Interesting pivot of discussion to Bitcoin. You mention, “When interest rates are high or economic uncertainty rises, holding non-yielding assets like Bitcoin comes with a high opportunity cost.”
Indeed, I think we’re going to see a bit of a drawdown in these types of assets, like art and classic cars (already starting to see that in cars, although cars arguably have some utility to them as a collectible). Gold is a bit of an unusual bug – it’s both a “safe haven” *and* it’s generally not terribly useful. Yes, there are a limited number of manufacturing operations that use it (aerospace, for example), but for the most part, most of the world sees it as Jewelry (India) or a store of value. It is indeed not an endorsement of Bitcoin that gold has skyrocketed recently while Bitcoin has fallen. That adds evidence to the “tulip” speculative mentality of Bitcoin. Flavors of 1929 for sure, as detailed in Sorkin’s recent book, “1929”.
I think the main argument against Bitcoin - or any crypto for that matter – is that after a decade and a half of existence, it still has failed to find it’s use-case. Well, okay, “legitimate use-case”. The recent apparent kidnapping of Nancy Guthrie and subsequent demands for ransom payment to be made in Bitcoin cements the belief, by many, that crypto is an “underworld” product and generally shady. I don’t think that thought process is far off.
One last thing that your post didn’t mention – the environmental costs of mining Bitcoin are still ridiculous. This is really indeed a “scorched Earth” type of product, and I think in 100 years, we will look back and say, “what the hell was everyone thinking?!?” I mean, it’s utterly ridiculous to think that we’re a) mining (real mining) uranium to b) make nuclear fuel to use in nuclear reactors, to c) electronically “mine” some fake puzzles in a computer, all the while d) creating nuclear waste. Yes, there are cleaner ways to make energy, and the nuclear waste argument is a convenient and dirty one. But energy is fungible – if one uses solar to mine bitcoin, then that solar capacity is being taken away and replaced somewhere else by nuclear.
Anyways, I see Bitcoin, and crypto in general, more akin to gambling than an investment…
I'm more with Buffet on this one. But if I were to ever buy any, it would be exactly like how you do it... small enough percentage that a drop doesn't make me lose sleep and boring dollar cost average purchases. Moving like a tech stock is a great analogy.
A thoughtful piece. I especially agree with the point that Wall Street participation changed Bitcoin’s short-term behavior and made liquidity conditions much more important than many holders want to admit. At the same time, I’m not sure this fully disproves the long-term “digital gold” thesis — it may simply mean BTC trades like a risk asset first, and only proves its store-of-value case over a much longer horizon.
Interesting pivot of discussion to Bitcoin. You mention, “When interest rates are high or economic uncertainty rises, holding non-yielding assets like Bitcoin comes with a high opportunity cost.”
Indeed, I think we’re going to see a bit of a drawdown in these types of assets, like art and classic cars (already starting to see that in cars, although cars arguably have some utility to them as a collectible). Gold is a bit of an unusual bug – it’s both a “safe haven” *and* it’s generally not terribly useful. Yes, there are a limited number of manufacturing operations that use it (aerospace, for example), but for the most part, most of the world sees it as Jewelry (India) or a store of value. It is indeed not an endorsement of Bitcoin that gold has skyrocketed recently while Bitcoin has fallen. That adds evidence to the “tulip” speculative mentality of Bitcoin. Flavors of 1929 for sure, as detailed in Sorkin’s recent book, “1929”.
I think the main argument against Bitcoin - or any crypto for that matter – is that after a decade and a half of existence, it still has failed to find it’s use-case. Well, okay, “legitimate use-case”. The recent apparent kidnapping of Nancy Guthrie and subsequent demands for ransom payment to be made in Bitcoin cements the belief, by many, that crypto is an “underworld” product and generally shady. I don’t think that thought process is far off.
One last thing that your post didn’t mention – the environmental costs of mining Bitcoin are still ridiculous. This is really indeed a “scorched Earth” type of product, and I think in 100 years, we will look back and say, “what the hell was everyone thinking?!?” I mean, it’s utterly ridiculous to think that we’re a) mining (real mining) uranium to b) make nuclear fuel to use in nuclear reactors, to c) electronically “mine” some fake puzzles in a computer, all the while d) creating nuclear waste. Yes, there are cleaner ways to make energy, and the nuclear waste argument is a convenient and dirty one. But energy is fungible – if one uses solar to mine bitcoin, then that solar capacity is being taken away and replaced somewhere else by nuclear.
Anyways, I see Bitcoin, and crypto in general, more akin to gambling than an investment…
-Wayne
Great analysis. Excited for the rebound #DiamondHands
I'm more with Buffet on this one. But if I were to ever buy any, it would be exactly like how you do it... small enough percentage that a drop doesn't make me lose sleep and boring dollar cost average purchases. Moving like a tech stock is a great analogy.
A thoughtful piece. I especially agree with the point that Wall Street participation changed Bitcoin’s short-term behavior and made liquidity conditions much more important than many holders want to admit. At the same time, I’m not sure this fully disproves the long-term “digital gold” thesis — it may simply mean BTC trades like a risk asset first, and only proves its store-of-value case over a much longer horizon.