Bitcoin: Going from Speculative Investment to Currency Equivalent

Screen Shot 2017-12-03 at 1.05.02 PMAs markets wake up to the fact that bitcoin is a legitimate currency, there will be a mad dash to acquire some.  However, when bitcoin is rising at the rate of 750%  per year it is seen as a strong speculative investment, not just as a currency. The amount of dollars held in investments is something close to $25 trillion depending on what you want to call an investment and what asset classes you include in the evaluation. Let’s just consider the cash equivalents.

People will want to hold what they need in bitcoin as cash, and, what they want to hold in bitcoin as an investment.  Later on, when it reaches its natural value and behaves more like a currency in relation to other currencies, people will be comfortable holding just enough cash to satisfy their liquidity needs.  We’re not there yet.  Instead, you can expect the amount of bitcoin people hold will be equal to the amount of cash they currently have in fiat currency PLUS an investment amount.

If you had a very, very good investment idea, one so good that there was barely any risk at all, and the reward was phenomenal, would you invest between 25% and 40% of your portfolio?  Let’s be conservative and call bitcoin a good investment but not phenomenal.  Then, you might expect a 10% – 20% investment.  If bitcoin rises to that level of speculation and that amount is invested then a bitcoin would reach $225,903. = ($25T x 20%)/ 16,600,000 bitcoins. There would be some overlap between the money you considered an investment and the money you considered cash.

Bitcoin will run up in value to $225,903. as an investment.  It will then transition to cash from speculative investment.  At that point, bitcoin values will go to $301,204.  We are witnessing the run up to $225,903 as people speculate on a good thing and bitcoin becomes fully invested.  As more and more people have more and more bitcoin and the value stops going higher, it will slow.  Before it stops altogether, however, it will transition to being just another currency which that we won’t pay attention to.  Bitcoin will go up to $301,204 as people throughout the world hold an average somewhere between $666 (cash equivalent) and $961 (gold equivalent) in bitcoin.

171008 What’s Going On? ($4,560)

From a low of $3072 after the double slap from the Chinese government banning ICO’s and Jamie Dimon’s calling bitcoin a fraud, bitcoin has been rising steadily since Friday afternoon, September 15.  For almost a week bitcoin’s price was hovering between $4,300 and $4,400 but last night around 7 PM EST, the price starting climbing again.  This morning bitcoin reached $4,500 and now sits at $4,560.  That’s practically a 50% rise in price in 25 days.  So, what’s going on?

Bitcoin commerce, that is, commercial payments for goods and services made with bitcoin, is still in its infancy.  Most bitcoin transactions are probably made by speculators wishing to acquire bitcoin for its price appreciation potential rather than using it to purchase stuff.  The price appreciation then is speculation, pure and simple.

The biggest driving force is Asia where bitcoin reached today’s U.S. $4,500 level in Korea in May.  Japanese prices tend to be even higher.  I haven’t heard from the Chinese yet but the fact that they are now going to issue cryptocurrency guidelines rather than outlaw it is very optimistic news.  What happens from this point on is new territory.