Over the last few months, there has been a raging debate - around the world and within The Oxford Club - about Bitcoin. Some of my colleagues - especially the younger ones - genuinely believe that cryptocurrencies will transform the way we bank, borrow and spend. Others believe that's a load of hooey. I'm one of them. It's not that Bitcoin and the blockchain - the decentralized ledger of transactions - aren't genuine innovations. They are. Governments have a long history of debasing fiat currencies with unjustified spending - and accompanying deficits and inflation. An independent currency can't be debauched by the state. That's a noteworthy development. And digital currencies will be with us for a long time to come. But that's no reason to believe that Bitcoin is worth anywhere near its current market price of approximately $40,000. Don't get me wrong. Everything is "worth" what someone is willing to pay for it. But opinions change. And quickly. How do you make an independent valuation of Bitcoin? Unlike other investments, it doesn't have sales, earnings, cash flow, book value or dividends. It doesn't provide interest payments or rental income. It has no tangible value. Other forms of currency - like gold and silver - are also limited. But they have drawbacks. Precious metals are hard to divide, costly to store, difficult to transfer and susceptible to theft. That's why cryptocurrencies are often referred to as "digital gold." But while the issuance of a cryptocurrency may be limited - just as gold and silver are - a key difference is there is no limit to the creation of cryptocurrencies themselves. Indeed, there are already more than 6,000 of them. That makes Bitcoin subject to risk of replacement. It can be surpassed by a new digital currency that is less volatile, easier to transact and/or more environmentally friendly. (Bank of America reports that Bitcoin mining has caused carbon emissions to rise by 40 million tons over the last two years, the equivalent of 8.9 million cars added to the road.) Some insist that Bitcoin deserves its sky-high valuation - one-third lower than it was in April - because it's the most widely accepted digital currency. But economic history is full of first movers that wound up on the ash heap. To name just a few... - Motorola had the most widely used cellphone.
- Netscape had the most widely used web browser.
- AOL was the most widely used internet portal.
- Yahoo had the most widely used search engine.
- BlackBerry had the most widely used smartphone.
Bitcoin, like everything in the free market, is vulnerable to innovation and competition. But an even bigger risk to Bitcoin is regulation. Some countries have banned cryptocurrency payments. Others are considering it. Why? One reason is their widespread use for criminal activities. If you are a terrorist network, human trafficker, heavy weapons dealer, drug cartel, extortionist or tax evader, cryptocurrencies are a godsend. All ransomware attacks demand payment in crypto, generally Bitcoin. This has gone from costing society hundreds of millions of dollars annually to billions of dollars annually. Does anyone really believe that major governments will just sit back and continue to do nothing? Cryptocurrencies provide a vehicle for speculation. But they don't solve most people's real-world problems. For example, it was recently rumored that Amazon would begin accepting payments in Bitcoin. The rumor turned out to be false. But what if it had been true? The fact that Amazon - or Tesla or anyone else - would accept my payment in Bitcoin is meaningless. What difference does it make? What problem does it solve? How does it make my life better or easier? | 
No comments:
Post a Comment