Many Bitcoin investors believe it is a necessity to have a portion of your portfolio in what they believe is the next global reserve currency. As investors become increasingly skeptical of the devaluation of fiat currencies, some are flocking to the newly invented cryptocurrencies such as Bitcoin. A “fiat” currency is government issued money that is not backed by a commodity. Being backed by a commodity gives currency a natural value because there will always be a natural buyer of the commodity. Even if all faith is lost in a government’s decree, money that is backed by a commodity with utility will hold value.
Bitcoin is very similar to fiat currency, only worse. Just like a fiat currency Bitcoin is not backed by a commodity with utility, what makes it worse is it does not have the legal tender status that a fiat currency has which is what gives it value. If a Japanese citizen holds US dollars, by law those dollars must be accepted in the US in exchange for goods and services. If the US can produce goods and services the world wants, the currency will have value. Bitcoin has no legal tender status, and its value is based on faith that it one day can be exchanged for goods and services.
Presently at around $55,000 per coin, faith is very high. What causes faith in Bitcoin? Bitcoin is alchemy with a good story around it. It was created by a mystery man/women/group who nobody knows that goes by the name Satoshi Nakamoto. You would think that alone would raise some eyebrows, but no, it raised imagination. Like any conspiracy theory the deeper you dive into it the more compelling it sounds and the more you want to believe.
The main selling point on Bitcoin is that it is a decentralized system that has a fixed amount of 21 million “coins”. Technically, it is not a coin and it’s not even decentralized. The definition of a coin is “a flat, typically round piece of metal with an official stamp, used as money.” Bitcoin does not fit the description of a coin. On to decentralization, 2% of Bitcoin holders own 40% of the supply. If Bitcoin were the nation’s currency, due to its fixed supply, that 2% would become gods of the economy. The only people who would get loans are the people who they want to give loans to. If you are a “no coiner” you will have to grovel at the feet of the Bitcoin gods in front of their mighty chapel to gain access to the money supply. Only to be met by the Bitcoin disciples of twitter using their favorite saying, “have fun staying poor”.
All Bitcoin does is transfer faith from the central bankers to the Bitcoin bankers. The only difference is the central bankers have the courage to get on television and explain what their process is. The Bitcoin bankers hide in the shadows without revealing their identity and skip town with your money.