Bitcoin as Money, Is it or Is it Not?

Bitcoin as Money, Is it or Is it Not?

Bitcoin as Money, Is it or Is it Not?

$BTCUSD

A medium of exchange means people will give you things in exchange for it. And yes there are some places where people will give you real goods and services for Bitcoin, but not many.

If Bitcoin is to compete with global currencies it needs a place where the price is reliably quoted

Merchants do not accept payments that could be worth radically more or less than the posted price of the goods by the time they deposit the cash in their bank account.

If they do accept it, they will demand a premium to compensate them for the risk meaning discounting the value at the time of the transaction. And that makes Bitcoin less attractive to consumers.

How a buy/sell transaction works

When someone sells something, they are effectively buying an option on future consumption, and they want to know how much that option will be worth before they trade real, valuable labor and raw materials for it.

In other words, while the buyer wants a medium of exchange, the seller wants a store of value.

Many vehicles that store value are volatile.

Stocks, Bonds, Gold and Silver are volatile Vs fiat money.

Many Bitcoin players are attracted to the fact that its quantity is strictly limited: There can never be more than 21-M bitcoins in existence, albeit that about 16-M of the 19-M mined are owned by Chinese and SKorean miners.

So, governments will not likely be able to inflate you out of your value if you own a Bitcoin, the market is the risk.

Because no government controls it, no government can inflate it, or seize it (?)

For most Americans, their biggest asset is their home, which is hedged against inflation, which is to say that home prices will rise along with the general price marks.

The equities in their 401(k)s offer a similar inflation hedge.

The Big Q: Why take your money out of USD-denominated bonds and put it into a risky, volatile asset class like Bitcoin when you could just buy a stock mutual fund?

The mutual fund would invest your money in companies that make and sell real goods and services, rather than an asset which its value is only its price minute to minute.

Currently, Bitcoin is trading at:13,857.6152, -2,345.9299, or -14.48%, as of 6:34a GMT the market is open.

Note that is about 33% off its highs marked on 18 December 2017, Bitcoin is in a Bear Market after its parabolic run up this year.

So, what is Bitcoin really is good for, hiding your money from the government?

Bitcoin’s advantages

Bitcoin has Key advantages over Gold if one is attempting to get one’s money out of a country with strict limits on shipping currency abroad. It’s a lot easier to hide a USB drive than a truck full of Gold bars, or even a foreign bank account full of cash.

Bitcoin’s disadvantages

A USB drive is easier to steal, or lose, than a truck full of Gold bars. And there a real uses for Gold which means its value will never fall to Zero, as Bitcoin’s could do. And Bitcoin is much more volatile than Gold, which means that you could suddenly discover that your carefully cocooned savings are worth very little when you need them.

The biggest weakness is that if Bitcoin really turns out to be a good way to keep governments from controlling their economies and their citizenry, then governments will hammer it to ‘bits”

Bitcoin has already turned out to be a bad place to hide money, because the blockchain is a ledger of every transaction; if you can trace an account to a real person, you know exactly what they bought.

And governments have proven very adept at crushing any threat to their power to monitor and tax their citizens.

Many once thought that tax havens were because of treaties thought invulnerable. But they have increasingly caved to pressure from rich-world governments that found an easy way to damage their business: threaten to make it difficult for them to move money in and out of large developed countries.

Remember that I-Net gambling by US players was shut down by just tell payment servicers they were no longer allowed to process transactions with online casinos.

Governments can do the same to Bitcoin, closing off the points of entry into the real economy where dot and dashes turn into Greenbacks.

The price of Bitcoin look to be driven by people who think that it is not governable.

Shayne and I have been around a longtime, and seen a lot of what most thought as out of the ordinary, and unjust.

Civilians have not idea the lengths that government regulators will go to in order to maintain their control over the world’s financial system.

So, the safe bet is this Bitcoin’s true believers are wrong!

Now, just what is Bitcoin good for?

There are all sorts of interesting applications for cryptocurrencies and blockchains. But unless they become a global currency, or a global payment system in the not so distance future, they will not be fruitful.

Below is a list from a savvy analyst that I read today and share with you, as follows:

  1. This is one of the reasons that hyperinflationary spirals get so vicious: Merchants start raising prices faster than the money supply is growing, in order to compensate for the carrying risk. Which in turn means that the central bank has to print more money …
  2. The new TV series “Ozark” has the best explanation of this I’ve seen in popular culture. To paraphrase: Say you have million in cash. What can you actually do with it? If you try to deposit it in the bank, they will file a report, and you will shortly be explaining to the government where that money came from. Unless you have a good explanation, you will then be desperately trying to hire a lawyer in order to avoid a trip to the pokey.Nor can you simply buy a house or a car with that cash, which will raise many, many eyebrows at the bank, and then at the government that bank reports to. You basically can’t make any large purchase in cash without raising a lot of questions. This is why drug dealers spend so much effort figuring out how to launder their ill-gotten gains. Unless you can find some way to put the money in a bank without the government getting suspicious, then all you have, in the words of Jason Bateman’s character, is (approximately) “groceries and gas for the rest of your life.”

    And that’s dollars, which are indisputably legal tender. Your cryptocurrency will be even harder to spend. Who wants to trade you legal cash for scrip that’s only good for buying on the black market? How do you find that person? What discount will they demand for giving up their cash?

    Bitcoin is currently good for transferring money out of failing states like Venezuela, because in those places, the local currency is so worthless that you’re better off trading it for bitcoin, or for that matter, cans of mackerel But that presumes there are countries elsewhere with stable governments and strong economies where bitcoins can be turned into real goods. If bitcoins become a good way to evade those governments, those governments will ban them, and desperate people will go back to smuggling diamonds and dollars.

  3. For example, it has been proposed to me that bitcoin could replace bank settlements. That’s an interesting idea. But why would banks pay a great deal of money to buy bitcoins for their settlement system, when they could just create their own cryptocurrency for much less?

All of the above being the case, we have been recommending  GBIT our favorite crypto-coin exchange, where professional traders and civilian participants alike can trade securely on the world’s most innovative digital asset exchange.

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Stay tuned…

 

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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