. Personally, this might become a tool for many nefarious activities to be funded internationally and therefore increasing the number of crimes committed. On that note, I do not see how the use of such unregulated currencies be permitted at all, bearing in mind that there are plenty of regulated currencies available for legitimate transactions.
Closing Thoughts
The future of currencies and more importantly Cryptocurrencies is defined by too many variables but one of the more prominent ones is greed and that cannot be good news. As an investor, there are many other assets to invest in hence if you are talking about the potentiality of capital gains, there is seriously no reason to select bitcoin when it has no intrinsic value at all. Instead, I would recommend that we consider sticking with the old fashion way of buying stocks of companies that we feel are undervalued. This is because if the price of any cryptocurrency ever dips significantly, the attention will only be transferred to the next big thing so why bother.
