Bitcoin investing

Bitcoin is a cryptocurrency created in 2008. I have never belonged with team “gets it” when it comes to Bitcoin investing, but perhaps time has come to reconsider.

Many things are fictional, valid only because we all agree they are valid.

The entry which marks your bank account balance is sort of fictive. That is simply a number which exists in particular database, not a stack of dollar bills stored somewhere.

Your Bitcoin balance is also a number which exist in a particular database. Those numbers are only valid by consensus. Between your bank and you traditionally, and between you and world in the Bitcoin case. Cryptocurrency entries sit in a database which belongs to everyone. An open database which everyone can see discuss and validate each entry. Super secure, even dangerously secure because of this “everyone-must-agree” feature. A mistake made by everyone can never be undone.

I am triggered on this topic not because of the increased frequency of this topic in the news. But because of this:

Log price of Bitcoin and the GLD ETF

gld bitcoin time series
This is a plot of the behavior of Bitcoin (vs the USD) over time. Short history, but you can see the behavior looks a bit like that of gold- a long standing well respected trading commodity.

60D rolling correlation of between 10D holding period return

gld bitcoing correlation
Correlation has been decreasing of late and some voices entertain Bitcoin to be the next bubble. I don’t know about that. Main point is that the Bitcoin currency looks to be establishing itself as a credible commodity, now closer to mainstream investing.

One comment on “Bitcoin investing”

  1. Currency has specific properties, (a). It should be a stable store of value. (b). You should be able to pay your taxes with it.

    At the moment it is neither.

    The crypto hype is a result of its volatility, not stability. Like Icarus flying between the sea and the sun, currency creates problems when it enters into inflationary or deflationary cycles. That is why it is regulated by governments. While this could change, no crypto- on the market has adequately resolved this problem. Would a stable crypto- would receive the same hype w/o the lottery mentality?

    It’s also very difficult to convert crypto to fiat. Even if you have millions of dollars in crypto it takes a very long time to extricate it from its volatile environment. But you are liable for tax on sales (conversions) leaving huge tax liability with residuals exposed to huge value drop after the fact. It’s very precarious.

    The fact that the technology is tied to commodity like units of value is more problematic than beneficial. The author does an insufficient job in warning the public about this. It reads like a pump for Ethereum.

    Having said that, non-monetary applications of blockchain will be very interesting.

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