In my opinion, bitcoin is dead.
It won’t go quietly, but the recent precipitous drop may be the beginning of its inevitable and inexorable death spiral. Or there could be a dead cat bounce. Either way, I see bitcoin as a dead man walking. Future generations may read about bitcoin in a finance textbook as a curiosity and wonder what all the fuss was about. There are still some die-hard adherents espousing the virtues of bitcoin, desperate to make a silk purse out of a sow’s ear. Unfortunately for them, the end may not be pretty when it comes.
Proponents of bitcoin tend to focus on the impact of the blockchain technology that drives it, and make no mistake, blockchain is the real deal. Blockchain is fundamentally changing the way industries do business, from traditional banking to supply chain management. But just because blockchain technology is creating a new paradigm doesn’t mean that bitcoin shares that same distinction. Television fundamentally changed the way the world received news and entertainment. However, it also gave us the likes of Manimal and My Mother the Car.
For those who purchase bitcoin, there are serious headwinds that make it unlikely they will enjoy any profits over the long term. Most cryptocurrency transactions are purely speculative. There are no real fundamentals to evaluate; bitcoin doesn’t produce any products or services, hire any employees or pay any dividends. The only way profits are generated is when the owner is lucky enough to find someone else who will pay more for the thing. If you are getting into the bitcoin game now, you are paying the higher price that makes this whole scheme work. That’s not a distinction you want.
Some bitcoin aficionados are attracted to the idea of a currency beyond government control, one that provides a store of value that easily crosses borders around the globe, and the comfort of anonymity it can provide. For many, it seems like the ultimate safe haven for their money in times of global uncertainty. But these characteristics have only persisted because governments have largely treated cryptocurrencies as novelties. The minute bitcoin or any other cryptocurrency appears to have even the slightest chance of disrupting national monetary supply, I expect regulation to be swift and decisive. The SEC has already issued guidance around cryptocurrencies that has created roadblocks to gaining the same legitimacy as traditional marketable securities.
Cryptocurrencies themselves aren’t going away, and they will likely remain part of the financial landscape indefinitely. But there’s very little reason to believe that bitcoin will be the one that stands the test of time. Other than the name recognition it carries in the market, it’s virtually indistinguishable from any of the other cryptocurrencies. Someone came up with a cool name and way to mine it, and so it was born. At some point, the world may well decide that it doesn’t really need the 2,000 or so active currencies out there, and the market will devour itself. Do you think that being early to market or having “brand name” recognition will save it? I suggest you talk to anyone who had a MySpace page or carried a PalmPilot about how owning the space early worked out.
If you think buying bitcoin or any other cryptocurrency is the key to your financial security, retirement or kid’s college education, you could be in for a rude awakening. If you enjoy the thrill of making bets, I suggest you visit your favorite sports book or table game in Vegas where your odds of success are much higher. If you think it’s a fun way to try to make a big score, you’ll probably have better luck throwing darts at microcap stocks. But if you’re doing it purely speculatively, and you’re prepared to lose all your money, keep doing what you’re doing.
