In the episode yesterday I discussed some bitcoin history and blockchain technology. In the last six months the amount of volatility in bitcoin has been insane! Bitcoin is a mess right now. Today I’ll give some answers and my viewpoint about the bitcoin mess. Please comment to share your own viewpoint and/or experience with bitcoin.
A person would have better odds playing blackjack in a casino with $1,000 than to invest that money in bitcoin right now. The more volatility there is, the less predictability there is. Investment predictability is tough even when a stock is stable overall. To predict bitcoin right now is impossible.
I was much amused by the number of LinkedIn and Facebook posts and messages I got last December. There were many people advising me to get involved with bitcoin. They were making thousands of dollars. Imagine if I told you, “Hey, if you invest $1,000 with me, I’m going to flip a coin. If heads, you’re going to get $2,000. If tails, I’m going to take your $1,000 – or maybe over time you’ll just break even.” That’s a 50% chance of losing all your money. I do have a bitcoin app on my phone. I have used it because I want to know how it works. But I didn’t put $50,000 into it!
There are people offering assurance they’ve found a mathematical system to predict the movement of bitcoin. My questions are, “Did it predict when the government regulated bitcoin, and it dropped? Or did it predict when the silk road was seized by the government, and bitcoin dropped about 50% in two hours?” Predicting massive unpredictable events is impossible.
One reason for the bitcoin mess is the ardent avoidance of structure. Structure is perceived as the enemy of bitcoin. They don’t want any government involvement or control or regulation, no laws to regulate their actions with currency.
The word “regulation” often has a negative connotation, but there are times when regulation is good. One example of bad regulation – a pet peeve of mine – involves the self-driving car technology. This technology will probably flourish during the next five to twenty years. Any time there is an accident involving a self-drive car, there’s a huge news story and government interest in regulating the industry. However, to have a car with censors and auto driving is much safer! There are much fewer accidents than with conventional vehicles. An example of good regulation is forbiddance of making copies of U.S. currency. We can all agree that’s a good regulation. If copying currency was allowed, we wouldn’t know whether our money was worth anything!
The under-lying value of currency is all about trust and faith in that currency. When I take a group of students to Canada next week, my American currency will be accepted. The Canadian hotel has very good faith and belief that U.S. currency is going to be worth something in a week, a month, or a year. It might drop or go up 5%, but it is going to be stable. That is the case because of regulations which safeguard it. That same faith is not established for bitcoin.
Another reason for the bitcoin mess is volatility. If something negative occurs with bitcoin or cryptocurrency, people get scared and sell right away. Then the price goes down. If there is good news, people decide to buy quickly while the price is low. Then the price goes up. The cycle is buy, buy, buy or sell, sell, sell. This causes the volatility. People don’t believe in it.
Bitcoin creators fail to realize the basic principle that they’re operating in a country! Almost all the exchanges of bitcoin are based on U.S. dollars. The larger bitcoin gets, the more it’s going to be regulated. That’s as sure as 2+2=4. I think bitcoin would do well to stop fighting the structure quite as much. This would make it a little bit more of viable currency. Right now it’s just really not a viable currency.
There you have my viewpoint and answers to the reason for the bitcoin mess. Again, I encourage you to comment on your own experience and/or viewpoints. And don’t miss the episode tomorrow when I’ll discuss the question, “Should your merchant accept bitcoin?”
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