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Bitcoin is the new store of value and ‘very undervalued’

And that’s reflected in its astonishing 150% price surge in 2020.
There are those who see bitcoin’s limited issuance of 21m coins as plugging a fatal flaw in a fiat money system which has no such restraint. Image: Chris Ratcliffe, Bloomberg

Last week’s 13% drop in the price of bitcoin is a timely reminder of its famed volatility.

It has since regained some of that loss, putting it back within reach of its all-time high of $20 000. The cryptocurrency is up nearly 150% in 2020, defying all but the most optimistic forecasts for the year.

Read: Bitcoin rallies toward $19 000 (Nov 30)

Bitcoin accounts for barely 5% of gold’s $9 trillion market cap, which makes it a relatively tiny part of the global investment scene. But Morgan Creek Digital co-founder Anthony Pompliano recently predicted that bitcoin will surpass gold’s market cap by December 2029.

Is bitcoin a new form of money, a store of value, a payments system, or something else entirely?

It’s a question that seems to have no easy answer. “There are people trading bitcoin and other cryptos based on charts, whereas the real value comes from their usefulness. We need to start looking more at use cases rather than ticker symbols,” said Lorien Gamaroff of Centbee, a cryptocurrency payments and remittance company, speaking the Alternative Investment Conference last week.

Endorsements

Bitcoin’s volatility has won it a strong following among traders, but this year’s price surge appears to be driven by weighty endorsements from institutional players like PayPal, MicroStrategy and Square, all of which have bet big on a new financial architecture built around cryptocurrencies and their ability to facilitate payments at low cost, and outside of the banking system. Many of them see bitcoin’s limited issuance of 21 million coins plugging a fatal flaw in a fiat money system which has no such restraint.

Digital money is already a reality, accounting for 95% of all money in issue around the world, said VALR co-founder Farzam Ehsani. “Currencies were backed by gold until 1971, when the US dollar was taken off the gold standard. People say it is now the government backing it. [The] US government has recently been printing $1 million a second – that is not the rate of growth of the [US] economy. The crypto market cap is about $500 billion, of which bitcoin is 62%. This market cap is about 5% of gold’s market cap. It will be risky not to invest in cryptos and you will need a good reason not to invest in it. In my view bitcoin is very undervalued.”

The digital transformation swarming financial services is comparable to music when it went from analogue to digital, said Philip-Ido Vassilev Matov of blockchain company ConSensys. New uses are being discovered for blockchain technology, from loan syndication to trade credit and letters of credit, which will lead to increases in the valuation of crypto tokens. It’s already possible to collateralise real estate and other illiquid assets and transfer a portion of that wealth to others by way of digital tokens that have grown out of the blockchain.

Read:

“I think bitcoin will be more of a store of value than a currency in the future,” said Sean Sanders, CEO of crypto investment company Revix. “About 60% of people owning bitcoin are holding rather than trading [their coins]. Allocating 5% of your portfolio to cryptos has an asymmetric effect on overall performance.”

Jakob Palmstierna, head of investment solutions at crypto trading firm GSR, sees bitcoin as a potential hedge against inflation due to monetary expansion by central banks. “We’re seeing a compelling case for bitcoin on a risk-reward basis. Younger people are not really interested in gold, they’re more familiar with cryptos. We’re still in the very early stages of these trends.”

Bitcoin has solved some of gold’s investment deficiencies, such as the difficulty of storing, insuring and transporting it. Bitcoin remains risky due to its volatility, but risk is part of every investment asset, and investors are willing to take on risk if they get compensated for it, said Palmstierna. “One of [bitcoin’s] big risks is operational, but there’s been a lot of work since the last bubble in 2017 to develop technologies to bring people closer to this space.”

Sanders recommends financial advisors to start treating cryptos like any other asset class, do some research, and take a longer term view with regard to expected returns.

“Cryptos are a completely new, independent asset class. My advice is to start dabbling. Start small and give it a try. If you don’t you’re doing yourself a great disservice,” advises Ehsani.

Investors are desperately looking for new sources of return, and a bet on cryptos is a bet on the younger generation, according to Palmstierna.

Listen to Ciaran Ryan’s interview with economist Dawie Roodt of The Efficient Group:

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Why on earth would Bitcoin be a store of value? The argument for gold is tenuous at best, but it has a 6000-year history of humans making shiny things that they find desirable. Why would crypto be a store of value? The way Bitcoin behaves is insanely volatile and rather presents large scale pump-and-dump dynamics. Somebody please explain why it’s a store of value other than the punters saying it is. Cause I just see this current wave picking up and then dumping the late-comers with another 70+% decline.

Do proper research on how BTC works and why it holds value. When you buy gold, you own it physically and there is a limited supply, so please explain you cannot buy BTC and digitally hold it?

My answer to that would be – – – Because its mostly a scam – My advice Stay Away!!

“Doing proper research” means reading articles like these where holders of BTC tells me it is a store of value. Can you tell me in 200 words why its a store of value? And you’re stating the obvious re buying and holding BTC. I can also buy and hold buckets scarce snow leopard poo but that doesn’t make it a store of value. Again, I think gold’s usefulness and scarcity explains somewhat it’s status as a store of value; what usefulness does BTC have over and above other cryptos? As far as i can see ETH is far more capable. BTC’s “store of value” line seems to me to be a desperate punt by BTC holders since it’s already falling behind as a currency.

Because there about 7,000 crypto currencies at the moment, anyone can create a crypto currency – so kind of hard to hold your store of value if you can just digitally create it.

Even BTC can be manipulated if you own more than 50% of the ledgers. So store of value is a bit of a push. A fantastic trading asset, absolutely -= traders love volatility.

PS. “Do your research”, is the statement of 2020 for stay-at-home “Karens” pushing conspiracies online.

MOK I tend to agree, however, you are asking he wrong question. The question you should be asking: “what gives Bitcoin its value”. I have researched this extensively and have come up empty handed. If one cannot say what gives Bitcoin its value one cannot say it it over valued.

The usual rejoinder is what gives fiat money its value? Some people will answer nonsense such as “faith in the regime to levy taxation”. The truth is that there is only one source (any alternative source gets jailed) and every cent is borrowed into existence i.e. is owed. The interest is never created hence there is more debt than money to pay it. If you don’t service your debts, they will take your assets. There is thus a continual scramble for fiat to retain ones assets, if you owe money. The web of debt.

What gives gold its value? This is harder to answer. Yes it is scarce and hard won. It takes a tonne of rock to yield less than a gram of gold in many gold mines. All gold is the product of labour. This, however, is not the answer. The clue lies in the concept of declining marginal utility. The declining marginal utility of gold and silver is almost zero. Massive above ground stocks circulate and are stored and added to annually but the demand never decreases. Palladium and rhodium are more valuable than silver and gold but do not behave similarly- they are mere commodities. Why is this ? gold has been chosen as the ultimate currency. Why gold? it is what it is. Mankind’s choice.

Richard:

I am not a gold fanatic and have fun poking fun at them.

Gold has some industrial value but far less than the hoarders and wearers buy.

For me gold is directly a function of its extraction and refining cost. Imagine a meteor shower came along and these meteors happened to be pure gold, showering earth with tonnes of pick-up-as-much-as-you can-carry pure gold. Hopefully in small droplets that did not kill half of us.. gold’s value would disappear as I would sell mine for a margin over the cost is of collecting a few truckloads.

In contrast, it will never rain profitable companies from the heavens. The more money a company makes, the more valuable its shares are. What can happen is that the measure of that profit depreciates. So I am sure there were companies in Zim generating trillions of Zim dollars – each day. But measured in a basket of currencies those companies were always worth a ratio of their profits and profit growth potential.

Please can someone tell me how many Bitcoin are in circulation at the moment so I can determine the Market Cap?? And who is regulating/ determining that number if there is no such “organisation” as Bitcoin!? One might just find that there is more money in the Bitcoin market than there is Market Cap and that would be the crux!! Long shot, but who knows!!??

Lots of bitcoin are held by so called ‘Whales’ who were in on the game early and hold most of the market cap. The free float of BTC is relatively small comparitively.
It seems like a big Tulip bubble to me though, the same as the current stock market bubble. When it all corrects, which by all accounts will happen shortly, the true store of value will be revealed.

Bitcoin is a brand of cryptocurrency which can be replicated by infinite other brand of cryptocurrency thus causing infinite value destruction. Likewise it can proliferate just by adding extra zeros after the decimal point.
Gold is a finite element on the planet which requires great amounts of physical exertion to obtain and thousands of years of alchemy attempts have never succeeded in replicating it.
What are we missing? Bitcoin is a great trading instrument unless you still hold it when it no longer is.

Scarcity is not value! If scarcity = value then perfectly round white natural beach pebbles with red stars would be very valuable. They are not even if there are probably none.

What is the next prime number worth? Supercomputers are looking for the one after 2^ 82,589,933 and it is worth only about 70 bitcoins in prize money. Prime numbers are very important to encryption – the bigger the prime the harder the encryption is to break. Infinitely more computation is needed to find that next prime than generating the next bitcoin.

Let say I create an original magic cancer pill aka “bitcoin” and tell the public there only be 21 million pills made.

One would argue that the pills would have value and even increase in value with fewer pills availible.

One would imagine that somebody like steve jobs would have paid top dollar for the cancer pills.

The only problem is that the ingedients aka “blockchain” of the original cancer pill is opensource and public knowledge.

So soon there were more cancer pills aka “litecoin, ethereum, titcoin” who works just as good and even faster that the original cancer pill.

Please tell me why the original cancer pill have any value????

When the power goes out or the Internet stops working, I still have my gold.

The comments are interesting , boils down to gold and fiat (USD by default) vs something decidedly “weird” (bitcoin)
Then further : what backs bitcoin vs usd ? What gives it value vs gold? How can it be a unit of account ( vs fiat–omg no central regulator–read Mafia_State)
USD is quite recent (not more than 150 y) , before that others came and went–what gives it permanence? The US army and economic might? But the horse bolted? Fine we will lock the gates ( exchanges) , but roughly 18 million btc are grazing on greener pastures outside the gate (the abstract fencing is quite rusty and falling apart)

All the pros and cons have been expanded on by many people over centuries , but now we are moving into a new era , of ML , AI , robotics , a restless young population tired of Soros etc hoarding and controlling fiat.Where they venture the ancients , the banksters , the rigid state structures have no jurisdiction and if there is some , the liquid scenario will be re -programmed and they left in thin air

Why is Tesla shares going parabolic? Not a unit of xchange , not “scarce” , not a unit of account –obviously .Now imagine the following scenario:
Musk has satellites in orbit( his own) , he is developing the most advanced interconnected robot software for his self driving electric cars (Dojo) .Each Tesla has an advanced hardware system and very fancy sensors that do a multitude of real time observations(likely on the willing co-pilot-driver as well–pulse ,BP sugar , mood state) This data is pushed into cyberspace real time and analyzed by his cetnral mega computers .Tesla has an advanced electric battery system , soon likely to be charged while you are driving .It will be a small step for Dojo to start home schooling your child and soon , maybe , tesla will be sold with a home slave-robot that can be used to mow your lawn ,work in your 1 man factory 24/7 and provide home security .You wont buy a PC for your house , there will be terminals in every room connected to your advanced Tesla robot .The all-seeing surveillance cameras on your perimeter will be controlled by your Tesla control unit and the robot slave will do the necessary
Your Tesla robot factory will “sell” whatever it produces to other similar Tesla units and excess electricity will be swapped eelctronically
Now will Musk use something archaic like an electronic USD/fiat system?
Very unlikely

The one truism is that the world is changing in an exponential manner and ancient monetary systems wont survive…..rather the world is rapidly outgrowing it

These articles re scarcity , store of value etc are fascinating :money is and remains an abstraction , other things are collectibles ,including the old fav gold.

” famous story of the lost Yap stone:
Eventually, it became common practice for the new owner of the fei not to bother to take physical possession of the stone. Instead, the new owner accepted a claim to the fei without moving it. In future bargains, he traded this claim for goods that he wanted. Having physical possession of the stone became less important than having legal claim to it. This practice was put to a test when a valuable stone was lost at sea during a storm. Because the owner lost his money by accident rather than through negligence, everyone agreed that his claim to the fei remained valid. Even generations later, when no one alive had ever seen this stone, the claim to this fei was still valued in exchange.”
http://jpkoning.blogspot.com/2013/01/yap-stones-and-myth-of-fiat-money.html
on collectibles:
https://nakamotoinstitute.org/shelling-out/
http://unenumerated.blogspot.com/2008/08/

and a useful discussion on bitcoin
https://t1mproject.medium.com/modeling-bitcoins-value-with-scarcity-b4a8344504e0

End of comments.

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