A few weeks ago, I wrote an article about Bitcoin — the new encrypted, peer-to-peer currency that has everyone buzzing. I’ve done some research since my initial post, and I have to say, I’m not as excited as I was.
BitCoin is a fantastic idea, but its days are — unfortunately — numbered. The biggest problem I see is supply: Only 21 million BitCoins can ever be minted (and this is not mathematically debatable). As such, at some point in the very near future, demand is going to cause the currency to explode in price (relative to other currencies, commodities, et cetera), and when that happens, there will be no realistic way to use it.
Think about it: all it takes is one eccentric billionaire — or hell, even one risk-taking a-list actor, athletic super-star, or experimental super-model — to take an interest in BitCoin, and the party is over. Sure, for those of us holding it, it will be a boon, but how will other people use it? If one BitCoin goes for $100,000, how realistic is it going to be for you to buy a cup of coffee with it? What are you going to do? Pay .00001 BTC? That’s kind of awkward. And calculating the tip makes me feel a little queasy.
I have no doubt that someone is going to step up to the plate soon to make BTC transactions simpler and faster. And sure, that will help things a little. But for now, I see BitCoin as little more than a store-of-value — much like gold; yes, it’s valuable, but what can you do with it?
On another note, since my last article about BitCoin, there has been a tremendous amount of speculation on the Internet about my connection to its founder: Satoshi Nakamura. I want to take this moment to explicitly say that I have absolutely no connection to BitCoin — other than my curious fascination with its implications. It’s true that my book did predict something like BitCoin — years before it existed. But that connection is purely coincidental; I’m simply not intelligent enough to have come up with the real thing.
Disclosures: Paco is long gold, Bitcoins, and oil. He is short U.S. Treasuries.
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You can buy his novel Discipline wherever books are sold.