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Reasons Why Bitcoin May Still Blow Up

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Reasons Why Bitcoin May Still Blow Up.

This is the first thing you should know about me, I am a crypto skeptic. That’s because cryptocurrencies are not as straight-forward as most people make it out to be. There are properties possessed by these digital currencies that make it susceptible to speculation, most importantly, fraud.

After consultation with a lot of tech savvy folks whose optimism about Bitcoin is significantly higher than mine, I came up with a couple of reasons why Bitcoin may still blowup. Please note that, I do believe that an alternative currency is not a bad idea. However, I also belief that Bitcoin may still blow up, and this is why.

Bitcoin Aids Scam

The thing is, there is no exact way of knowing what is happening with Bitcoin, considering the fact that it’s neither on any exchange, nor is it regulated. Don’t forget the fact that it is anonymous and untraceable too. These features make Bitcoin perfect for fraud. Payments can easily be made and received without any way for tracing it. It’s no wonder the creators of Ransomware requested payment in Bitcoin. Their transactions are encrypted.

An article in Financial Times argued that, since countries are working hard to limit illegal activities backed by money, and EU outlawed the use 500 Euro Bills as a means of achieving this goal, something should be done about Bitcoin. The EU could actually heed the author’s advice and do something about it. If this happens Bitcoin may blow up.

The Difficulty in Valuation

I’m going to start this subheading by asking a sincere question, how do you value Bitcoin? It’s easier with other type of investments. As far as stocks are concerned, you can simply compare the past and future earnings, check out the dividend paid, and the sales made. To check the value of a currency, you simply compare what that particular currency is worth, relative to another. The value of bonds is judged by the ability of the issuer to pay back its investors.

Here is the question I keep asking, what is the benchmark to value Bitcoin? It lacks the basic things you can use to ascribe value to an investment or currency.

  • Bitcoin has no earnings
  • Bitcoin has no regulated exchange gathering market bids on daily valuation.
  • There are no price/earnings ratio.

Now, you might argue that a market can be created using linked computers and users from different parts of the planet. However, you still have to agree that a legitimate market cannot exist without price discovery and transparency.

According to a commentary on thesttreet.com, besides the use of bitcoin for the purchase of goods and payment of services, the huge market cap of the cryptocurrency is linked as a perception of value. The emphasis here is on the word “perception of value”. What this implies is that Bitcoin is bid up because people believe that it is worth something. More so, the believe that it would be worth something in the future. When you actually think about it, people don’t buy bitcoin because they want to use it to buy other things, they buy because they think it’s valuable. This leads to a self-fulfilling prophecy. The thing is, the moment that perception of value goes away, so does Bitcoin.

Still, Bitcoin May Be the Next World Currency

Way back in the 1940s, John Maynard Keynes advocated for a world currency. Fast forward to 2017, Bitcoin may just be that world currency- or not. Don’t get me wrong, I think the world needs some kind of universal currency.

However, for that to happen, the world has to come to some form of agreement on how such currency would be valued and traded. Only then can you get banks and government out of the traditional currency business. Do you seriously see bitcoin getting to that stage anytime soon? Because I don’t.

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