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Bitcoin: An Ornately Compelling Transfer of Wealth

In a 2017 interview with Fox Business, venture capitalist Peter Thiel identified bitcoin (XBT) as the "cyber equivalent to gold." 

While talk of this comparison has endured for just about as long as the cryptocurrency itself, Thiel's statement showcases more acutely just how highly imaginative and seductive the mental gymnastics have become: not only have successful entrepreneurs bought into its functionality, they have also endorsed a comparison between one asset that is usable in and of itself, absent trade, and another whose usability stems exclusively from its tradability.

Gold and silver are valuable not strictly because they require strenuous work to be extracted from the earth, but because of the valuable properties they present. 

It's their unique set of properties that first makes gold and silver worth the effort, both of which operate from a "proof of utility" instead of some measly "proof of work." 

The assignment of value operates not from any given quantity of work, but from the perception of benefit through said utility, and gold is particularly unique in its confluence of desirable properties and its unrivaled durability that allows it to be used without ever being exhausted: indeed, this is the nature of wealth preservation, otherwise known as a store of value, one of the many requisite properties of sound money. 

What's more, there is a meaningful distinction to be drawn between "expensive" and "valuable," just as there's a modifying distinction between "price" and "value." 

Something may well be "valuable" while remaining inexpensive, while something very "expensive" may turn out to be devoid of much value at all. 

For instance, it is extremely expensive to run across North America, yet this exercise doesn't inherently produce any commercial value in and of itself. 

Meanwhile, it is relatively cheap to obtain, or even to build, a shovel for gardening or performing yard work. 

In this example, the inexpensive shovel is far more valuable, or useful, than an expensive and perilous adventure across the continent. 

Likewise, something may bear an extremely low price while presenting an excellent, or even essential, value.

Consider water, which is relatively inexpensive — or even naturally available at no market price — yet it is absolutely essential to life.

These analogies neatly illustrate the myth that inextricably ties price to value, value to work or some nebulous "proof" thereof: as explained by the subjective theory of value, the labor or price input or any specious "proof" thereof — plainly doesn't independently dictate the good's price or influence whether it is inherently useful or desirable. These qualities are determined by inherent properties, which render them desirable in the first place, ahead of individual assignments of value, which in turn express a quotable bid price or, when scaled to any broader collective, a tested market value.

Of course, this won't keep the voluble talking heads from continuing to flap their gums and impressing each other with esoteric, technical-sounding jargon, while boosting their sales and profiles at the expense of their desperate, impressionable acolytes.

Indeed, the fact that these figureheads are so confident smacks of frothy salesmanship and plainly speaks volumes about an experimental asset, or cryptocurrency, whose identity, use case and value change by the minute. 

Of course, when the value of any asset proves wildly unpredictable, so, too, diminishes the tradability of that asset, especially when bidders intend to exercise that vaunted store-of-value feature.

Ultimately, a store of value depends upon the intrinsic utility of the asset, meaning that it must serve some utility in and of itself before serving incidentally as a reliable medium of exchange. 

If an asset stores value, that implicitly places a floor above zero to ensure that the asset will inherently always retain a measure of value on which the holder can rely, should it fail to be tradable on his or her time preference. 

Bitcoin fails this important test, as its value depends exclusively on the appraisal of some other bidder on whom the holder, or hodler, cannot rely. 

Going one step further, Thiel characterized bitcoin as "very underestimated." 

Interestingly, Thiel is correct, but for alternative reasons. 

Bitcoin is, indeed, extraordinarily underestimated... its downside potential, that is. 

Oddly enough, the XBT cohort has popularly abandoned the "cryptocurrency" label to instead rally around the "crypto asset" classification. 

Unfortunately, it is neither. 

Bitcoin serves as neither an efficient medium of exchange nor a store of value, while it certainly doesn't produce earnings, deliver a dividend or offer any particular utility beyond that inefficient medium. 

Insofar as bitcoin is an asset, it is a speculative risk asset widely employed as a momentum trade, owned primarily by a tiny segment of wealthy speculators and institutional investors who carry enough weight to materially manipulate the market to their favor. 

Across its lifespan, heavy-hitting traders have even strategically plotted their trading around expectations of low volume timeframes, in order to paint the tape or to project the illusion of substantive momentum. 

All of this amounts to a trade that the average investor is unlikely to win, or unlikely to have won in the past, if not for a tremendous measure of fortune, by timing or blind faith as an early adopter, and discipline, by way of restraint, especially near the top in December of 2017, when it held above $20,000 for precisely 30 minutes before embarking upon its 50-percent decline over the ensuing month, thereafter surrendering an additional 40 percent over 19 days to trade just above the $6,000 handle. 

Still, claims abound from staunch bitcoin believers out there who claim to have cashed out near the top. 

For one, very few people actually took advantage of that 30-minute window, and the true believers legitimately believed that bitcoin was headed to $100,000, en route to the moon, so they had no reason to abandon ship. 

In fact, a great measure of them bought on the way up and again on the way down, believing they were simply buying the dip, just before it tumbled below $10,000 just 45 days after the peak. 

This means that those believers are either lying about cashing out in time or, otherwise, about actually believing in the concept.

Whichever case applies, it's purely characteristic of a mania in which people want to appear smarter and richer than they really are.

As the old saying goes, don't confuse brains with a bull market.

What's more, despite the oft-echoed talking points among its advocates, bitcoin has not served even as a nominal store of value — let alone a true store of value  as it remains both non-correlated to market developments and tremendously volatile, tumbling intraday as much as 17 percent as recently as Wednesday, November 14, 2018, trading as low as $5,358 before entering a trading range between $5,498 and $5,657 for the remainder of the week.

While a highly speculative asset is always poised for a sudden jolt in either direction, the end game will eventually yield capitulation, bringing the price of bitcoin closer to its utility value, dragging a lot of desperate defenders through the mud, and exposing the trade for what it has been all along: an ornately compelling transfer of wealth between consenting parties who wanted to make money. 



If only they knew the definition of its terms.

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