In all my conversations with people about cryptocurrency, nobody has ever asked me about the potential social and economic impact of cryptographically-secure, time-stamped distributed ledgers that allow people to exchange things digitally, securely, and instantly.
(Which stinks, because I wrote a book, Consensusland, exploring that very topic.)
No, mostly people ask “should I buy bitcoin?”
It doesn’t matter whether you think bitcoin is rat poison squared, fake internet money, way too volatile, or far too technical. If you care about building or preserving your wealth, you must buy some.
A picture is worth ten thousand words
Look at this chart:
This is a chart of bitcoin’s price since 2013, but it’s not the chart you see on the news.
That chart has huge spikes up and down. This chart has the exact same information but it’s drawn in “log scale,” which smooths out those spikes so you can better see the trends without distortions.
News sites need spikey charts to make bitcoin seem exciting, dangerous, and dynamic, but I want to focus on patterns. Boring, I know, but building wealth is a boring activity.
Here’s the same chart with a yellow trend line drawn:
What do you notice about the price of bitcoin?
It goes up.
Not just up, but way up—from $135 to $10,000 over five and a half years (and from $.003 to $135 over the five years before that).
Prices change, pattern remains
Hidden in that chart are upswings of 1,000+ percent and crashes of 80+ percent, as well as fake trading, criminal activity, manipulation, speculation, scams, FOMO, FUD, and all sorts of activities you see with many financial assets.
Set all that aside. You know bitcoin is a speculative investment. You have $100 in your pocket. Do you buy bitcoin?
Here are the possible outcomes for your $100 investment:
- Option 1: bitcoin’s pattern stops, history doesn’t repeat itself, bitcoin dies. You lose $100.
- Option 2: bitcoin’s pattern continues, history repeats itself, bitcoin goes up 1,000 percent. You make $1,000.
Option 1 has never happened. Option 2 has always happened. Which is more likely?
Impossible to say. Nobody can predict the future. Sometimes patterns stop.
Even the 7% average annual stock market gains aren’t guaranteed to continue (some experts are even calling for a return to the market stagnation of the 1970s).
Bitcoin is overvalued until you see the big picture
Bitcoin’s price may seem insane. $10,000 for fake money nobody uses? Better to buy a bit of Berkshire Hathaway at $313,000:
Or maybe not.
As somebody who owns both assets, I can assure you Warren Buffett’s company will never capture all the world’s wealth.
But bitcoin might.
There are $200 trillion to $1 quadrillion worth of “things” that can be recorded on a blockchain and exchanged using bitcoin. As bitcoin’s network grows, it will continue to capture more and more of this wealth.
Over the past ten years, developers have made bitcoin’s technology better, cheaper, and more useful. The number of bitcoin wallets keeps going up along with the number of bitcoin users and transactions.
Businesses like Microsoft and others are building products and services that use bitcoin’s blockchain to solve real-world problems—and they’re not slowing down.
Two Wall Street firms recently got the first-ever approval to sell investment products that use actual bitcoin instead of paper equivalents. More plan to follow, along with marketing and advertising to attract customers.
Every day, more merchants and businesses take bitcoin. Even the U.S. state of Ohio now accepts bitcoin for payment of taxes.
Does that mean bitcoin’s network will continue to grow?
If you believe it will, you must buy some. The price will have to go up.
If not, are you so sure about it that you’re willing to risk missing the greatest speculative investment of our lifetime?
Mark Helfman is a cryptocurrency commentator and author of Consensusland, a Readers’ Favorite 5-star book about a country that runs on cryptocurrency.