Earlier this year, Bitcoin had an historic run – from 110 on April 2nd to a record high of 265 on April 10th. Just hours before the peak, I gave this interview (time stamp 8:35 through 10:50), in which I gave my views on Bitcoin the product, and the market. In fact, I said it appeared much like the 1999 internet bubble – which in hindsight, turned out to be quite prescient; as by the time the crash ended a week later, Bitcoin had fallen all the way to 55, down 79%. As always, the “Johnny Come Lately’s” were destroyed – with not a clue what they were investing in…
In listening to my interview, you’ll see I didn’t challenge Bitcoin itself, but simply commented that it is a complex new technology that was not widely understood. In other words, if I didn’t get it, most likely the vast majority of “currency investors” didn’t either. FYI, my good friend Mike Krieger is an expert on the topic; but then again, he is one of the world’s prominent “alternative media” bloggers.
After consolidating for several months – whilst manipulated currencies like gold and silver continued to be artificially suppressed, Bitcoin has recently surged higher – reaching a new all-time high of $270 this morning. Thus, it’s just a matter of time before I start to receive a slew of questions about it; and hence, this piece. By the way, the current rise doesn’t have the same “bubble-like” quality to it as in April; as it has occurred largely outside the mainstream, supported by news items indicating increasing global acceptance as an “alternative currency” (such as this one regarding Baidu, China’s largest search engine company). In fact, I haven’t received a single Bitcoin-related email during the current rise – compared to at least a dozen back in April.
Without making a definitive judgment, I believe Bitcoin may have merit as an investment; although this is by no means a recommendation, and in a million years I’d never put a penny of my own money into it. However, as a currency, that’s another story altogether – and one whose story has yet to be completed. If you read this article, you’ll realize Bitcoin “mining” does in fact involve steep costs – as significant computing power must be secured to produce them. In fact, competition has become so powerful in recent months, that just this week; the leading Bitcoin “incubator” went bankrupt. Thus far, 12 million of the allotted “lifetime supply” of 21 million coins have been produced; although, like fiat currency, who’s to say its creators won’t decree a doubling, tripling, or quadrupling of this “maximum” if it becomes successful enough? You know, like the so-called “debt ceiling?”
Either way, 12 million Bitcoins at the current price of $270/coin only adds up to $3.2 billion – or $5.6 billion if all 21 million coins were “minted.” Thus, it is difficult to believe Bitcoin could ever become a material global currency, no matter how high the price. And as for building a track record of protecting purchasing power– as gold and silver have done for 5,000 years – I’m not willing to “bet” Bitcoins will achieve what no man-made “substance” has been able to accomplish throughout history.
Of course, I’ll “hedge” such commentary by stating that I still know very little about Bitcoin – including a complex “walleting” process of saving and securing one’s “coins.” For all I know, Bitcoin will become a viable long-term investment; or even a currency in certain, technological circles. However, one thing I’m darn sure of is it won’t come close to replicating the unique properties that have enabled PHYSICAL gold and silver to stand the test of time – whilst all other “money” has failed. In other words, Bitcoins may well soar in value, but will NEVER meet the strict definitional standards of money. Then again, Bitcoin may well fall by the wayside – into the dustbin of wannabe currencies.