After briefly falling below $30,000 per coin, supportive comments from Tesla (NASDAQ:TSLA) CEO Elon Musk and Twitter (NYSE:TWTR) CEO Jack Dorsey sent the price of Bitcoin (CCC:BTC-USD) back over $32,000.
Starting late on July 25, it began rapidly soaring, briefly passing above $40,000 before dropping to around $39,000.
Where the price of the asset goes from here is anyone’s guess.
Note I used the word asset.
Bitcoin is often portrayed as money, and El Salvador wants to treat it as such.
But Bitcoin is not, never was, and never will be money in the strict sense of that term.
Why Bitcoin Isn’t Money
Money isn’t just a store of value. I sometimes say that money is a verb. What I mean is that at best it’s the grease that enables the exchange of value, like the value of your home to a new buyer, or the value of this story to InvestorPlace. Without price stability, and without enormous liquidity, no asset can stand in for money in this way.
The design of Bitcoin is based on a limited supply, just 21 million coins. Its value is supposed to keep going up because of this illiquidity. Gold was money for the same reason. It retained value due to limited supply. In fact, , depending on local supply and demand.
We’ve learned over the last century that gold isn’t money. It’s an asset, like any other asset, its value rising and falling with demand. Over the last decade gold has traded at under $1,200/ounce and . Imagine leaving that in an escrow account while you waited for your house to close.
Over the last few years, Bitcoin has replaced gold as the primary asset of fear and greed. That’s because there is too much money running around looking for a return. Banks can create assets, but it’s consumers, companies and government that create demand.
Right now, public demand is limited by government inaction. Private demand is satisfied by technology deflation. Thus, assets of all kinds have risen in value. Homes, stocks, gold, even Bitcoin.
The Short Term
Scarcity is why , whose own 2021 gains in Bitcoin by the latest move down, could raise the market. It’s why Dorsey, a Bitcoin advocate for years, can raise the market by .
What the crypto bulls believe is that their decryption keys — and that’s all Bitcoins are — can replace all currency created by governments. This, they believe, will send it “to the moon.” That’s what all holders of rare assets say, all the time. (Frankly, you’re better off holding a sports team —
.)
This sounds good when Bitcoin rises, but what about when it loses half its value in three months, ? That’s when my karma hits your dogma. Most Bitcoin owners are true believers, and they’re mostly followers of billionaires like Musk and Dorsey. It’s a repository for their cynicism, their distrust of government and institutions of all types, their inner Ayn Rand. In fact, their inner child.
The Bottom Line on Bitcoin
Bitcoin bulls don’t trust government. They trust each other. More to the point, they trust corporations.
But corporations are of blind trust than governments. (Or other bros.)
If you think Bitcoin will protect you from government worming its way into your wallet, . You would think the government’s ability to the Colonial Pipeline ransom would have convinced some people. But vaccine hesitancy remains a thing, too.
Whether we’re organized through corporations, through governments, through churches or through the , the fact is that no man is an island. People need one another. We need to trust one another. We need to hang together, or we’ll all hang separately.
Bitcoin will remain a fun asset to trade, but it will never be money.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in the securities mentioned in this article, including Bitcoin. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
has been a financial and technology journalist since 1978. He is the author of , now available at the Amazon Kindle store. Write him at or tweet him at . He writes a Substack newsletter, , which covers technology, markets, and politics.
