We’ve talked a lot over the past several days about Bitcoin and gold (see here for instance).
One of the points we’ve been keen on making is a simple one: the fact that there is a finite supply of something apparently isn’t a good enough reason to assign value to whatever it is that’s finite. If what you want to say about gold is that it’s an inflation hedge and has value because there’s a finite supply of it, then it is incumbent upon you to explain to me why other things for which there is a finite supply are not also inflation hedges with value.
The same goes for the “it’s expensive to find/produce†argument. All kinds of things are expensive to find and/or produce. Not all of those things are “inflation hedges with value.â€
In the final analysis, it seems difficult to get around the idea that gold’s value is merely a matter of convention – an enduring historical accident predicated almost entirely upon humanity’s fascination with shiny things that are yellow. There is absolutely nothing to say  that preference won’t one day change.
The same goes for Bitcoin. People are fascinated with it, and that’s fine. But there is nothing unique about the characteristics of Bitcoin. Other things are finite, other things are expensive to produce, and other things can and do employ the same technology.
For more on this, read below for the latest from Bloomberg’s Mark Cudmore…
Via Bloomberg
Okay, bitcoin fans — answer me one key question: why does belief in the power of blockchain technology mean you should invest in bitcoin?Blockchain will be massively disruptive for many industries, most notably the financial sector. Adoption has been slow and many investors are underestimating the impact. But does that mean you should buy bitcoin specifically?
Bitcoin is finite, but that doesn’t necessarily equate to value — my signature is finite and it has no value. Bitcoin is also expensive to produce, but so what? If I buy some new supercars and grind them into dust that’s an expensive process too, but that dust will not have value.
It’s also highly questionable as a store of value. Three falls of at least 30% so far this year have killed that idea. And finally, as an effective means of exchange it’s terrible. It’s expensive and slow to use and as of July, just three of the top 500 online retailers accepted it, even fewer than a year earlier.
Blockchain technology and cryptocurrencies are part of our future. That makes sense. That doesn’t mean bitcoin itself has any value. It’s also important to emphasize that, like any bubble based on the Greater Fool Theory, there’s no logical limit to how far it can rise, so fighting the bubble could be just as foolhardy as investing in it.
