The Peter Lynch Investor » Newsletter » What’s going on with Bitcoin?
Bitcoin and gold price for 1 year.

What’s going on with Bitcoin?

It’s November 2022 and Bitcoin investors are suffering. One year ago Bitcoin traded at $67,616.02 USD. Today it trades at $15,742.44. The skepticism around Bitcoin as digital gold is difficult to ignore.

Skepticism of Bitcoin as digital gold isn’t anything new. Famous investors like Charlie Munger, Warren Buffett, and Nassim Nicholas Taleb have been warning investors to stay away from Bitcoin for years. Their argument is that Bitcoin has no intrinsic value. 

In fact, Warren Buffett uses the same argument he has of Bitcoin as he does with actual gold. Buffett says,

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

Warren Buffett

Like gold, Bitcoin has no utility. 

An argument Bitcoin evangelists make is that it acts as a hedge against inflation. Looking at the last year where inflation rates surpassed 8% in the US, the price of Bitcoin has cratered. Even gold which is often thought of as the “go to” asset to guard against inflation hasn’t performed that badly. 

If it can’t be used as a hedge against inflation then what can it be used for? You can’t buy anything with it. I can’t purchase gas for my car with it. It can’t be used for anything. Well,  almost anything… 

The one thing that Bitcoin is good for is speculation. We’ve all heard stories of regular people who invested in crypto currencies like Bitcoin that got rich. Personally, I know one guy who invested in Bitcoin at $60. I also know the guy who created what’s now known as Ripple. It’s these stories that inspire regular people to put their cash into crypto. 

Learn from history.

During the gold rush’s of the late 19th century the only people who got rich besides the first few miners were the ones selling pans and shovels to the mass of gold speculators who followed. In the 21st century, it’s crypto exchanges like Kraken or Binance that are getting rich off crypto speculators. The only difference is they’re not selling pans and shovels. 

Left behind are the people who can’t sell their Bitcoin once the price collapses. Or worse, they made money trading Bitcoin but it is now gone because it was on the FTX exchange. Do I believe this will never happen again? That people will learn that speculation is foolish? Unfortunately history suggests it will again.