The price of Bitcoin reached $57,000 over the weekend. The extent of the current bull run is so aggressive that earlier forecasts that Bitcoin will reach 200k and more in less than a year do not sound improbable anymore.
If that is going to be the case, it remains to be seen. What is important now is that the price of Bitcoin is disconnected completely from reality in the sense that the technology itself has no use and that the asset is purely speculative.
Why Do People Turn to Cryptocurrencies?
Distrust in the financial system appears to be the main reason. People are sick-entire of the same old “medicine” applied to broken economies (i.e., printing more money to solve for either excessive debt or economic recessions).
And they are right. Unfortunately, so are the policymakers. No one wished for two economic recessions less than ten years apart, but here we are. Moreover, the current one is far more impactful when compared to the 2008-2009 Great Financial Crisis for the simple reason that the health crisis affected the entire world and not just parts of it.
Therefore, people run from fiat currencies as they are perceived as unfair. After all, a close look at what happened in the past revealed that no fiat currency, anywhere in the world, has kept its value against gold – the benchmark for a store of value as it is the only form of money that exists for several thousands of years.
But a world based on Bitcoin poses more challenges than it appears at the first look. For instance, it would be far worse in terms of inequality among people because most of the coins are in the custody of a few addresses. To put things into perspective, just think that the top 0.01% of Bitcoin addresses hold more than twenty-two times the combined Bitcoins as all of the rest of the world combined. Hence, Bitcoin means nothing but inequality, and, as many voices recently claim, it means slavery to technology early investors.
Think of the DLT – the Distributed Ledger Technology. The blockchain is a type of DTL, but it is yet unclear as to what use the technology is for? Can anyone point to an industry or sector that the DTL, blockchain, or Bitcoin disrupted? The answer is no.
Therefore, the only thing that pushes the price of Bitcoin higher is its scarcity and popularity. Bitcoin hodlers (i.e., people that have held the cryptocurrency for a lot of time on the belief that its price will keep rising) stand firm, expecting the price to reach much higher levels.
Perhaps it does. Judging by the rate Bitcoin is adopted in institutional portfolios, we should not be surprised.
Yet, we are bound to see its use. Other than a speculative asset, there is nothing attached to it so far.
But isn’t it so with gold too?
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