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What Does Bitcoin’s Surge Reveal?

Bitcoin is a volatile digital asset, but don't call it a functioning currency.
  • 2 min Read

By Rodney Johnson

Rodney studies 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 is a regular guest on Fox Business’s “America’s Nightly Scorecard.” Rodney’s brand new book, Irrational Economics (2014), 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. Get your copy here. He holds degrees from Georgetown University and Southern Methodist University.
Rodney studies 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 is a regular guest on Fox Business’s “America’s Nightly Scorecard.” Rodney’s brand new book, Irrational Economics (2014), 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. Get your copy here. He holds degrees from Georgetown University and Southern Methodist University.

Image: Mohamed Hassan, Pixabay

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

What if prices jumped 10% one day, then fell 7% the next?

What if, over the course of a year, prices skyrocketed by 400%?

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

Last week the price of Bitcoin shot up almost 20% 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 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 1%, or even 2%… but 20% 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.

Think about it: One order for 20,000 units drove up the price by 20%.

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.

Rodney Johnson

  • More in Crypto Continued

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