President Donald Trump weighed in on bitcoin on Thursday, and let his feelings be known in characteristically clear terms:
I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity….
— Donald J. Trump (@realDonaldTrump) July 12, 2019
He went on to say how fabulous the US dollar is:
…and International. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!
— Donald J. Trump (@realDonaldTrump) July 12, 2019
President Trump is absolutely correct. Let’s quickly parse the three points that he made.
Bitcoin is Ridiculously Volatile
The volatility in bitcoin is unlike anything I’ve encountered in 25 years in the market, and I cannot think of any security in modern history that has been as volatile as bitcoin. The only tradable security that comes close is crude oil in its various forms.
Why does volatility matter? Volatility is equivalent to risk. The average annual return for bitcoin is 60%, with a 95% probability of ranging between -100% and +220%.
As far as crude oil goes, using the United States oil fund as a proxy, the ten-year average annual return is -11%, with a 95% probability of ranging between -68% and +46%.
As a means of comparison, the ten-year average and return of the S&P 500 is 15%, with a 95% probability of ranging between -10% and +40%.
The long-term average return for playing blackjack in a casino is -1%. You are better off playing in a casino and knowing you will lose 1% of your money than trading bitcoin.
Bitcoin’s Value Is Based on Thin Air
Bitcoin and other cryptocurrencies bulls claim that the valuation of any given item is made up out of thin air. That’s not true.
Certain assets like real estate can be developed and then turned into income-producing assets. Real estate may also have mineral and other natural resource rights that can be exploited.
Even investment commodities like baseball cards, which have no utilitarian use, still have aesthetic and collectible value.
This goes beyond subjective value. Bitcoin has no intrinsic use value. Its value is entirely determined on what a seller believes a buyer will pay, which in turn is based on what that buyer believes another seller will pay, and so on ad infinitum. It is therefore completely speculative and, as President Trump rightly points out, based on thin air.
Nothing Beats the US Dollar
For anyone who claims that the US dollar, as fiat currency, will collapse one day, and bitcoin will be the only tradable currency, think again. If the US dollar were to collapse, so would society.
At that point, utilities will shut down, which means no access to the Internet. Not only that, rocks are going to be more valuable than bitcoin, to fight off the people who are trying to kill you – and take your food and shelter. Throwing bitcoins at them will be as useful as playing games with Chuck E. Cheese coins.
Finally, why do so many illegal transactions use bitcoin? Because President Donald Trump is right. Transactions are more difficult to trace.
A Troubling Tweet for Bitcoin Bulls
But there’s one last tweet that should concern bitcoin and other cryptocurrency bulls:
….Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National…
— Donald J. Trump (@realDonaldTrump) July 12, 2019
President Donald Trump may be making a veiled threat towards Facebook, for its obvious censorship of conservatives, that the federal government will force cryptocurrencies to be regulated by banking laws.
If that happens, bitcoin is going to zero.
Don’t be a sucker. At least try and trade like a whale.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.
