Bitcoin has captivated investors, technologists, and dreamers since its creation. As a decentralized digital asset, it promises innovation and potential financial gains—but is it truly a currency, or is it more akin to a collectible? To explore this question, let's break down Bitcoin's characteristics.
Is Bitcoin a Collectible?
Collectibles are items with intrinsic value that appeal to individuals on cultural, emotional, or speculative grounds. When we apply this lens to Bitcoin, it checks many of the boxes:
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Intrinsic Value X
Bitcoin’s value lies largely in the eyes of its holders. Similar to a rare Van Gogh painting or an antique, its worth depends on what someone else is willing to pay. -
Limited Supply ✓
Bitcoin is capped at 21 million coins, making it a rarity in digital form. Like a rare coin or a classic Ferrari, its scarcity fuels its allure. -
Emotional or Cultural Appeal ✓
Bitcoin inspires fervor and loyalty from its enthusiasts. This passion often mirrors the attachment collectors feel for their treasured items. -
Used as a Medium of Exchange ✓
Collectibles typically aren't used for day-to-day transactions. While Bitcoin can serve as a medium of exchange online, it isn’t universally accepted. -
Market Driven by Speculation ✓
The value of collectibles often fluctuates with market sentiment, and Bitcoin’s dramatic price swings echo this characteristic.
Score: 4 out of 5 characteristics match a collectible.
Is Bitcoin a Currency?
Currencies facilitate trade, serve as a store of value, and provide a stable unit of account. Bitcoin falls short in key areas when measured as a currency:
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Medium of Exchange ✓
Bitcoin can be used to buy goods and services in certain online and niche markets, satisfying one essential feature of a currency. -
Store of Value X
Currencies are expected to hold stable value over time. Bitcoin's 50% annual fluctuations make it unreliable as a dependable store of value. -
Unit of Account X
Pricing goods or services consistently requires a stable currency. Bitcoin’s volatility prevents it from serving as a universal unit of account. -
Fungibility ✓
One Bitcoin is identical to another, meeting the fungibility requirement of a currency. -
Legal Recognition X
Unlike legal tender, Bitcoin is not recognized as an official currency by most governments. The likelihood of the U.S. or other major nations adopting Bitcoin as legal tender is extremely low.
Score: 2 out of 5 characteristics match a currency.
The Central Issue: Why Bitcoin Won’t Be a Currency
The most significant barrier to Bitcoin becoming a currency is governmental control. No major economy would relinquish authority over its monetary system to an asset they cannot regulate. The history of the U.S. abandoning the gold standard in 1971 underscores this point: the scale of modern economies far exceeds the resources of physical reserves.
To put this into perspective:
- The U.S. economy ($30 trillion) dwarfs the global gold supply ($18 trillion).
- At $100,000 per Bitcoin, its market cap is $2 trillion.
- Even at $1,000,000 per Bitcoin, its $21 trillion valuation represents just two-thirds of the U.S. economy and a fraction of global output ($110 trillion).
Governments prioritize stability and control, making Bitcoin’s decentralized nature incompatible with the structure of fiat currencies.
So, Should You Invest in Bitcoin?
The answer depends on your investment philosophy:
- If you appreciate collectibles, allocating a small portion of your portfolio to Bitcoin could align with your interests.
- If you prefer investments backed by assets, revenue, or earnings, Bitcoin may not meet your criteria.
Bitcoin straddles the line between currency and collectible, but its speculative nature and lack of widespread currency functionality make it more akin to the latter.
Conclusion
Bitcoin offers a potentially non-correlated asset for investors with a higher level of risk tolerance, and one that should be treated with realistic expectations. The price of the asset is priced where the market places it. It’s not based upon fundamentals. The currency aspect of the decision should be measured as well. The traditional investment language, such as fundamentals, earnings and dividends should be suspended while looking at this space. However, for investors looking to expand their conventional investment footprint, Bitcoin and other crypto assets are worth an exploration into this new frontier.
Thank you for reading. If you have further questions, feel free to reach out to us at Samalin Wealth—we’re here to guide you through today’s complex financial landscape.
