The case for Bitcoin

If people are willing to pay for a product, try to accumulate as much as possible and than sell it to the highest bidder.  Simple as that !

To add to your confidence in Bitcoin, once financial institutions like the Chicago Mercantile Exchange created a future contract on Bitcoin, you know the pros are in.  

I know many of my Quant colleagues in the fintech world are deeply involved and created many products to support the crypto industry, so that's real. 

Institutional players are pouring money into Bitcoin, and build positions for the long run not just as a quick trade, which can give you a lot of confidence.  

Do I need to add anything?  

Full disclosure, my company is entering into the cryptocurrency market with lots of enthusiasm 

The Case against Bitcoin

Before you disagree with me, please read it in its entirely.

The Bitcoiners pushing Bitcoin are telling us to line up, join the bitcoin rush, our modern day Gold rush, and buy Bitcoin for the following reasons.

It’s another asset /Financial product/Currency such as the Dollar, Gold, Note, Stock  etc,

Unlike the above, it's based on new technology which eventually the world will move towards, and more importantly, it has limited supply, so as the demand grows the price will skyrocket and the profit will be huge.

It's uncentralized: no one entity owns Bitcoin.

It's very secure unlike regular currency.

The world will eventually move towards the blockchain technology and crypto currencies, so you better jump on the train.

Did I miss anything?

Now here is my case against spending your hard earned money on Bitcoin: In terms of investment, it performs no better than other asset classes, and the fact that it can't function as a standard currency or a commodity leaves it with little in the way of real value.

There is great PR for Bitcoin mainly by bitcoin holders and players who have vest interest in convincing you about the long term benefit of owning Bitcoin. But let's analyze the market and see what would've happened if we would've invested the same amount in a different currency or even another asset class.

So let’s break it down.  

1.     On July 2020, when Bitcoin (BTCUSD) was around $10K, all the Bitcoiners urged us to buy it at a bargain. At the same time, the British Pound (GBPUSD) was around 1.26. So suppose I got $100K in cash to invest and I focus on these two options.  $100K would buy me 10 BTCUSD, and the same $100K would buy me $4M GBPUSD (Industry standard x40 leverage). Now let’s turn to the end of the year, Dec 31 2020. The Bitcoin vs the US Dollar (BTCUSD) was around $30K, so it would've generated 200% profit on our $100K, with a net of $200K Profit. Very impressive. 

      Now let’s move to the British Pound vs the US Dollar (GBPUSD). On Dec 31 2020, it reached above 1.36, standing one thousand pips (points) from our entry. On our $4M position, it amounts to a total net profit of $400K (1000x$400 per pip), which is 400% return on investment, 200% more than the same investment in Bitcoin. 

      Did you know that? No? lack of PR, I guess. 

2.     Let's try another date and add an asset. As you can see below, several asset classes took a dive in March 2020. Assuming we bought on the dips and held until Dec 31 2020, let's compare the ROI in the following assets, BTCUSD - GBPUSD - YM aka Mini Dow Futures, which reflects the moves in the Dow Jones. The results are SHOCKING to say the least, as you can see below. 

So let's choose end of March 2020, when all three of them took a deep dive. Bitcoin vs the US Dollar was around $6,000 per one Bitcoin. The British Pound vs the Dollar was around 1.16, and the Dow Futures was around 20,000 Points. Now let’s take our $100K initial investment and compare the returns.

$100K cash investment in Bitcoin on March 2020, when the price was at $6,000, would yield on Dec 31 2020, when it reached $30,000, a net profit of 400K, or 400% ROI

$100K Cash Investment ($4M with leverage) in the British Pound during the same period, when it went from 1.16 to 1.36, would yield a net profit of $800K, or 800% ROI

$100K Cash Investment in the YM/Mini Dow (minimum of 10 contracts based on market price/margin), from 20,000 to 30,500, nets 10,500 points x 10 contracts x $5 per Point, yielding a net profit of $525K, or 525% ROI

As is apparent from the data, the alternative assets yielded much higher return than Bitcoin. NUMBERS DON'T LIE!

3.     In addition to the above, I also believe that Bitcoin will eventually reach a dead end for the very reason that the Bitcoiner is advocating for its success: limited supply. 

      Although at the moment, the fact that there is high demand and limited supply causes the price to rise, eventually the price will tank or stay flat, and it will lose its competitiveness and sexiness. Unlike the Dollar and other currencies, whose supply changes to add liquidity to the monetary system when an economic stimulus is needed, Bitcoin, due to its limited supply, can't play the same role, eventually reaching a dead end when it's supply is exhausted. 

      Also, unlike Gold, which is a commodity that has other uses for machinery, jewelry, consumer product, etc., Bitcoin has none of that, possessing no intrinsic value, which is why, in my opinion, it will eventually be worthless. 

      Therefore, it can function neither as a currency nor a commodity. 

      Cryptocurrencies will only have a future if governments will develop their own currencies based on the blockchain technology, affording them the means to perform the above stated role, to help the economy, by controlling the supply and demand.

  BTCUSD

           GBPUSD

         

         YM DOW FUTURES