The price of the top cryptocurrency went under $30,000 for the first time since earlier this year in response to China’s crackdown on Bitcoin.
It was the most recent bad news to hurt Bitcoin, coming after Elon Musk said his company, Tesla, would stop accepting Bitcoin as a means of payment.
Nonetheless, the biggest Bitcoin fans and bulls are still supporting the digital currency, but their predictions of a crypto-takeover conveniently avoid some important facts.
1. Bitcoin is not solving a real-world problem
While there are certain real use cases for Bitcoin, like in economically defunct countries such as Venezuela, and for ransom when criminals need to go untracked, the idea that Bitcoin will replace fiat currency is almost completely ridiculous.
Fiat currency like the dollar does what it should do, works as a medium of exchange. While inflation is always a concern when you hold cash, the volatility of Bitcoin shows that it is much less reliable as a means of storing value.
2. Its value is almost totally speculative
Most Bitcoin bulls say its value is connected to its ability to work as a hedge against inflation. But really, Bitcoin’s value comes mostly from it being an investment for speculation. In many ways, it is the best speculative asset. It trades non-stop around the world, giving investors a huge pool of people to buy and sell with.
There are no fundamentals to its value, making its price almost completely a factor of charts and social media chatter, along with news articles. Bitcoin might work as a currency, but its top use case is in speculative profit making.
3. Scarcity does not equal value
One of the top arguments for Bitcoin is that its scarcity means it is valuable. The number of bitcoins will be topped out at 21 million, which people say is the reason for its value.
It’s true that scarcity adds value to things such as gold or artwork. But scarcity does not always mean value. Every piece of art is unique, but only some get millions of dollars at auction. So scarcity does not mean it is valuable.
After its recent increase and broader adoption by large institutions, Bitcoin seems like it’s not going anywhere, but the largest risk to the currency might be a falling price and a lack of interest from the public. Another drop could form a negative loop and end with huge losses, and a disenchanted fan base that loses all hope in the currency.
Author: Blake Ambrose