World renowned demographer and Hedgeye Sector Head Neil Howe is hosting a special call today at 10:00am ET to discuss the meteoric rise of Bitcoin. Wall Street has done an about-face on the digital currency, with several major exchange operators announcing plans to introduce Bitcoin trading services. But is all the hype justified?
- The Bitcoin boom. Bitcoin's price is exploding along a parabolic arc this year. Tech-enthusiasts have always contended that Bitcoin has game-changing potential—and now even casual punters think they're buying into the next early Amazon.
- No, it's not money. Bitcoin may be billed as the next global currency, but it doesn't fulfill either of the two historical requirements of legitimate money. It's worthless on its own. And governments abhor it (as soon as they start paying attention). Not a good combination.
- Unfit for transactions large and small. Bitcoin is a superb tool for conducting illicit commerce. Otherwise, Bitcoin as a means of exchange is mostly downside. It's ill-suited for large transactions (due to extreme volatility and the high risk of undetectable theft). And for small ones as well (due to negative economies of scale).
- Beware speculative herding. Bitcoin fans rave about rising transaction volume as a reason to go all in—even while they are the ones pushing the rise. This has all the logic of tulipmania. While Bitcoin indeed has a "hard core" of actual goods-and-service transactions, this mostly consists of criminal activity (at least $40 billion per year in dark web drug sales alone). This is a poor stepping stone to IMF reserve currency status.
- Don't bank on Millennials. The Millennial fascination with Bitcoin cuts two ways. Today's young adults like it its purported efficiency, impartiality, and "techiness." And yes, distributed ledger technology is here to stay. But this team-oriented and risk-averse generation will never commit in the long run to a new currency predicated on novelty, distrust, and secrecy.
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