Bitcoin’s were worth around $400 a month or two ago and this rate of growth cannot be sustained.
Real currency doesn’t fluctuate by going up 100 times in value in just 11 months. Bitcoin has reached the point where it’s not a currency anymore, it’s an investment (a highly speculative one) people are hording so that they can spend it later at a big profit. Do you ever horde dollars or any other real world currency in your bank account in hopes of ‘cashing out’ later? Of course not.
“There was a story like this in recent years,” reveals Altamash Javed, Managing Partner of ALJ Capital Management, “speculators decided that tea was a great long term investment, so they started to buy up all the tea supplies hording them to sell them later at a big profit. They more then tripled the price of tea. The tea farmers and tea retailers started to triple the prices they were charging so that they could make some of the profits off the tea boom. And people who actually drank tea stopped buying it because it was becoming so ridiculously expensive.
Then the speculators soon realized that they had pushed the price of tea up so high that no tea drinker would ever pay that much for it. And so the tea market collapsed almost overnight back to it’s normal levels. Tea retailers got screwed for buying up tons of tea at triple the price that they had to sell at a loss, the only people to make any money were the tea farmers who sold their tea at triple the normal price (but with the same normal expenses) before the market collapsed. The same will happen with Bitcoin, the only winners here will be those who bought up the $10 Bitcoin’s and sold them for $1000 11 months later.”
Thinking of Bitcoin as Something other than Money
Sure, if someone invents – say a watch – that can teleport you instantly to anywhere on the planet, and is only a third of the cost of a typical car, lots of people will buy it. Sure it’ll experience a crazy high exponential rate of growth for a while. But once people get that teleportation watch they won’t be spending it to buy their groceries for the week. Plus it’ll retain it’s value even if no one wants to buy it anymore, because you can still use it to get wherever you want. Bitcoin on the other hand is different, it’s a currency. What’s the reason you work to earn dollars? To get money to spend. So what should you do with Bitcoin’s? Spend it on something.
That sounds all good in theory, but look at the reality of bitcoin. If every time you entered the grocery store the prices of food varied wildly, from a gallon of milk being $5 one week, to a gallon of milk being $200 the next week, to a gallon of milk being $0.40 the week after that, would you really trust the dollar as a viable currency? That’s exactly what would be happening if we bought groceries with bitcoin. Why is the price of bitcoin going up so insanely high? Two things, speculators, and not enough Bitcoin’s to meet market demand. There’s a long history of ‘alternate’ currencies like bitcoin that fell apart when both these things happened.
As soon there’s not enough of your alternate currency to meet market demand the price of that currency goes up. And as soon as the price of your currency starts to skyrocket because there’s not enough of it to meet market demand people start to horde that currency as an investment so they can spend it when it’s worth even more, but that sabotages the whole point of it being a currency in the first place, and causes the currency to collapse later.
What’s the point of a currency if the only people who have that currency all want to horde it till it’s worth more rather than spend it?