I have been bearish on Cryptocurrencies from day one. The single most important attribute of a currency is price stability. All Cryptocurrencies have been utter failures in this regard. So, it has become a speculative investment and as a gold alternative. The appeal of cryptocurrencies is that it is hard to create new "bitcoins" as the arithmetic required to find them takes tremendous computing power. This counters the common criticism of Central banks that simply print money to solve monetary issues in an economy thereby devaluing their currencies. Crypto mining takes so much power that it takes more energy than Google in its entirety uses and many small countries. It is an environmental disaster and unsustainable just from a mining new digital coins perspective. Many investment analysts claim that cryptocurrencies are a good substitute for gold as a safety investment because it is hard to create more of it. This is a fallacy. The reason why Gold is a good safe harbor is that it is hard to get more of it AND it has utility for jewelry and other real purposes. What you can buy with an ounce of gold today is roughly equivalent to what you could buy 100 years ago. So, a good currency has price stability with the following attributes: limited in quantity and hard to reproduce, supported by a broad community with an active trading system, utlilty outside of its use as a safe haven for storing value.
In order for cryptocurrencies to have long term viability, there must be a large and growing use of the underlying technology as use of bit coins in practical applications. Such applications are not as storing value, but in applications such as contract management and enforcement. That is likely to happen, but my guess is that the price to support such applications are significantly lower than today's prices. Bitcoin is today trading around $27,500. I wouldn't touch this investment with a 10 foot poll.
Here is what Warren Buffet, arguably the best investor in the world, said about Crypocurrencies.
https://www.cnbc.com/2022/05/02/warren-buffett-wouldnt-spend-25-on-all-of-the-bitcoin-in-the-world.html#:~:text=Buffett has long been against,he said at the time.
Warren Buffett wouldn’t buy ‘all of the bitcoin in the world’ for $25: ‘It doesn’t produce anything’
He attributed the allure of bitcoin to a type of “magic” that draws investors.
“Whether it goes up or down in the next year or five years or 10 years, I don’t know. But one thing I’m sure of is that it doesn’t multiply, it doesn’t produce anything,” he said. “It’s got a magic to it, and people have attached magic to lots of things.”
Buffett has long been against cryptocurrencies. He
told CNBC in 2018 that “they will come to a bad ending” and said that Berkshire Hathaway will “never have a position in them.”
“I get into enough trouble with the things I think I know something about,” he said at the time. “Why in the world should I take a long or short position in something I don’t know about?”
Seems like those were prescient comments as the majority of investors in Cryptocurrencies are under water. PT Barnum actually never said it, but truer words never been more a propos, "there is a sucker born every minute." Don't be a sucker. Stay away from Cryptocurrencies.
