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Bitcoin
Is Bitcoin Really an Asset Worth Rational Investment?
Bitcoin can indeed be an asset that might accidentally make you rich, but is it worth rational investment?
Bitcoin is a cryptocurrency. It is considered an uncontrollable and decentralized currency. Agreeably, this sounds quite romantic.
Today, it is already being discussed as an investment tool, even compared to gold…
Did you know that Bitcoin cannot actually fulfill the functions of money, and here’s why:
Money has three fundamental functions: “store of value,” “medium of exchange,” and “unit of account.” If it doesn’t fulfill all three, it cannot function effectively as money.
The high volatility of Bitcoin’s value means it is impractical as a “unit of account” or a “store of value.” Note that there is no insurance service against its theft, unlike gold.
As for exchange, Bitcoin is convenient, providing a fast and cheap transaction method, saving on fees. However, this value is minimal unless you’re dealing with illegal transactions like drugs or weapons…
So, the question arises: Is Bitcoin suitable for investment, i.e., for profit, like gold?
The graph below shows no correlation between Bitcoin and gold prices. It is known that gold prices correlate with the dollar. When inflation expectations for the dollar rise, investors naturally turn to gold. If sometimes inflation stimulates investment in Bitcoin, this is certainly not indicative of rational investment behavior…
But what drives Bitcoin’s existence and such high volatility?
In my opinion, its existence is driven by the desire to test new things and a subjective belief based on historical predictions—irrational expectations that could become rational if its value stabilizes and it gains function.
However, the likelihood of stabilization is very low.
For stabilization, stable demand and supply are needed. Since the crypto world is still in the process of research and discovery, demand is not stable. For example, if “Alibaba” announces it accepts crypto, demand will significantly rise, and if it says it no longer accepts it, demand will fall…
On the supply side, it was initially hoped to be stable since, systemically, the more Bitcoin is “mined,” the more expensive it becomes to mine each subsequent one. Therefore, it was assumed that over time, limiting its supply would increase its value…
But the question arises: why should Bitcoin be mined when it might be cheaper to mine and use another cryptocurrency? For Bitcoin to be stable from the supply side, it must compete with other cryptocurrencies… This would require the dedicated loyalty of romantics involved in the crypto world…
P.S.
Personally, I must admit that a portion of my portfolio is always invested in cryptocurrencies, purely out of sporting interest.
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