The Bitcoin Valuation Delusion – Bitcoin USD (Cryptocurrency:BTC-USD)

The case for Bitcoin having no value at all

If you’ve read anything I’ve written so far, you know that I’m long Bitcoin (BTC-USD). However, that doesn’t mean I’ve turned a blind eye to the crowd that says it’s all an illusion, that Bitcoin is intrinsically worthless.

Let’s take a look at who is making these arguments, and what they’re saying.

Jamie Dimon – J.P. Morgan Chase CEO

In September of 2017, Jamie Dimon said:

It’s worse than tulips bulbs, it won’t end well.

And:

There will be no real non controlled currency in the world. There’s no government that’s going to put up with it for long.

So, if I understand correctly, Mr. Dimon’s argument is that every government in the world will soon block all cryptocurrencies. Therefore, Bitcoin is doomed.

Warren Buffet and Charlie Munger of Berkshire Hathaway

In May, 2018, Warren Buffet said that Bitcoin was:

probably rat poison squared.

And Charlie Munger said:

To me, it’s just dementia. It’s like somebody else is trading turds and you decide you can’t be left out.

If I understand correctly, Mr. Buffet believes that Bitcoin is super tasty but very poisonous, like a Big Mac times itself, and Charlie Munger is trying to say that the Bitcoin market is pure FOMO, or the Fear of Missing Out. Therefore, Bitcoin is doomed.

Putting these ideas to the test

I hope you are a data driven person like me. I believe there’s no better way to have a clear understanding when people’s tempers are raging than to just look at data and slowly and carefully think about what makes sense.

Let’s start with Jamie Dimon’s argument that all governments in the world will ban Bitcoin. How does this argument stack up? Let’s look at what’s going on in the three largest economies in the world.

All governments to ban Bitcoin?

While China has placed a temporary ban on Bitcoin exchanges and ICOs, China’s state TV recently said that blockchain could be ten times more valuable that the internet. While it may seem that China is falling in line with Mr. Dimon’s prediction, it’s worth noting that when the latest ban went into effect, business didn’t stop, it just moved to places with a more friendly regulatory environment, such as Switzerland, Japan and South Korea. In Japan, eleven Bitcoin exchanges are recognized by the FSA, and Bitcoin is legal tender. This would seem to be at odds with the idea that every government in the world is going to ban Bitcoin. In the United States, the largest Bitcoin exchange, Coinbase, is backed by ICE, the parent company of the New York Stock Exchange and the Federal reserve has said that they welcome anonymous cryptocurrencies. Bitcoin is classified as a digital asset and exchanges are regulated and must follow KYC and AML. While Bitcoin is not classified as a currency in the US, it certainly isn’t illegal. Saying that the government is going to completely ban Bitcoin is pure speculation, and I hardly think that ICE or the Federal reserve share Mr. Dimon’s opinion. Did you know that ICE is even building its own Bitcoin exchange?

When governments move too quickly to ban new technology, the country they represent ends up getting left behind. Coinbase for example, has 20 million users and has traded over 150 billion dollars of cryptocurrencies to date. This kind of economic activity is creating jobs and driving innovation.

Will governments regulate cryptocurrency exchanges? Of course, and they already are.

Will every government in the world ban cryptocurrency outright? I’m not convinced it’s going to happen, especially with what we’re seeing in the US and Japan so far.

Final thoughts on J.P. Morgan

Mr. Dimon’s comments would make more sense if they were, I don’t know, maybe trying to patent Bitcoin’s technology and make their own version. But, that would be kind of unethical, don’t you think? I guess it’s not really surprising since J.P. Morgan (JPM) has been fined more than 29 billion dollars for abusing the market since the year 2000. But, Bitcoin is the fraud?

Bitcoin value is based on nothing but FOMO?

I think people forget that Bitcoin is not some magical beast that lives in isolation. It’s a network with many stakeholders and it represents something different to each group. Bitcoin has created an ecosystem that includes Bitcoin Miners, Software Engineers, Exchanges, Cloud infrastructure like Blockchian as a Service, Merchants, Users, and of course, the speculators and the scammers.

Let’s look at some data.

FOMO or subject of scholarly research?

If Bitcoin was just FOMO, then surely academic interest in the subject would be small, and certainly not growing over time. What’s the big deal after all?

Year Number of Scholarly Articles Mentioning “Bitcoin” 2012 1,040 2013 2,030 2014 4,080 2015 4,640 2016 5,860 2017 9,990

Data Source: Google Scholar

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