The Impending Bitcoin Crash
Channel: Daily Insight
Date: 2017-10-11

I’ve already spoken of the negative aspects of bitcoin (link posted below), but this most famous of digital currencies is having a bit of a resurgence of late. One year ago (October 12, 2016), bitcoin was valued at about US$635. Today, it is valued at about US$4882. That’s a whopping 668.8% gain over one year! For comparison, the best bank accounts are only paying about 3% p.a.

So why has it’s price gone up so much? Well, I think most people would agree that it’s purely based on speculation. Because investors see it rising in value, they hope that if they buy some bitcoin, they’ll be able to sell it later for a tidy profit.

But the sad thing about speculative assets and currencies like bitcoin is that they usually end up crashing. The moment one person starts selling up all their bitcoin, and then another follows suit, and then suddenly everyone panics and starts selling, the price will drop quickly.

So why is bitcoin considered speculative? Why does it not have any real value?

First of all, people do not want to spend it. Just say I want to buy a new car for $20000. I use 4.1 of my bitcoin to purchase the car. After one month, the value of bitcoin has risen again, just say it has increased by $1000 to $5882. That means, I could have bought the car for only 3.4 bitcoin! It would have been better for me to hang on to my bitcoin and not buy the car.

Secondly, nothing is priced in bitcoin. I can’t go to the greengrocer and buy a kilo of apples for 0.0004 bitcoin. I have to exchange my bitcoin for legal tender, then go and buy the apples in dollars. No government supports bitcoin.

Thirdly, there are too many alternatives to bitcoin. Here’s the top 10 in order of market capitalisation: Bitcoin, Ethereum, Ripple, Bitcoin Cash, Litecoin, Dash, NEM, NEO, IOTA, and Monero. The list goes on. On the list I found, there were almost 1000 different types of cryptocurrencies with some form of market capitalisation! Surely, most of these currencies have been designed for one simple reason … for their owners to try to cash in on the crypto-craze.

I’m not a big fan of the stock market, but at least stock represents something – a share in the ownership of a company. But cryptocurrencies have become inherently valueless. They don’t do anything. They don’t have any inherent value. You can’t use them easily, nor would you want to. The only single reason somebody would buy bitcoin is as a speculative investment.

And there lies the biggest flaw in bitcoin. When investors buy bitcoin, it means they’re not using their investment dollars to fund more socially responsible campaigns. Things such as renewable energy, environmental stewardship, human rights, and social justice. Investment in bitcoin has little positive impact on society, if any. It is purely a money-making scheme.

So when will Bitcoin crash? I don’t know. But surely, for something that doesn’t do anything, can’t be used easily, it’s not backed by any government, and doesn’t really contribute to society – it must crash. It can’t just keep rising in price forever.

RELATED LINKS
Bitcoin is Still Just Money – https://youtu.be/g_nIilxN7vI
Cryptocurrency Market Capitalizations – https://coinmarketcap.com/all/views/all/
Why Bitcoin’s Bubble Matters – https://www.wsj.com/articles/why-bitcoins-bubble-matters-1507515361

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