It’s right there on the Bitcoin chart, if you look at it over this week, the spikey, string-of-W’s hairline of Bart Simpson. “Ay, caramba!”
Within a few hours on June 1, the price of Bitcoin shot up from about $9,600 to over $10,100. The next day, as suddenly as the wave had come it receded, dropping the price to $9,500. On June 4, another wave was forming, the price having risen to over $9.700.
Imagine if Bitcoin really were a currency. You put a pallet of medical supplies on a plane and have a promise to pay $10,000 of Bitcoin on delivery. You pay 10% less on arrival as the price has appreciated. Then the recipient goes to retrieve his money and gets 10% fewer Bitcoin than you paid, because the price has fallen again.
Speculative Fever
It’s a speculator’s delight, proving once again that Bitcoin is an asset, just like stock in Comcast (NASDAQ:CMCSA) is an asset. On June 4, the cable company had a market cap of about $188 billion, a little more than all the Bitcoin in the world. Bitcoin, in turn, represents over 65% of the world’s cryptocurrency.
Bitcoin has become a game. Anyone with two fingers, an Internet connection, and a comfortable pair of pajamas can write that Bitcoin will soon be “worth” $100,000. Any anonymous shill, calling themselves something like “PlanB,” can claim to have “a system” for delivering 70% yearly gains.
Bitcoin prices are up over 20% so far in 2020. It quickly bounced off lows below $5,000 when the pandemic hit in March. It traded at over $10,000 in February and briefly held that figure just recently.
Bitcoin has become a proxy for speculative fever, the willingness of gamblers to bet on which of two raindrops will drop down a window faster. When people are hungry and sick, the fever dissipates. With central banks creating trillions out of whole cloth, the fever rises.
The Proper Use of Bitcoin
The proper use of Bitcoin, then, is to take the market’s temperature.
When inflation looks like a threat, Wall Street traders like Paul Tudor Jones buy a little bit of it. They publicize their purchases to goose the price.
The May “halving” of Bitcoin slowed mining, by cutting the money to be made solving its puzzle in half.
But the supply is slowly becoming fixed, which was the primary idea of its creators. You limit the supply with a complex puzzle, you eventually fix the supply with a maximum number of solutions. The price is supposed to rise as the amount of “fiat currency” around it rises.
If that were true, of course, Bitcoin prices would be rising consistently. They would have risen exponentially as the Federal Reserve, then other global banks, created new currency against the pandemic. But the purpose of currency, as opposed to assets, is to be used in facilitating an exchange. Real money is a verb, existing only in the exchange. Bitcoin is always a noun.
The Bitcoin Bottom Line
The Bitcoin market is still a jury-rigged system beset by hacks. Bitcoin only exists as an encryption key stored with an exchange. Just as it’s created through code, it can be stolen through code.
But Bitcoin isn’t code, either. It’s data. The value of code, like that of money, lies in its being used. The more you use code, the more value it has.
What Bitcoin offers, that no other asset class offers, is action. Because it’s just encryption keys, shorts can be squeezed at traders’ whims. Governments can also squeeze the market, denying Bitcoin’s legitimacy to make prices go down.
Just remember that, if you choose to play the Bitcoin game, it’s just a game that you’re playing.
Dana Blankenhorn has been a financial and technology journalist since 1989. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no cryptocurrency. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com.
