bitcoin

A Few Bytes on Bitcoin

-9%, 0%, 4%, 3%, 6%. Those are the last 5 days of returns for Bitcoin. Just for some perspective the largest one day move for the USD in the last 3 years is… 1.6%.

While people are excited Bitcoin is back to around $20,000… it means the Bitcoin has earned 0% in returns over the last 3 years since the last peak. Bitcoin may have some value more than $0, but the market seems to have no idea what it is.

Just to show you how poorly Bitcoin fares as a “currency,” below is a graph of the actual Euro to Dollar exchange rate over the last 3 years. I then took the value of the Euro on the first day and applied Bitcoin’s returns over the last 3 years to show you what the Euro/$ exchange rate would be over that time if it was as volatile as Bitcoin.

I’m pretty sure that no one would what to experience that exchange rate volatility.

By Christopher Schwarz, ago

Bitcoin is NOT an Investment

Bitcoin has staged a huge rally this year. I’ve discussed a few times how Bitcoin does NOT meet ANY of the three criteria for a currency. (And I’m still waiting for someone to tell me something I need Bitcoin for… that is legal.)

There is no fundamental reason for the rally. In fact, it’s clear at this point that Bitcoin is not an investment, but just a trading tool – a true casino game.

In the figure below, I graph the percentage of all Bitcoins that trade each day (light blue light, left axis). Currently 20% of all Bitcoins trade EVERY DAY. In other words, the average Bitcoin is held…. 1 week. This transformation to a pure speculative game has occurred during the price rise this year (dark blue, right axis.)

As a comparison, I also chart the percentage of shares outstanding that trade each day for 5 popular stocks. As you can see, these stocks trade orders of magnitude lower than Bitcoin. In fact, the average share of Coke is held 1 year.

Bottom line: If you want to gamble, buy Bitcoin. If you want to invest, look elsewhere.

By Christopher Schwarz, ago