When it comes to Bitcoin (BTC-USD) on SeekingAlpha, only seven articles since the end of 2018 have been bearish.
We are joining that select company because we are in the camp that believes that Bitcoin is literally vapor.
One of the primary arguments in favor of Bitcoin is that it will one day replace fiat currency.
We believe it is more likely that Bitcoin will disappear far before it replaces fiat currency.
We will only focus on the fiat currency argument today.
That argument is simple.
- The vast majority of fiat currencies will never go away.
- Bitcoin’s volatility will never have the same stability as currency.
- Bitcoin is valued in terms of fiat currency and that will never change.
Fiat Currency Is Here To Stay
The Bitcoin bulls claim that government borrowings will eventually become unsustainable, causing the currency to become worthless.
Therefore, the full faith and credit support of the government will become meaningless.
We stipulate that sovereign debt is on an ever-increasing march higher.
Yet fiat currency is so completely entrenched in the world that dislodging it would take a global agreement or a global catastrophe — because the US Dollar, Euro, Yen, and Yuan are the global reserve currencies.
They would all have to collapse simultaneously.
The only instances where entire currencies collapse are in hyperinflations – limited thus far to dictatorships, socialist countries, and post-WWI Germany.
A democratic government has never seen its fiat currency collapse.
Rather than argue in favor of perpetual faith in fiat, let’s instead stipulate the bull thesis that somehow, one day, fiat currency collapses.
Bulls seem to magically believe that everyone will just use bitcoin.
Yet that isn’t true, because they forget a few important things that will occur in the days of a collapsing currency.
You know, little things like civil unrest sweeping the entire country.
Look what has happened in the just the past two weeks. COVID-19 panic resulted in grocery stores being legally cleaned out.
When currency no longer exists, the country will resemble the hysteria of “War of the Worlds”.
It will be every person for themselves.
In the weeks during civil collapse, what fool is going to say, “Why, sure, I’ll take one of your magical Bitcoins in exchange for a week’s supply of food”.
Not even a fool would make that deal, because the currency at that time will be food.
And ammo. And guns. And tasers. And water. And clubs, sticks, Molotov cocktails, and whatever else people need to survive.
Along with this unrest comes the possibility (likelihood) of the power grids going down.
No power = no internet = no access to Bitcoin since it’s all online, or in the cloud, or wherever this magical currency vaporware resides.
Bitcoin will have no tangible value, just like it has none today. In fact, it will be worth exactly what the fiat currency will be worth at that time, which is nothing.
So whether fiat currency collapses or not (it won’t), Bitcoin will be worth even less than it is today.
Bitcoin Has No Stability
We guarantee that 15 minutes after you finish reading this article, the value of the US Dollar to any other major currency will not waver by more than 0.1%.
You cannot say that about Bitcoin, which has seen changes in value of thousands of dollars in 15 minutes spans.
This is a 30 month chart (Courtesy of Yahoo) that shows the price of Bitcoin in US Dollars, and the value of the Euro to the US Dollar.
Here’s the chart just for the past 24 hours (from Yahoo) in one minute intervals:
Bitcoin is not.
We can walk into a grocery store, gather our groceries, understand what the total amount at the cashier means in terms of its relative value, buy the stuff, and walk out.
Mr/s. Bitcoin Bull can walk into the same store, and between the time s/he enters and goes to the cashier, the value of Bitcoin could have fluctuated by literally any amount.
One cannot replace stability with volatility and expect the same outcome.
Nobody in their right mind would conduct transactions on a regular basis in Bitcoin over fiat currency, because of its volatility.
We even played a little online poker recently and did very well. We chose the Bitcoin cash out option.
In the time it took to create a wallet, link bank accounts, and conduct transaction, we lost $349. Had we just taken the wire option, it would have only cost us $100.
And again, if the argument is that fiat currency will de-stabilize, we’ve already addressed what will happen above.
Bitcoin is Valued….In Fiat Currency!
The greatest irony in this entire discussion is that Bitcoin bulls simultaneously talk about how Bitcoin will replace fiat currency, yet when asked how much their Bitcoin is worth, they’ll answer in….fiat currency terms.
You can’t make this stuff up.
The perception of Bitcoin is not that it can be exchanged for a standard basket of goods or services, in the way fiat currency can. You can’t go to a grocery store, wheel your cart to the cashier and say, “Well, this basket clearly has a value of 0.0342439 Bitcoin!”
Nobody would know what you’re talking about.
They’d first have to translate that into US Dollars. Or rather, you’d have to do it because they wouldn’t know what you were talking about.
Don’t believe us?
Read every single tweet, social media post, article, thread, and post about trading bitcoin.
What does every single one say?
“I made X dollars trading Bitcoin today”. Even Bitcoin bulls think in terms of fiat currency.
For these three reasons alone, Bitcoin will never replace fiat currency.
Yet there is one other factor to consider.
The Federal Government will never, ever, ever, ever permit the world’s reserve currency – the most powerful currency in the world – to be undermined.
Not a chance.
That’s why the regulatory agencies shut down coin offerings, and why they refuse to permit additional securities that involve cryptocurrency.
It’s why all the big supporters of Facebook’s (FB) Libra backed out. Bitcoin is nothing more than vapor that you can trade. That’s all it will ever be.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.