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How Bitcoin Makes Sense As an Asset in Economics Terms

I am as fascinated by cryptocurrency and Bitcoin (CCC:BTC) as most investors. Perhaps more. And like most other people, I struggle to understand what it is and how to make sense of it.

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That’s why I think it’s valuable to compare it to other, more well-established assets. Investors might be surprised that Bitcoin isn’t all that different to some of the most traditional forms of investment. 

Bitcoin Like Other Great Assets 

When investors talk about Bitcoin as a store of value, inevitable comparisons with gold eventually arise. Sometimes these conversations touch on fiat currency and the gold standard as it relates to currency pairing. However, I’m referring to something else.

One of the questions I always ponder when trying to understand Bitcoin is simply why is it valuable as an asset? In terms of supply, both gold and Bitcoin have striking similarities.

Let me explain. Both gold and Bitcoin are finite in their supply. The total number of Bitcoins in existence is 21 million. And according to the U.S. Geological Service there is about 244,000 metric tons of gold that have been mined to date. 

Quantity and Utility

Currently there are 18,616,500 Bitcoins that have been mined of that 21 million of finite supply. That leaves 2,383,500 to be mined. That Geological Service survey I alluded to above also tells us that there are 57,000 metric tons of gold underground to be mined. 

So the parallels are there. And that’s part of the reason Bitcoin has intrinsic value. I understand that gold has many real-world applications in electronics and other utility, but supply characteristics are strikingly similar. Further, more and more places are accepting Bitcoin as payment. So, its utility is increasing. 

Perhaps both gold and Bitcoin are attractive in that they require a chase. Maybe that is part of the allure that lends some intrinsic value to both. But I digress. Another reason that Bitcoin is interesting in economic terms is that it also parallels another massively important asset.

The Land Connection

Again, the purpose of this article is to share my thoughts on the parallels I see in BTC as an asset. I am trying to understand fundamentally how it compares with other leading investments in order to understand why it might have value. 

I recently saw a quote by Mark Twain that really stuck in my head. It was this:

Buy land, they’re not making it anymore.

Land and Bitcoin have that in common. Neither are being made anymore. This is again a supply argument in favor of Bitcoin that might lend some weight to the idea that it should appreciate long term. Buy land in areas with reasonable demand and there’s a good chance its value is going to appreciate. Buy Bitcoin as its utility rises and it should appreciate as well.

Acceptance is something investors have to consider in deciding whether or not to buy into Bitcoin.

Acceptance

One of the great arguments against cryptocurrencies is that they aren’t widely accepted as payment. The list of major companies and small and medium businesses that currently accept Bitcoin might surprise. And the number of people who are living using Bitcoin alone make for interesting use cases.

It does lead me to believe that it is going to become increasingly more tenable in the near future. Tesla’s (NASDAQ:TSLA) Elon Musk seems to believe it is reaching some sort of critical mass and that it will soon become widespread.

Takeaway

I failed to answer whether I believe it makes sense to invest in Bitcoin right now. I always end off my articles with a verdict of whether to buy.

My gut feeling is that Bitcoin is facing selling pressure now. But I also believe BTC makes sense. I can’t suggest a certain price point at which to buy it, but I think it will make sense to buy the dip in the next few months.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. 


Article printed from InvestorPlace Media, https://investorplace.com/2021/02/how-bitcoin-makes-sense-as-an-asset-in-economics-terms/.

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