No. of Recommendations: 53
Some of the comments are making use of a bit of a false dichotomy.
The middle ground between "it's all a bubble of worthless number patterns" and "it's the new era of monetary structure" is not having a small investment allocation instead of a big one.
The middle ground is being willing to believe that it might well have a huge market value far into the future--but appreciating that there is still no reason to hold any.
There are three types of things into which one can put money and sorta expect to get it back: money, investments, and capital assets. Bitcoin (and other crypto) is a capital asset, not money (as demonstrated ad nauseam elsewhere) nor an investment (as it can never earn anything or support any future coupon).
A capital asset can have a very high market value, and that may be true very very far into the future. No-one would suggest otherwise. But the salient distinction between that and an investment is that a capital good like a Tahitian pearl does not produce earnings, so there is no "present value" part of the value: the value is 100% nothing but supply and demand, present and future. Again, there is nothing wrong with that, and nothing at all to suggest that demand won't still be there a millennium hence. It just isn't an investment security.
The issue here is the one little detail about price of a capital good being determined by--and SOLELY by--supply and demand. In a steady state, the market value will be flat. No matter how finite the supply, no matter how coveted the good, the market price will not rise without demand increasing relative to supply. The price of bitcoin has gone up a lot in recent years, because (and only because) there has been a substantial increase in the number of people willing and able to part with funds in order to hold crypto coins at any given price. Yet there is no reason whatsoever to suspect that that process can continue indefinitely--it will top out, because it must, because the world population is finite. When it tops out, as it must, the price will stop rising, as it also must. Again, nothing wrong with that. The market value of paintings by Camille Corot has largely flatlined in the last century, but they still fetch a hefty price.
The problem arises when you note that, when they're being honest, essentially 100% of all holders of bitcoin (or other coins) are holding them on the expectation of being able to sell at a higher price in future. They have mistakenly been thinking of them as investments. Yet per the reasoning above, that process will definitely stop. When it does, those people will be disappointed. After some unknown period of no net price change, it will be considered "dead money" and one assumes that a lot of people will want to invest in something else they think will go up...presumably prompting them to start to sell crypto at the margin rather than accumulate.
So, despite my being willing to grant that there will be a meaningful market value for bitcoin far into the future, and that the things described above might take decades to unfold, the simple observation that it's a purely capital asset leads you to realize, by the reasoning above, that demand WILL top out, and with it the price, which will almost certainly then start falling as its new long term trend. Since it's not an investment, there is no investment value (present value of future supportable distributions) to set any floor at all under the price. It could drift sideways, or it could trend to zero, but it definitely won't keep rising indefinitely. Consequently it seems to have a demonstrable natural price limit to the upside (when everyone who will ever want one has one), and no natural limit to the downside. The downside might be a little below the peak, or vastly below, but the up trend will end, and with it the only reason that all holders hold it. Then what?
So, the sensible middle ground conclusion is to believe it may well have a very high market value long into the future, but still not to bother playing the inevitable up-then-flat-then-probably-down price elevator. Not the conclusion that a small allocation is the middle ground between the extremes of fandom/abhorrence. I'm fully willing to stipulate that Corot paintings will hold their value an indefinitely long time into the future, but I don't need any at all in my portfolio, as there is no solid reason to think that any finite interval of an uptrend in price will continue.
Jim
