Journal of a Wayward Philosopher
Of Bitcoin, Bankers, and Tulip Bulbs
September 14, 2017
Hot Springs, VA
“At its core, bitcoin is a smart currency, designed by very forward-thinking engineers. It eliminates the need for banks, gets rid of credit card fees, currency exchange fees, money transfer fees, and reduces the need for lawyers in transitions… all good things.” – Peter Diamandis
The S&P closed yesterday’s trading session at $2,498. Gold closed at $1,326 per ounce. Crude Oil closed at $49.34 per barrel. The 10-year Treasury rate closed at 2.20%. Bitcoin is trading around $3,616 per BTC today.
“I just want you to know that I actually like my Bitcoin shirt!”, wife Rachel said to me after reading my last journal entry.
“Have you worn it in public yet?”
Keeping with our Bitcoin theme, the honourable Jamie Dimon – CEO of JP Morgan Chase – shared his thoughts at an event hosted by Barclays this week:
“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed… it will blow up.”
I chuckled at the news.
I suppose if anyone knows when something is about to blow up, it is Dimon. After all, his bank needed $25 billion in taxpayer bailout money to stay afloat during the 2008 financial crisis.
But comparing Bitcoin to a flower strikes me as incredibly stupid.
Obviously, he is referring to the 17th century tulip mania that led to tulip bulbs exploding in price. But tulip bulbs have exactly zero utility. They are not useful… for anything.
The Most Robust Network in History
Bitcoin, on the other hand, is the most robust network the world has ever seen.
Bitcoin is both a currency and a payment network wrapped in one. It is the dollar and PayPal combined. Except bitcoins are better than dollars… and the Bitcoin payment network is better than PayPal. Here’s why:
Bitcoins are incredibly scarce. Only 21 million will ever exist… and nearly 17 million of those are already here. By comparison, the Federal Reserve creates hundreds of billions of new dollars every single year… making them not so scarce.
You see, dear reader, that’s why one bitcoin is currently worth 3,600 dollars…
And the Bitcoin payment network is open, transparent, borderless, and censorship-resistant. Bitcoin transactions cannot be altered, frozen, or reversed. You have 100% control of your bitcoins at all times, and in all places.
By comparison, PayPal is a closed system within which the company has total control of your funds… including the ability to restrict or freeze your transactions.
Put it all together and you have something that is remarkably useful to people all over the world, from many different walks of life. You could never say that about tulip bulbs.
Value Is In the Eye of the Beholder
Basic economics tells us that an item must be relatively useful and relatively scarce to have value. The more useful… and the more scarce… the more valuable.
In other words, value is subjective. People assign value based on how much they want or need the item in question.
People assigned a lot of value to tulip bulbs in the 17th century… until they realized flowers were not terribly useful for anything.
In just the same way, people are assigning a lot of value to Bitcoin today. But I suspect they are underestimating just how scarce and useful it really is.
The CEO of JP Morgan says Bitcoin could go to zero. I think it is much more likely to go $7,000… by Christmas.
My advice is to buy more bitcoins while they are still cheap.
More to come,
P.S. My new Bitcoin course teaches you everything you need to know to buy, trade, and store bitcoins securely. So far, the course boasts a 4.9 rating from active users. You can get it here.