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John Brownlow @JohnBrownlow
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If you put all the film-flammery aside, here's a way to think about Bitcoin. A bitcoin is essentially an object (digital, but who cares) which is very hard to produce and easy to prove that it's genuine. It also carries with it a permanent record of how it has changed hands./1
And the manufacturing process is guaranteed to get harder and harder, so there's no chance of someone flooding the market. In many respects it's like an art object like a Renoir or a DaVinci -- they aren't making any more, they're hard to fake, you know the provenance etc /2
They're also ways of parking cash and/or laundering money since the identities of the buyers are often hidden. Neither are particularly convenient as mediums of exchange and you can't pay your taxes with them, so you have to convert back into fiat currency unless you're the mob/3
There are competing cryptos just as there are competing artists -- your fashionable Renoir could be overtaken by a more-fashionable Warhol, say, causing its value to drop. And in both cases the value of the piece is only discovered at auction. /4
Now, here's my point. The market cap of BTC is obviously blowing up, creating billions of dollars worth of value. But where did that value come from? In the case of an artwork, the value is culturally assigned. Is a DaVinci 'worth' $0.5B? Dunno, but it's culturally iconic /5
and tstatus flows from owning it. Basically, you can put it on the wall in your mansion or a museum and people will take selfies with it. But BTC isn't like that -- they're all identical and, as my dad used to say of me, they're 'neither use nor ornament'. The value /6
is entirely based on what someone will give you for it in exchange. Let's dig into that. In the long term, there are only three options -- either its value will go up, stay the same, or go down. Let's take those one by one. /7
First, will it stay the same? This seems very unlikely since it has no fixed intrinsic value and is subject to externalities (eg everyone decides they love Ethereum better). So the value of a bitcoin is likely to fluctuate, possibly wildly. /8
Obviously YMMV but at the end of the month when I pay my mortgage I need to know that I've got enough to pay it, so unless you can hedge this risk somehow, this makes it very problematic as a store of value. /9
So, okay, what are the other possibilities. First, what if it goes down over time? Well that's essentially deflation -- the money in your pocket is worth less and less over time. In this case you may use it as a medium of exchange but you try not to hold onto it /10
The last possibility is the interesting one. What if it keeps going up? After all, they're getting scarcer, and the intrinsic (non-speculative) demand seems to be rising. Put them in your wallet and watch them grow, right? But there's a catch /11
Let's say I am selling widgets, and you can buy them with either dollars or bitcoin.

Why would you ever use a bitcoin -- an appreciating asset -- when you could use a dollar, or whatever your native currency is? /12
In this scenario -- what we are seeing now -- the incentive is to hoard Bitcoin, making it useless as a medium of exchange except as a way of avoiding taxes or evading law enforcement scrutiny /13
So there are the three options. In the first scenario, wild fluctuation, pricing in Bitcoin is risky unless you are heavily hedged, because you can't be sure you'll be paid what your goods are worth. /14
In the second scenario, everyone tries to get rid of their Bitcoin in favour of non-depreciating asset classes, meaning no-one wants to be paid in bitcoin unless there's no alternative (criminality/tax evasion) /15
In the third scenario, nobody wants to *spend* Bitcoin unless there's no alternative (see #15!) and you have a ballooning value, but with the catch that all real-world transactions are carried out in other mediums of exchange /16
And of course the third scenario relies precisely on the belief that BTC is in a bull market. If you want to sell your bitcoin you need to find someone who believes it will appreciate. But if sentiment turns -- and it does -- you're suddenly SOL and in scenario 2. /17
So what do we call a currency that nobody wants to spend, relies on a counterparty who believes even more strongly than you it will go up in value, has no intrinsic value, and can't be used to pay taxes? /18
Answer: it's not a currency, it's a luxury commodity like no other. A DaVinci that no-one will hang on their wall. A Beanie Baby that no child will every play with. A tulip bulb that can't be planted. An invisible McMansion in a Florida swamp. The end.
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