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What does Bitcoin’s surge reveal?

If you went to the store two days in a row and all the prices had gone down by 20 percent on the second day, would you wonder what was going on?

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6 years ago  

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What if prices jumped 10 percent one day, then fell seven percent the next? What if, over the course of a year, prices skyrocketed by 400 percent?

This is what the world is like for those who view Bitcoin as currency.

Last week, the price of Bitcoin shot up almost 20 percent in one day. Crypto aficionados envisioned the start of a new bull market.

Think about that.

A new “bull market” in a currency that’s not driven by comparing it to other currencies — or by looking at the productive capacity of a nation or even the amount of the currency outstanding.

This is about people buying units for…what?

The fact that the value of something labeled a “currency” can fluctuate by not one percent, or even two percent but 20 percent in a single day should scare off anyone who is interested in their currency holding value over time.

If people want to “invest” in bitcoin, which is nothing more than gambling by hoping one day someone will pay you more for it since it has no intrinsic value, that’s great — as long as they limit it to no more than they can afford to lose.

What can go up can just as fast go down

The one-day jump was driven by a single order to buy 20,000 bitcoin split across three exchanges: Coinbase, Kraken, and Bitstamp.

Coinbase bitcoin
Coinbase is one of the exchanges where investors can trade Bitcoin. (Photo by Useacoin via Shutterstock)

Think about it: one order for 20,000 units drove up the price by 20 percent. That’s not how currencies operate. Functioning currencies are storehouses of value that are mediums of exchange divisible into small, useable units.

Bitcoin fails on two out of three.

It’s not a storehouse of value if it fluctuates wildly, and it’s not a medium of exchange since it’s hardly used in commerce. That leaves being divisible into small units. As a digital asset, this one fits the bill. But unlike the Meatloaf song “Two Out of Three Ain’t Bad,” in this instance, two out of three is terrible.

I have no idea whether bitcoin is going up or down from here, but I know one place it won’t go: my digital wallet.

(Featured image by Alexander Kirch via Shutterstock)

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DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

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Rodney works closely with Harry Dent at Economy and Markets to study the purchasing power of people as they move through predictable stages of life, how that purchasing power drives our economy and how readers can use this information to invest successfully in the markets. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs and is featured on television where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He too is a regular guest on Fox Business’s “America’s Nightly Scorecard.” Rodney’s book, Irrational Economics, explains the forces that you cannot see but that really drive the economy and markets and can cause your wealth to rise or fall. To survive and prosper, you need the new money rules of the 21st century, which he outlines in this book. He holds degrees from Georgetown University and Southern Methodist University.

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