Tuesday, February 01, 2022
Bitcoin Bust
I'm fascinated by a lot of things right now: The Supreme Court, the 2024 presidential race, Wordle, the 5th season of Better Call Saul... but I really couldn't care less about cryptocurrencies.
In short, cryptocurrencies are fiat currencies not tied to any nation and which utilize a tracking mechanism called blockchain, which operated on the internet. There are several varieties of cryptocurrencies, with the best-known one being Bitcoin.
In a way, they aren't that different than US dollars, which are also a fiat currency-- meaning that they are not backed by anything like gold or silver. Dollars have value because people act like they do. The same is true of Bitcoin: their value is determined by the demand for them and the supply available, not by any kind of inherent value.
In the long run, the problem for cryptocurrencies is that don't really provide anything we don't already have. You can pay for some things using crypto, but you can already use dollars for that, for relatively low transaction costs. Yes, some people made a lot of money when crypto was soaring in value-- and a lot of people lost money in the last several months, when crypto crashed. Investing in crypto is investing in pure speculation -- there is nothing really there, no land, no business, no room full of ingots. It's a numerical value placed on hope. Or delusion.
Most stocks are bought by sophisticated investors, either individually or through large funds. Crypto, in contrast, is largely being snapped up by unsophisticated investors-- 55% lack a college degree. As usual, the riskiest bets are being made by the people least able to evaluate that risk.
But... everyone knows someone who made a ton on Bitcoin, right? Sadly, that moment is probably gone.
