I MAY EARN MONEY OR PRODUCTS FROM THE COMPANIES MENTIONED IN THIS POST.
Chances are I’m going to upset some people by writing this post, but I thought I would quickly touch on this hot topic.
At the time I’m writing this article, Bitcoin is up nearly %1000 over the past 12 months and has experienced over the same period two or three significant movements downward before recovering quickly.
People who are behind cryptocurrencies in general (including Bitcoin) see value in buying them because they hope they will evolve into a full currency that will be accepted anywhere. On this basis, you would try to invest early to profit from the price appreciation between the inception and the mass use of the currency.
Two things scare me about this:
- Bitcoin is unregulated, which means that no central body is able to manage the supply or/and demand of the currency. In this scenario, anything can happen and no one would be responsible for anything. If Bitcoin becomes massively used without regulation, wild price movements could still happen and potentially destroy individuals wealth.
- There is no driver of return. At this stage, I still think of Bitcoin as an investment: the price is going up and it’s measured against the USD. It’s accepted a currency on some but few markets. When I want to invest in a stock, I look at the financials, the business plan, etc. Same thing for a mutual fund depending on the asset class. When it comes to Bitcoin, the only thing you can analyse is the number of traders and volume. There is apparently a very strong correlation between the number of Bitcoin traders and its price. I’m not going to post a source as the analysis is probably very spurious anyway. Other than that, price is mainly driven by demand as more and more people buy into the currency. This feels like a bubble to me: a euphoric market, no clear driver of prices…
That being said, I admit that I am no expert on the subject and what I’ve written is based on what I know about Bitcoin and other investable assets. I feel like the concept is a good idea but widely misunderstood…