Is bitcoin’s price in a bubble? Those who say so believe people are buying the cryptocurrency is for speculative purposes versus its original purpose – for transactions.
Nathan Martin, writing in Economic Edge, believes most are buying bitcoin because it’s a better store of value. Bitcoin provides a better store of value than assets that are controlled by banks, he claims, and it will continue to do so for the foreseeable future. Hence, the number of people using bitcoin will continue to increase.
People cannot earn anywhere near the pace of actual inflation by putting their money in traditional savings accounts. Central banks control the currencies most people use and are manipulating these currencies to keep interest rates low.
Stocks, bonds and real estate are all in a bubble, as is the U.S. dollar, Martin noted. Gold and silver are also being manipulated by central banks.
Hence, there is no good store of value. “Retirees on fixed incomes simply cannot, and will not be able to keep up as the impossible math of the dollar debt continues on its vertical ascent,” Martin wrote.
Bitcoin is a better store of value for the following reasons.
1. Bitcoin is decentralized. Martin and many others consider this the most important characteristic of bitcoin. No central power controls bitcoin. Central banks could indirectly manipulate cryptocurrencies by creating derivatives and exchange traded funds based on those cryptocurrencies. But this will not change bitcoin’s underlying store of value.
Should central banks create derivatives based on bitcoin, Martin encourages people to buy bitcoin directly. Banks cannot manipulate what they don’t control.
2. Bitcoin’s supply is limited. There will only be 21 million bitcoins created, and 80% of this number has already been created. The more funds invested in bitcoin, the greater the value of each bitcoin. Other blockchain currencies could affect bitcoin’s value, but all the other cryptocurrencies combined are not yet equal to bitcoin’s market value. In addition, those cryptocurrencies that don’t have limited supply will not hold their value.
3. Bitcoin is secure. Encryption and decentralization make it so. It can be stored in cyber “vaults,” where owners keep a hard copy of the encryption cipher. While a bitcoin exchange and a computer can be hacked, bitcoin that is in a “vault” will not reside in the exchange or the computer, and only the owner has the code to access the stored bitcoin. No one can confiscate it.
4. Bitcoin transactions are stored on a public ledger that lists all confirmed transactions. Decentralized bookkeeping is more secure than centralized ledgers.
Also read: Bitcoin is no bubble in climb to $3,000
Bitcoin will someday be in a bubble, but that time is far away, Martin noted.
One benefit of cryptocurrencies is that they coexist with other forms of money used for transactions. Bitcoin is not in a bubble. Instead, people are using it to park their dollars so central banks cannot destroy their value.
Volatility will continue for bitcoin, as nothing moves in a straight line. Martin believes cryptocurrencies will trade along with sovereign currencies and eventually replace them.
He will not be convinced that the growth of bitcoin’s price has stalled until its market cap rivals that of the United States’ money supply, which is $13.5 trillion.
Featured image from Shutterstock.
Last modified: June 11, 2017 17:40 UTC