The critical flaws in one Bitcoin bull argument

The critical flaws in one Bitcoin bull argument

The critical flaws in one Bitcoin bull argument As the seemingly unstoppable mania for Bitcoin drives it to new heights, there has been significant cross-talk among financial and technology experts concerning how much further it could go. One reasoned argument supports the case for an additional doubling in value — but it ignores two realities of cryptocurrencies.

Because of technical advantages from blockchain technology, such as reducing transaction costs and settlement times while protecting people’s privacy, proponents say Bitcoin can potentially become a major player in global commerce. And since only 21 million bitcoins will ever be issued, the argument goes, the currency can’t be fundamentally debased.

“The global money supply as measured by M2 was at US$79.5 trillion in 2016, according to the CIA World Factbook,” said Wall Street Journal contributor Aaron Back. “If 1% of that supply were held in bitcoin, dividing that by 21 million units implies a value of around US$38,000 per coin, up from around $18,500 currently.”

But Back noted that the current iteration of bitcoin does not actually prevent delays. Because of limits to the number of transactions that the bitcoin network can process each second, there are still delays in settlement times and high transaction costs; as of Monday, the average cost per transaction was reportedly US$28.

Another issue is the fact that unlike Bitcoin, rival cryptocurrencies don’t have a cap on their total supply. According to Back, some competing currencies, such as Bitcoin Cash and litecoin, are already taking share. In the same way, banks and other financial institutions are working on ways to tap blockchain technology’s potential without being tied to cryptocurrencies.

“Bets on individual cryptocurrencies, particularly an early and flawed one, are still quite speculative and risky,” Back said. “Bitcoin investors need to keep that in mind as we head into 2018.”


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