Maybe, some of you will call me old-fashioned for this post….maybe I am. However, when reading some of the BitCoin articles on the internet, I find some of them to be seriously flawed.
First…. Why was BitCoin created? The common explanation is this……. Many people are disillusioned with our currency. After all, our currency is a “fiat currency”. It’s not backed by gold….it’s backed by the faith in our country and its government. And this applies to most nations’ currencies. . Therefore, people are looking for an alternate medium.
On the surface, this makes a lot of sense. But then…. Take a look at the March Bitcoin chart, and you will see that BitCoin was traded well over 20,000 before Christmas, but in February it was worth only 6,000. Quite frankly…. What’s worse? Owning some rather stable “fiat currency” or something that goes from 20000 to 6000 in a few days? With $2.99 of that “fiat currency” in my pocket, I know that I can buy a gallon of milk today, and also 2 weeks from now. Not so with crypto currencies.
The other significant advantage of crypto currencies is secrecy and untraceability…. Which, of course should appeal to a lot of people (especially those dealing in criminal activities). This also seems to make a lot of sense…. But think about it for a minute….does a drug dealer want to get paid for his merchandise in a “currency” that is worth 20,000 today, but may be worth only a fraction next month? I would assume that he would rather get paid in the green colored American “fiat currency”.
What’s left over is a wild gambling medium.. and we do hear a lot about people who became millionaires after investing small amounts of money in BitCoin. That’s fine, if you accept BitCoin as such a medium…. And they may even enjoy the tax-free anonymity of their gains. HOWEVER, have you ever thought about what would happen, if the IRS found out about your gains, that you kept secretly in your BitCoin account? Jail time for tax-evasion !
In conclusion, I can see BitCoin to stick around for quite a while, as a gambling medium. However, I cannot see how it can replace the relative stability of our “fiat currencies”, unless you seriously believe that your country’s currency is about to collapse totally in the near future.
Call me an agnostic on cryptocurrencies. My biggest doubt is not that they are extremely volatile as you pointed out. My biggest doubt is that they are only 9-10 years old. I have more faith in things that have stood the test of time.
As for volatility. My understanding is that since Bitcoin's inception at 12 cents a coin, it has lost 80% in value 6 times! It doesn't have to replace fiat currencies. It just has to take some of their market share. Currently, that leaves plenty of room for growth.