The rise of cryptocurrency and the attendant wave of interest it has generated across the globe is mindboggling. The profiteering motive in the wave is huge and anyone who bought the currency when it was barely worth a dollar in 2009 has a bonanza right now.
Beyond the headlines and the trappings of the new gold rush that Bitcoin and all other variants of the Natoshi Sakamoto invention enjoy, there is a veneer of circumspection to explore.
The Real Allure
Cryptocurrency offers anyone a chance to run a parallel economy outside of the conventional banking system. For this reason, it is an alternative to holding your wealth in stocks, gold or even the pound sterling or USD.
The time-honored thesis on the functions of money states the following keynotes:
- Serving as a store of value
- Serving as a medium of exchange
- Serving as a unit of account
In terms of money serving as a store of value, it helps you guide against losing your money’s worth. This is also a role that Bitcoin offers and presently, it does it with more rewards to those who have it.
Anyone who bought Bitcoin when it was worth $100 will smile as at Q2 2017 when it hovered around the 2600 USD mark. In understanding the intrinsic value of Bitcoin, it is worthwhile to note that the value it is enjoying right now is speculation-driven. In other words, it is not rising in value as a result of what it is really worth.
Taking a look at gold, any high school grad knows that it can be made into jewelry and a wide –range of other high –value items. Unfortunately, this is not the case with Bitcoin.
Bitcoin is thriving today as a result of speculation and those who hoard it do so with the hope of a price spike so that they can make a kill. In other words, its use as a medium of exchange is largely underplayed right now.
An Ancient Parallel
In the 16th century, the Tulip or Semper Augustus was a genre of a plant that was native to the Ottoman Empire. As a result of its exotic nature and rarity, only the nobles in the then world could afford to import it.
However, as its fame grew, more people in the Dutch Republic took to acquiring it and its value soared. Many people hoarded it and only resold it after a while. This sent the value of the Tulip to dizzying heights.
At a time, a bulb of Tulip was equivalent to a land measuring 12 acres and this was documented by Charles Mackay, who was a Scottish journalist. As the wave continued, many people left their jobs to trade on this genus, while some started farming it.
However, by the autumn of 1637, the highly-priced Tulip lost its magic and 97 percent of its shelf –price got shaved off. Remember the American sub-prime crisis? Yes. Very similar!
While It Lasts
Do not mistake the circumspection I have adopted on this page for an aversion to Blockchain or cryptofinance. These present a worthy medium of exchange that should stand the test of time and that is the future path.
While the meteoric profit-taking exists, you can enjoy the megabucks but do know that it is not going to be forever.
If you ask the Average Joe today, you will know that he wants Bitcoin so that he can profit from its rise in value. This is the classic tale of a bubble.
Like the good old Tulip, Bitcoin will eventually find its true value and then, the profit takers will allow the market run its natural course.