President Donald Trump weighed in on bitcoin on Thursday, and let his feelings be known in characteristically clear terms:
He went on to say how fabulous the US dollar is:
President Trump is absolutely correct. Let’s quickly parse the three points that he made.
The volatility in bitcoin is unlike anything I’ve encountered in 25 years in the market, and I cannot think of any security in modern history that has been as volatile as bitcoin. The only tradable security that comes close is crude oil in its various forms.
Why does volatility matter? Volatility is equivalent to risk. The average annual return for bitcoin is 60%, with a 95% probability of ranging between -100% and +220%.
As far as crude oil goes, using the United States oil fund as a proxy, the ten-year average annual return is -11%, with a 95% probability of ranging between -68% and +46%.
As a means of comparison, the ten-year average and return of the S&P 500 is 15%, with a 95% probability of ranging between -10% and +40%.
The long-term average return for playing blackjack in a casino is -1%. You are better off playing in a casino and knowing you will lose 1% of your money than trading bitcoin.
Bitcoin and other cryptocurrencies bulls claim that the valuation of any given item is made up out of thin air. That’s not true.
Certain assets like real estate can be developed and then turned into income-producing assets. Real estate may also have mineral and other natural resource rights that can be exploited.
Even investment commodities like baseball cards, which have no utilitarian use, still have aesthetic and collectible value.
This goes beyond subjective value. Bitcoin has no intrinsic use value. Its value is entirely determined on what a seller believes a buyer will pay, which in turn is based on what that buyer believes another seller will pay, and so on ad infinitum. It is therefore completely speculative and, as President Trump rightly points out, based on thin air.
For anyone who claims that the US dollar, as fiat currency, will collapse one day, and bitcoin will be the only tradable currency, think again. If the US dollar were to collapse, so would society.
At that point, utilities will shut down, which means no access to the Internet. Not only that, rocks are going to be more valuable than bitcoin, to fight off the people who are trying to kill you – and take your food and shelter. Throwing bitcoins at them will be as useful as playing games with Chuck E. Cheese coins.
Finally, why do so many illegal transactions use bitcoin? Because President Donald Trump is right. Transactions are more difficult to trace.
But there’s one last tweet that should concern bitcoin and other cryptocurrency bulls:
President Donald Trump may be making a veiled threat towards Facebook, for its obvious censorship of conservatives, that the federal government will force cryptocurrencies to be regulated by banking laws.
If that happens, bitcoin is going to zero.