SummaryWhile in my hot tub, this afternoon, I had a minor Bitcoin epiphany: Since Bitcoin is based on supply and demand, the supply, once it's reached its pinnacle, will continue to decrease in perpetuity meaning its value will continue to increase, somewhat similar to gold but greatly accelerated. We may have reached, or are very close to, the zenith of Bitcoin in circulation because it's probably vanishing faster than it's being created.
BackgroundI am not a fan of Bitcoin; not so much because of the technology, but because of how it's presented. The Bitcoin movement started as a fad with engineers, not economist or entrepreneurs. If you ask a technically-minded Bitcoin aficionado to described the benefits of Bitcoin, they won't tell you. Instead, they'll spout a list of features such as:
- Laissez-faire: It's a currency that's not controlled by any country or central bank. Keep in mind that organized crime is also laissez-faire and Bitcoin has found a nice home there.
- Anonymity: Transactions can be carried out without revealing the transacting parties. The same is true for cash and cash transactions typically have zero fees.
The truth of the matter is that Bitcoin comes with most of the same downsides as cash or gold. We don't keep cash under our mattresses because it's too dangerous. Bitcoin's personal security solution is the wallet, kept with a third party, which stores a Bitcoin transaction's credentials. So, now the Bitcoin community has effectively created banks without FDIC insurance. In other words, Bitcoin banks that are easily robbed without recourse or recovery.
Some people refer to Bitcoin as a currency and other's consider it an investment. The IRS considers Bitcoin to be property (like gold) which has helped it flourish since it's unconstitutional for any person, company, or state to print or coin money.
As an investment... and this is my key heartache with Bitcoin aficionados... there's no deep fundamental insight into Bitcoin. Rather, all speculation in the Bitcoin market is predominantly based on technical analysis (trading trends). This seems more like gambling at a blackjack table than crossing the British pound with Japanese yen, etc. Yes, people make money investing in Bitcoin, but so do lottery winners.
ConclusionWe've reached a point were it seems that Bitcoin is disappearing faster than it's being created and this trend will likely continue. The anonymous creator of Bitcoin, Nakamoto, has disappeared leaving an estimated one million Bitcoins in virtual limbo. Nakamoto Bitcoin accounts represent billions of dollars that haven't been touched since their creation. That is the equivalent of burning cash, never to be recovered.
So, if you own a Bitcoin, hold on to it as the supply dwindles.