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Bitcoin pipes

Bitcoin’s dubious utility value

Bitcoin fanbois point to bitcoin’s utility as a payment network. But, unlike Visa, holders of bitcoin don’t get any of the mining revenues, so there is no revenue stream on which to value a bitcoin.
 
Participants do need to have bitcoin to transfer funds, but they don’t need to hold it for longer than the transaction itself. Since bitcoin is limited to ~3 transactions per second, and average confirmation times are several hours, depending on network congestion, there is no need for more than a few bitcoin to accomplish all payments across the network. As an example, assuming 1 bitcoin per transaction, 3/sec * 3,600 sec/hr * 3 hr/confirmation = 32,400 bitcoin to execute all payments on the network.
 
Also, since bitcoin can be divided into satoshi, hundreds of millionths of a Bitcoin, there is no need to hold a particular amount of bitcoin to accomplish a transaction. The bitcoin itself just represents the transaction record, not the value of the contract, just as a record in Visa’s database represents the transaction, and is not in and of itself valuable, beyond the market price of the transaction mechanism (about 1%).
 
Even if holders of bitcoin shared in the mining revenues, the competitive mining market produces a flat fee per transaction, not a percentage fee, which allows the transfer of massive fortunes for a tiny fraction of a percent. It would be a much worse value proposition, for investors, than Visa.
 
The fiat price of a bitcoin arises from an artificial restriction on bitcoin supply & mining, and people’s expectation that these restrictions will entice others to buy their bitcoin in the future at a higher price. The “greater fool” theory. But this is separate from bitcoin’s utility as a payment network.
 
It is no different from other speculative phenomena such as Beanie Babies, baseball cards, and other artificially restricted commodities. People misinterpret the restriction as an ipso facto justification for a high price. Once all available cash & credit has poured into the commodity, there are no further buyers, the mania ends, and the price drops to the utility value of the commodity.  In bitcoin’s case, its utility value is close to zero.

Bitcoin is a ponzi scheme

All “cryptocurrencies” based on artificial limits are inherently pump-and-dump schemes.  If they were true free market currencies, the money supply would grow with demand. Instead, they are artificially restricted.  Why?  To create the illusion of limited supply and therefore expectation of future scarcity and speculative profit.

Bitcoin price chart 2017They are fiat currencies, based on nothing but this speculation.  The Bitcoin price chart shows this.  Bitcoin fanboys point to the skyrocketing price as a badge of honor, but all it shows is that it is a speculation, not a store of value.  It has no price stability, and cannot be considered a “currency”.

In the short term, the price will keep going up for various reasons.  Mining is getting more expensive and less profitable, driving out miners and restricting supply.  Use as a pseudo-anonymous money transfer scheme is increasing on the dark web.  A method of circumventing Chinese capital controls.  An investment vehicle for Chinese with not enough local investment options.

But eventually, people will realize NOTHING holds up the value of Bitcoin.  No petrodollar, no USG taxation.  And it will collapse, as will the rest of the currencies that will inevitably fork off this one.  This is even ignoring the major security and regulatory issues that plague Bitcoin.

Currency is a form of social credit.  It’s an implied debt, that someone will pay off with goods & services in the future.  This should be the basis of any cryptocurrency, not arbitrary and artificial limits on supply, and fancy math for its issuance.