Recently, more than anything else, I have been asked for my opinion on bitcoins. It seems that the popularity of cryptocurrency has returned significantly after reaching its peak three years ago and collapsed over 80% over the next 12 months. However, after launching its pandemic in the spring, it has risen by more than 500%, and anything that trades in this way will surely suck speculators like moths to flames.
In my opinion, bitcoin simply makes no sense either as an investment or as an alternative to currency. It makes a lot of sense like “sardine trading” if that’s what you’re looking for, but I̵
The reason I don’t see bitcoin as a legitimate investment is because I’m using an old-school definition provided by Ben Graham. As bitcoin provides neither “principal security” nor “adequate return”, it can therefore only be considered speculative. In addition, since bitcoin is not used as a medium of exchange, nor does it provide a stock of value, I cannot consider it as an alternative to currency.
Some may argue with the latter part, but bitcoin is not used in any meaningful way as a medium of exchange today. More importantly, as a stock of value, it has failed countless times for countless cryptocurrency lovers. Millions of dollars worth of bitcoin has been hacked, although crypto believers say this is not possible. I’m not a fan of dollars, but at least $ 20 in my real-world wallet can’t be stolen from the comfort of a hacker couch.
There is also the problem with hard forks. Bitcoin believers rely entirely on the idea that the supply of bitcoins is limited, which makes it far more attractive than fiat currencies, which are printed like crazy by central bankers around the world. However, bitcoin has already split several times, multiplying the number and type of bitcoins in circulation. In fact, if you add up all the hard forks that Bitcoin has suffered since its inception, the number of total bitcoins has actually grown faster than the number of dollars. This is a fact.
Then there is the fact that new cryptocurrencies are being created all the time, many of which can be technologically better than bitcoins, in all its derivative forms. Fiat currencies have value because the powers that are declared have value; it means “fiat”. How can we know that without this type of support, bitcoin will not be replaced by a better cryptocurrency, perhaps one that has yet to be invented (or one created by forces that use full fiat support)? We can not.
Again, bitcoin can make a lot of sense as speculation. Ponzi schemes can be great for early adopters. But that doesn’t make bitcoin in any form or form a good investment or even a stock of value, especially for those who are late in the game. And for that reason, I can’t stand behind it in the way that I would stand behind what I perceive as an unusual value in the stock market or a real stock of value like gold.
Editor’s note: The summary for this article was selected by the editors of Seeking Alpha.