Bitcoin is booming, but it works as an investment only if you subscribe to the Theory of the Greater Fool

Bitcoin is too volatile and unsupported to be an accepted unit of account. It can be defined as a financial asset only if you are confident that someone will buy it from you at a higher price

Nevertheless, the bitcoin phenomenon has driven significant innovations in the financial system

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The price of bitcoin has soared to over US$50,000. Photo: Reuters

Published: 1:30am, 19 Feb 2021Updated: 2:08am, 19 Feb 2021

I closed my last column about the madness of the uninformed investment mob by holding back a rant about bitcoin. I thought I would have a go now that one bitcoin is worth over US$50,000, and many wish they had bought back in 2015 when it was around US$250.

Bitcoin is of its age, a phenomenon developed from the digitisation of everything we do. As with the digitisation of many aspects of our lives, there is much confusion about what “cyber assets” actually are – even by their greatest supporters.

It is easier to describe what bitcoin is not. It’s not a currency, as it is not backed by a central bank, which is backed by government. It is not money, as defined in economics as a medium of exchange, an accounting unit and a store of value.

It is true that Tesla has announced that you will soon be able to buy a car with bitcoin – in fact, you only need one bitcoin to buy one of their cheaper cars. It is true that you can buy bitcoin in isolated ATMs, and that JPMorgan and PayPal are looking to enter the cryptoasset market by enabling customers to use it on their platform. But they are not primary investors.

Bitcoin is too volatile and unsupported to be an accepted unit of account in terms of measuring value – why, when cash is so much easier? A Tesla might be worth a bitcoin today, or half a bitcoin tomorrow, or five bitcoin next Wednesday. Bitcoin increased fourfold in 2020. Tesla stock was up nearly eight times. Why not buy everything in Teslas? They depreciate too.

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