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Bitcoin Bubble, Investment or Currency?

Bitcoin is a bubble, investment or currency? Well, answers to this questions may vary from person to person. One of my friends asked me about my views on the cryptocurrency Bitcoin. My immediate response to him was Bitcoin is a bubble avoid investing in it. You must be thinking why I am saying so? Bitcoin has surpassed every asset class in terms of return one should invest in it. Well, I have reached this conclusion based on logic and several arguments. Let’s discuss the same in detail.

What is Bitcoin?

Bitcoin is claimed to be cryptocurrency and digital payment system. Bitcoin can be saved, spent, invested, traded and even stolen. Bitcoins are like a virtual digital coin that you can send using the internet. No middle man or transaction fee is involved while dealing in BTC.

Bitcoin is not a physical coin. It is a paperless, transparent and electronic form of money.

bitcoin bubble

Performance of Bitcoin

Bitcoin is one of the most expensive product/currencies. You need to spend Rs.5.4 Lac to purchase single BTC as on 25th Nov,2017. It is equivalent to $8452 or €7090

  • 1 Bitcoin = Rs.541600
  • 1 Bitcoin = $8452
  • 1 Bitcoin = €7090

Historically if we see Bitcoin has given very good performance over any other asset class. In last one year Bitcoin has given 1057% return. In November 2016 value of single bitcoin was $730 and today it is $8452. Last five years return of Bitcoin is 265%.

Historical performance of BTC says that its value will surely appreciate in future.

Why Bitcoin is not a Currency? 

As per me, BTC is not a currency. Currency is one which is widely accepted, liquid and easy to get. In bitcoin, all these three conditions are not getting satisfied. BTC is not widely accepted. No shopkeeper will accept bitcoin instead of a rupee. Many countries including India has declared BTC as illegal.

Why Bitcoin is not an Investment?

As per definition, an investment is an asset. An asset has fundamental or intrinsic value. However, in case of bitcoin it is totally missing. As it is missing in bitcoin it is not an asset. Although it is appreciating its value and may continue to appreciate but we cannot consider it as an investment.

Bitcoin is a Bubble –

Truly speaking Bitcoin is a Bubble. The pointwise arguments for concluding bitcoin as a bubble is given below.

No Usefulness

Bitcoin has no usefulness. It is a virtual currency which can be seen online only. As it is not accepted widely you cannot use bitcoin for daily usage like rupee. Compared to bitcoin even gold is more useful as you can make ornaments from gold. Bitcoin cannot be used anywhere accept trading and storing in a wallet.

No Fundamental Value

Fundamental means base or core value. Bitcoin has no core value. There is no fundamental value of bitcoin based on which you can invest. People are investing in it based on speculation that it will increase further.

Not Possible to use practically in India

Bitcoin is non-productive in nature. As it is banned in India it is not possible to use it. The RBI has declared it will not allow cryptocurrencies in India.  We can just store it or trade it illegally.

Bitcoin is a like Market

Bitcoin is just like the market. As it is in demand value is increasing. Once demand is over bubble will burst. Here I would like to share a famous story of monkey widely known for the stock market.

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort.

He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms.

The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers; “Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each.”

The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!

This example is enough to understand that Bitcoin is Hype and speculation nothing else.

Bitcoin is not Secure

Last argument is bitcoin is not secure. It is based on blockchain technology. It is claimed that it is not possible to break it. However, if some hacker with malicious mind hack it, he/she can control entire bitcoin chain.

I think argument given by me above is enough to conclude that Bitcoin is a bubble and one should stay away from it. Still, if you want to invest in bitcoin choice is yours.

Please feel free to share your views and arguments in the comment section.

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