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Bitcoin - Money, Investment, Gold?

Bitcoin's a fascinating story. So much has happened in its short existence. Price explosions (and crashes), debates about the future of money, the emergence of an infinite universe of cryptocurrencies and crypto-related businesses. Despite Bitcoin's impact, I still have a hard time getting the point of it. 

Born in 2009, Bitcoin was a response to the Great Financial Crisis. Massive bailouts raised a lot of concerns about the stability of money. Backed by code and free from human messiness, it was supposed to be the new standard - decentralized and incorruptible. Unfortunately, it hasn't played out this way. 

Adoption's been weak. There's no incentive for businesses to accept it or for consumers to use it. Good ol' cash is easy, so why bother? 

Bitcoin is volatile. It's extremely inflationary and deflationary, able to move violently in either direction in moments. Money needs to be stable, no one can make rational spending decisions otherwise. 

Plus, it's technically limited. Bitcoin can only process about 5 transactions per second. In comparison, Visa can process 24,000. It's not fit for a widely used currency. 

Running up against these drawbacks, advocates have shifted Bitcoin's narrative from being money to being an investment or a store of value. Sadly, it doesn't do well here either.

The value of stocks and bonds comes from future cash flows - whether it is from owning a piece of a company's earnings or from being owe interest. Bitcoin has no cash flows. Its value only comes from what someone else is willing to pay for it. Purely speculative. 

As a store of value, it's too volatile (see above). You're not storing value if it can crash at any moment. 

I'm not anti-Bitcoin. I think it's really interesting. When you learn more about it, it's a technical marvel. Cleverly solving for decentralized trust, a problem that's stumped really smart people for a long time. However, from a financial use perspective, I just don't get it. 


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