So far almost all of the Bitcoin discussion has been positive economics — can this actually work? And I have to say that I’m charles stross bitcoin deeply unconvinced.
The biggest challenges that Bitcoin currently faces are flow of funds, a lack of market makers, and outsized exchange rate risk. Absent reliable providers of a liquid marketplace, volatility will remain high. There was plenty of ugliness to be found in the markets this year. I hope Bitcoin becomes a better way of doing it, the idea that it has intrinsic value is a joke. There is a similar finding about communities where people describe their investment success more generally, because people tend to brag about their success and not brag about their losses. If you are not careful, all you hear is that people are making tons of money.
Bitcoin was created by and for risk-loving individuals. The everyday risk-averse person, which describes most people, should rightly be concerned and stay away. At this point, Bitcoin is neither a legitimate form of currency nor an investment. Until it gains widespread acceptance and price stability, it will never be a mainstream method of payment. And from an investing perspective, Bitcoin’s uncertain future and the lack of any meaningful fundamental metrics make it a speculation at best, and gambling at worst.
Bitcoins are an odd sort of commodity. The value fluctuates widely, in line with changing views regarding the overall usefulness of the Bitcoin payment system and the speculative manias surrounding such views. There is no financial logic behind Bitcoins’ face value. In other words, if you like to gamble, this is a perfect asset. While the sheer difficulty of mining assures Bitcoin users that there won’t ever be a massive supply shock in the digital market, the way that Bitcoins are created causes one enormous problem.
Primarily, it incentivizes miners to hoard the currency upon receiving it. Bitcoin is an interesting idea, but I think their mechanism for regulating the currency supply is fundamentally flawed. Because the Bitcoin supply doesn’t increase in proportion to the growth or use of Bitcoins, there is a deflationary effect, creating an incentive for people to hoard Bitcoins rather than spend them. As an alleged alternative currency, bitcoin is unacceptable. Its volatility and lack of liquidity pose risks far beyond most traditional currencies.