The price of Bitcoin leaped 128% in one month from mid-July to mid-August 17, 2017, on no news! Despite price fell to $3,200 from its all-time high of $5,000 after China banned initial coin offerings (ICOs) and exchanges, it’s back over $4,100 now. Two years ago, it was only $225. Another popular cryptocurrency, Ethereum, is even more amazing. It has outshined Bitcoin’s big gain with a year-to-date performance of over 37-fold at times. Many other cryptos have achieved at least 100% gain this year. We are undoubtedly witnessing a bubble.
Bitcoin enthusiasts claim that bitcoin is real money like gold and silver. But what is money?
Aristotle defined four characteristics for good money:
1. It must be durable, and its value should be reasonably stable over time. Bitcoin can hardly satisfy the requirement of durability because the coins would be nowhere to be found if there is a long-term power or Internet outage. Even if the power grid is not disturbed, its violent fluctuations in price make it unusable for savings and hence borrowing or lending.
2. It must be portable, which is a plus for Bitcoin.
3. It must be divisible. Again, bitcoin fully satisfies this requirement.
4. It must have intrinsic value, and cannot be created out of thin air like what Central Banks do nowadays. Like gold, bitcoin has a limited and finite supply.
Even if Bitcoin processes all the above essential features, I still don’t believe it can become legal tender. The reason is very simple: no government will voluntarily hand over the power of their monopoly on the issuance of money to another party. They need the power to print money out of think air to inflate away the mountain of debts they have accumulated over the years. Like it or not, regulation is coming, defeating the very purpose Bitcoin is created for.
Risk is most dangerous when it is least apparent, and least dangerous when it is most apparent.- JIM GRANT
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