Bitcoin; Let's Just Call It What It Is, A Speculative Investment

Matt Thalman - INO.com Contributor - ETFs


An investment, as described by Webster dictionary, can be anything that an investor believes will produce income in the future or be worth more than it is today at some point in the future. Common investments include but are not limited to stocks, bonds, real estate, jewelry, artwork, or antiques.

Speculation, again as described by Webster dictionary, is the assumption of unusual business risk in hopes of obtaining commensurate gain. The dictionary has a definition of speculation specifically for students or kids which is, 'the taking of a big risk in business in hopes of making a big profit.'

The current situation with Bitcoin can best be explained by quoting the Merriam-Webster website when it is explaining speculation.

"Speculation can increase short-term volatility (and thus, risk). It can inflate prices and lead to bubbles, as was the case in the 2005-2006 real estate market in the UniteStates. Speculators who were betting that home prices would continue to increase purchased houses (often using leverage) intending to "flip" them for a profit. This increased the demand for housing, which raised prices further, eventually taking them beyond the "true value" of the real estate in many markets. The frenzied selling that ensued is typical for speculative markets."

Currently, it would be hard for anyone to argue that Bitcoin and other crypto-currencies aren't experiencing speculator behavior based on the above explanation.

The mind-blowing price appreciation of Bitcoin has attracted speculators to it, which has only caused the price to skyrocket even higher. These speculators, for the most part, don’t consider themselves such. Many of the so-called 'investors' in Bitcoin will tell you that it is a currency, which can and is being used as payment for goods and services.

While that is true, at the current time, it's just way too volatile to be used as a currency for daily transactions. Bitcoin is so volatile you don’t know how much it's really worth at any given time. Thus you could be way overpaying for an item or way underpaying. Because of this, businesses will not adopt it on a mass scale until its volatility drops, due to their increased risk of losing money on transactions.

Bitcoin's volatility will not likely fall until the bulk of the risk associated with owning Bitcoins no longer exists. But that won't likely happen until governments around the world publicly announce Bitcoin is safe from regulation. That, unfortunately, is unlikely to happen also until the flow of Bitcoins can be traced, which is completely against the allure of using blockchain technology as a currency in the first place.

If governments can't track Bitcoins, they can be used for illegal transactions, and it doesn’t allow government oversight. In the case of China the government can't stop money from flowing out of the country or in other cases, governments can't tax transactions made with Bitcoins.

So why does all of this matter?

Well back to my original point, Bitcoin is nothing more than a speculative investment. Bitcoin has no intrinsic value because it will never be a true currency and it has no other purpose other than being a speculative investment opportunity. Therefore it will eventually collapse when speculators realize there is no value to be found in owning the Bitcoin.

While I don’t know when that will happen, I can tell you how it will happen. The price of Bitcoin will eventually climb to a level that causes new money to no longer continue to flow in, that will cause a selling frenzy, the price of Bitcoin will plummet, and unlike previous Bitcoin crashes, no recovery will ensue.

As I have previously stated; be a Bitcoin pig, not a hog.

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor did not own shares of Bitcoin mentioned above. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

9 thoughts on “Bitcoin; Let's Just Call It What It Is, A Speculative Investment

  1. Hi Matt, thank you for your detailed analysis. I have to say though, perhaps due to the fact that you have yet to invest in Bitcoin, you are somewhat uninformed of the actual state of affairs. While I agree that if governments could not control or trace bitcoin they would therefore not be able to sanction it and eventually outlaw it and the system would implode on itself, that is an argument which is NOT reality. Right now, there is a firm called Chainalysis. Their customers include the IRS. They can crawl right up the blockchain and identify everybody involved. The government understands the blockchain very well. At a recent Bitcoin conference in Texas, noted crypto taxation specialist and accountant Daniel Winters went into this very point in his speech. You can view that at about 23:17 here: https://texasbitcoinconference.com/schedule/. Add to that the reality the the CME is going to be trading futures in Bitcoin, Russia has essentially figured out ways to tax it, China has tried to outlaw it and isn't very successful, Japan has adopted it, Iran is about to adopt it, and there is even a bill underway in Congress to allow any purchase of less then $600.00 to remain free from taxation (like other currencies) and you have the makings of something that is here to stay. And remember, the more valuable it gets, the stronger of a currency it becomes. Unlike traditional dollars, it can be parsed into incredibly small dollar amounts. It will remain quite spendable. It's value is in fact it's decentralized nature so any inflation is tied to increased value, and therefore it's growing adoption. Facebook in itself wasn't very valuable until many users started to use it, but once it had a bunch of subscribers, it became one of the most valuable assets on earth. The same with bitcoin. By the way here is a recent article about the IRS conquering bitcoin: http://fortune.com/2017/08/22/irs-tax-cheats-bitcoin-chainalysis/

  2. This reads like a high-school essay, more concerned with demonstrating to the teacher how meticulous the paper is than in having anything insightful to say. Who's editing these blog posts?

  3. Bitcoin, according to Jaques Rueff, would be just " thin air dressed as currency ..." such investments, without a legal or real benchmark, should be outlawed according to misrepresentation and incompetence potential believers risks. What surprises me is that, apart from the CFTC, no one has yet take a serious position about these scams.

  4. Your absurd description and analysis of what constitutes speculation simply doesn't apply to Bitcoin.

    A giant scam by so called speculators, betting on home prices is quite unlike Bitcoin (a currency) and obviously misleading.

    A Bitcoin currency crash is hardly likely to destroy the housing market but more likely usurp the FED while they replace the outdated dollar with their own crypto currency.

    1. The goverment is behind block chain and all the.. digital paper...they are not coins..tulips ...pet rocks and beanie babies. Buy gold silver guns, bullets, water and food ASAP

    1. Hey Randy,
      First off, thanks for reading.
      I do believe their is a place for cryptocurrencies in the future because of the security and speed they bring to finanacial transactions. But, in their current state, i dont think they will gain mass adoption or government approval due to reasons explained above.
      Before they can become more than what they today, they need to have world governments approve their use.
      Lastly, the block chain technology bitcoin is built on will outlast bitcoin itself, but that technology alone doesnt give bitcoin value in its current state.

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