This quote from @Travis_Kling should tell you everything you need to know:
Bitcoin is a non-sovereign, hard-capped supply, global, immutable, decentralized digital store of value. It’s an insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally.
Money in a savings account is essentially losing as much as 15% a year due to inflation and compared to the things people spend money like medical care, housing, higher education, etc. which increase every year.
Interest rates are basically zero percent and by this time next year, we could be looking at negative rates. Many trillions of dollars are yet to printed to keep the economy afloat due to the pandemic, record unemployment and the fiscal crisis.
Bitcoin can't be inflated or interfered with by central banks and governments.
That's not everything I need to know. It doesn't explain why a bitcoin is worth $25,000 rather than being worth, say, $5. None of this seems to boil down to any sort of fundamentals, and I'm not even sure what it is anymore. What's the purpose of a bitcoin?
Bitcoin used to be an alternative currency that was anonymous, but with a current $7 transaction fee it's clearly not going to be used as a currency to buy a morning coffee (i.e. it fails the transferability requirement of a currency). It's also not useful to a merchant to lower the transaction fee and wait a day for your coffee payment to clear compared to other payment methods.
It's entire value is predicated on the idea that it's value will go up, with no clear use-case for what a bitcoin will do in the future. The more bitcoin goes up in value, the higher the transaction fees and the less useful it is as a currency.
So I guess the question is, what's the purpose of a bitcoin?
Is the purpose just to become more valuable because of its scarcity with no utility?
A $100 trillion market value for Bitcoin?! Predicated on the view that nation states will trade all their resources for BTC?! This is not the basis of a sane valuation and also doesn’t address fundamental value.
Is Bitcoin more inherently valuable than garlic coin? If so, why? Just first mover advantage or just because other people think its valuable?
Also how is BTC the most reliable store of value? It’s had multiple crashes and is one of the most volatile instruments.
As is often the case, bitcoin's volatility has been overstated:
“In our long-term study of bitcoin, we had compared bitcoin correlations to traditional asset classes and now see another interesting recent trend with its volatility,” according to Gurbacs. “In our current volatility research, we compared the 90 day and year to date volatility—as measured by their daily standard deviation as of November 13, 2020—of bitcoin against the constituents of the S&P 500 Index. We found that bitcoin has exhibited lower volatility than 112 stocks of the S&P 500 in a 90 day period and 145 stocks YTD.”
> Is Bitcoin more inherently valuable than garlic coin? If so, why?
Because of built-in scarcity. No other asset is as provably scarce as btc.
> Also how is BTC the most reliable store of value? It’s had multiple crashes and is one of the most volatile instruments.
Two points here:
- BTC is of course not good for short-term speculation, it's a long-term savings vehicle. Short-term volatility doesn't affect the properties of a long-term store of value.
- There was no period in history of btc where you would buy it and lose $ after 5 years of holding. Most likely, never will be due to my answer to #1 - inherent and ever increasing scarcity.
Bitcoin meets the basic requirements of money better than anything else that came before it. It's like gold, which has been money for 5,000 years, with teleportation capabilities.
Hardness — resistance to unpredictable supply increases and debasements of value
· Fungibility — units are interchangeable and indistinguishable from one another
· Portability — ease of transporting or transmitting monetary units across distances
· Durability — resistance of monetary units to rot, corrosion or deterioration of value
· Divisibility — ease of subdividing or grouping monetary units
· Security — resistance to counterfeiting or forgery
· Sovereignty — the source of its value, trust factors and permissions necessary to transact with it (natural social consensus or artificial government decree)
Bitcoin used to be an alternative currency that was anonymous, but with a current $7 transaction fee it's clearly not going to be used as a currency to buy a morning coffee (i.e. it fails the transferability requirement of a currency).
Not sure why bitcoin skeptics keep pointing to these transaction fees. As I write this, it takes 3 sats/byte to get into a block in 30 minutes and 1 sat/byte for 1 hour.
And as I write this, 1 sat = $0.00027210. A typical transaction is about 250 bytes, so to get a transaction into a block in 30 minutes costs about 7 cents. If it's more important, you could pay $1 or something.
Of course, Lightning Network is faster and cheaper than using bitcoin's blockchain for every transaction, which cost a fraction of a sat for every hop the transaction has to travel.
Because a 30 minute transfer time, or $1 fee means you can’t do small and fast transactions (which are the vast majority of transactions for a traditional currency).
This means Bitcoin is simply not a good currency for most transactions.
First, it usually doesn't make sense to buy coffee with bitcoin. Why would I do that if I had the choice to use depreciating fiat instead?
As a currency, the dollar is great for quick, low-cost transactions. But it's no longer a good store of value.
Besides, I can use my Cash App debit card or app and get cash back in bitcoin, which is rapidly appreciating in value [1].
As I already mentioned, lightning network provides fast (less than a few seconds) and cheap (fractions of pennies) off-chain bitcoin transactions—http://lightning.network/.
The issue is the transaction fees at the lower, faster end (i.e. I might be able to use Bitcoin to buy a car, but I can't use bitcoin to buy a coffee).
Seems like buying into the stock market is a better insurance policy against inflation since you're tracking the actual economy
No. Stocks are hitting all time highs due to the Fed printing trillions of dollars while unemployment continues to soar.
Many people are facing food scarcity and people are in food lines that stretch for miles. Nothing about the stock market right now has anything to do with the actual economy.
It's a reflection in that revenues are at all time highs for many companies. Shopify running at Black Friday Numbers all summer, for instance.
If you're worried about your cash losing value, it seems like a better idea to peg it to the companies that create value, not some random deflationary asset like Bitcoin that isn't used for anything but speculation.
> Mass Mutual’s $100 million investment isn’t “speculation”
Of course it is speculation - in fact it is pretty much the book definition of speculation (The purchase of an asset with the hope that it will become more valuable in the near future).
There are no dividends and there is no interest and any RoI is solely derived from the asset value increasing - so if it's not speculation then what is it?
Bitcoin is a non-sovereign, hard-capped supply, global, immutable, decentralized digital store of value. It’s an insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally.
Money in a savings account is essentially losing as much as 15% a year due to inflation and compared to the things people spend money like medical care, housing, higher education, etc. which increase every year.
Interest rates are basically zero percent and by this time next year, we could be looking at negative rates. Many trillions of dollars are yet to printed to keep the economy afloat due to the pandemic, record unemployment and the fiscal crisis.
Bitcoin can't be inflated or interfered with by central banks and governments.