Bitcoin maximalists continue to shriek about their beloved bitcoin and how the price is going “to the moon”.
Bitcoin may be lacking fundamental characteristics of a Ponzi scheme, but there are plenty of similarities. The endless pumping of bitcoin on Twitter and all manner of other social media is much the same as those operating in a Ponzi scheme. In the end, the only way they succeed in getting out is by getting more punters to buy in and keep the price high.
Granted – Jack Dorsey isn’t your typical punter. Buying around 4,500 bitcoin – 1% of Square’s treasury – is a total gangster move. It delivered him plenty of headlines and press which, in terms of earned media value ROI, is pretty good if he didn’t achieve anything else.
Of course, it wasn’t easy. Even with a market cap of over $211Bn, moving $50M into bitcoin would have set off a lot of alarm bells. This gamble (I can’t bring myself to call it an investment) had to be something achieved in a slowly-slowly approach.
If institutions can’t quickly move a few thousand bitcoin around without worrying about causing market movements, then what good is it? Today’s markets for trading bitcoin are so disorganised and dysfunctional that they are primarily used to arbitrage against each other by and for speculators.
Large transactions are still done in over the counter (OTC) markets. I regularly get approached to ask if I know someone who will do a deal for thousands – or even millions – of Pounds Sterling for BTC. And from the way the conversations go, it feels like a back-alley drug deal. It’s not just people looking to avoid the high commissions and fees of using credible exchanges; they are actively trying to subvert regulatory compliance. (Which is one of the primary aims of the DeFi movement).
These are predictions for which there is no basis other than wishful thinking. These delusional crystal ball wishes get picked up by the crypto Twitterati and shared far and wide. (Plus the equivalents of the Daily Mail and the Sun in crypto propaganda – it isn’t news).
When the chart monkeys trot out their bitcoin graphs with reds and greens and candles and all the rest of their wedges and flags, I just laugh. Their so-called “fundamentals” and price predictions, including those which applied to real businesses and real commodities, come from assumptions which are either never disclosed or easily disproved. Charts and fundamentals of tangible commodities and securities (unlike bitcoin) have an underlying connection to something other than the hype, hopes and fears of a relatively small number of retail investors and even smaller number of ruthless speculators.
Oh, but “scarcity” they scream. There will only ever be 21M bitcoin in circulation. Yeah. So.
It doesn’t matter. No one wants bitcoin for anything other than lottery tickets. Bitcoin are so dull and boring that $1.1Bn worth of BTC has now been “wrapped” so they can run over and play DeFi games.
Bitcoin cannot be money. Bitcoin is so volatile that it makes a terrible store of value. By bitcoin users own admission it makes a terrible unit of account (why do you think they still value bitcoin in US Dollars?!).
But what if I’m wrong? What if BTC did go to $1M for a whole bitcoin?
What are the things which are most likely to happen?
In August 2019, it was estimated that for mining (the process of keeping the bitcoin ledger in sync and secure and adding new blocks) to be profitable, the price had to be approximately $6,250. When the halving occurred in May of 2020, that meant that the price would need to go to $12,500 just to allow the miners to remain profitable – assuming that there were no changes in processing power or miners coming or going. And although not entirely sticking at $12,500, the price of around $11,500 seems to hold up.
Hash rates are continuing to go up due to both better processors and more mining rigs joining the network. Adding more compute power is excellent for network security. However, bitcoin mining uses a significant amount of electricity. The environmental aspect of bitcoin has always been one of its most well known Achilles heels.
Why is this relevant? Think about what would happen if the price went to $50,000 – $500,000 or even $1,000,000. The number of people and computers and resources that would suddenly pile into the fray of trying to mine bitcoin would be insane. Imagine taking the current global energy consumption from mining bitcoin and increasing it by 4 – or 40 – or 80. The heat generation would be immense, nevermind the strain on local and global electricity supply sources (and the ripple effect down to average consumers on their local cost per watt.)
Can anyone say, “Rolling brownouts”?
Environmentalists, NGOs, governments and dozens of others would need to react – and react fast – to head off an environmental disaster brought about by greed, shortsightedness and a complete lack of consideration for anyone or anything else.
Another aspect is the lack of liquidity.
As the price goes up, more and more people become committed to HODL” ing ( Hold on for Dear Life) and refuse to sell. The BTC markets have less and less liquidity. People continue to buy into the “to the moon” thinking and just refuse to sell. Until – the price becomes so great that it no longer makes sense. A certain amount of built-in pressure relief from institutional investors will keep the price at a far more sensible level.
All this being said, I still believe there is a need for a decentralised currency that can function as money, a store of value and a unit of exchange. A new digital currency can exist in a way that is regulatory compliant. And it can be controlled by the community.
Today, it doesn’t exist.
What is certain is that bitcoin isn’t it. There is no chance for bitcoin to achieve a price anywhere near the sky-high valuations of soothsayers, shysters, shillers, con artists – and well-meaning (but clueless) retail investors on Twitter. And if it does, then be prepared for a tidal wave of unintended consequences.