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Bitcoin Is A Concept Not A Product

Summary

Value of Bitcoin has reached record highs.

Yet, the value of Bitcoin is its conflict with its intrinsic value.

Why Bitcoin would probably not work out in the end.

With Bitcoin surging to all time high, with gains in excess of over 300% over October and December this year, many has hailed it (in fact earlier on) as the investment of the decade/lifetime. 

There is no doubt that the Bitcoin market is a bubble and in fact, it is going to be the biggest bubble in our history (after that of the Tulip Mania). It is best served as a speculative instrument and nothing else (this will be discussed later on). 

But basic common sense and intutition would see that Bitcoin just isn't a viable type of investment vehicle nor it is or likely ever will be an investment product. 

Reason 1

Bitcoin can never replace the role of fiat currencies in markets/countries, nor even exist as a susbstantial alternative to forms of payment or storage of value. And the reason is simply the fact that it would be a near impossible task for Bitcoin, or any form of digital currencies to be accepted on a widescale basis without a synonymous physical form, like in traditional curriencies, whereby payment can be made both via digitally and physically with its value being identical in both forms.

Reason 2

Reason 1 is also compounded by the fact that value placed on Bitcoin today and its volatility makes it hard for products to be valued in terms of BTC in which prices of items have to be constantly revalued. Merchants and retailers alike are unlikely to accept Bitcoin as legitimate forms of payment as they are simply too volatile. (See graphs below; Graph 1: comparison of the volatility of BTC as compared to the JPY and Gold) This brings up the paradoxical nature in the value of BTC and Reason 3.

Reason 3

One of the main drivers for the potential of BTC is its potential to remove transaction costs for payments, removing the need for intermediary processes. In order that that to happen, prices of BTC as a currency needs to remain relatively stable (comparable to that of fiat currencies).  But strangely, if that condition is satisfied, BTC in fact has little or no value as its current pricing seemed to be derived from its volatility that enabled its holders to benefit from speculative buying and selling at opportunistic trading volumes.

There are no clear sign of further progress that would legitimise Bitcoin as a form of currency (given the responses from the Chinese and Korean governments) and yet defiantly, the value of BTC stands and holds it ground. It is unlikely that governments would legitimise and approve something that they cannot regulate (which is what the Bitcoin is made for to prevent intervention).

For now, Bitcoin can only exist as a concept that would not see its light of the day as a legal form of tender in the near future.

Could Bitcoin reach a new high? 20,000? 100,000? Possibly, but that it would depend on how misguided the markets can stay. Better to leave the party while the music is still on.