Where Bitcoin is at the moment
After a bold 17% rally today (5/24/2021) BTC is now (only) roughly -35% from two weeks ago. While prominent figures are verbally coming to BTC rescue, it’s good to take a moment and reflect.
Hard to resist
Do you remember the last time you were walking down the store and suddenly wanted something so badly that you had to buy it immediately? People buy things for lots of reasons. Not only because it makes sense. Not always in the cold mind.
Investment decisions are often driven by this kind of passion. As if some circuit in our brain burnt and led to sudden energy discharge. This “circuit” is broken by instincts we have encoded in our brain way before we were even mammals.
Our cold-blooded friends from dinosaur era, the crocodiles, can lay low long hours and suddenly get activated by the pray just passing by. The sharks, that came around 200 million years before the dinosaurs, have already shown the same instincts. Go slowly and react swiftly. When the opportunity is around, attack, don’t hesitate. We all are wired the same way.
The sudden moves of prices, like in the case of bitcoin, resemble this passing-by opportunity. We want to snap it right away. When we add the galloping imagination and information reinforcements from people around us, it’s easy to lose the fuse. Instant discharge and bum – we are holding a shiny piece of bitcoin in our virtual pocket.
Bitcoin is controversial investment
Bitcoin is controversial. Investment in bitcoin is a big move. If you have large reputation at stake and you’re coming out with BTC possession, you suddenly have much more to lose than just the investment. Now it’s about your image.
Suddenly attack on bitcoin is attack on you. You may be right in your conviction, but are you still objective? Can your assessment still be trusted? This is one of the reasons why I’m not overly excited by prominent figures coming out and touting bitcoin they already have. Even if I normally value their judgement highly. The bitcoin environment is of too high emotions involved.
Bitcoin vs Argentinian Bonds
Why would I prefer Argentinian bonds over Bitcoin? There are several reasons. Argentina is not renowned for it’s trustworthiness when it comes to paying debts (to say it mildly). So do I completely trust they will buy their bonds back this time? No! I’ll tell you more, I don’t completely trust far more reputable governments.
Argentina is actually pretty likely to default again, so you may get 20% annual yield on their bonds (Reuters). Still, with this high default risk, there is someone there who gives me a promise to pay me back. And they have something to lose if they don’t. What about bitcoin? Not only there is no one like that. In the end I could easily be the only loser.
There is economic activity behind Argentinian debt. People of Argentina (and any other country for that matter) do their business and produce some added value. Part of those “crops” pays the debts. There is a surplus. With Bitcoin on the other hand, I don’t know if there is any surplus or any activity that actually backs it’s value.
With Argentina, I can keep hand on pulse. I can watch the situation, maybe a popular candidate wants to pretend the debts are not there? If I feel the risk went up, I can sell the bonds to someone else who wants to take that higher risk. Maybe I lose a bit, but I won’t lose it all. With Bitcoin? There is nothing I can watch for. Nothing will tell how this behaves tomorrow. It can be 15% down next day easily.
And then there is the cost aspect. Bitcoin uses more electricity then the whole of Argentina generates (Bloomberg). With that I can hardly believe the long-run economic efficiency works in favor of BTC. It can be sustained for some time. Many schemes with no economic anchor whatsoever have been around for decades (take Madoff’s pyramid scheme). They can last for some time but sooner or later they fall.
The only reason for buying BTC I can think of (apart from religious-like excitement) is because it’s price some time ago was lower than it is now. The problem with this argument is that it’s purely situational and very fragile. Normally buying something because it’s price went up is the perfect description of the reckless investor.
