Diamonds Don't Just Have To Be A Girl's Best Friend

I fully get that many savers are looking for an alternative to stocks and bonds, which seem terribly over-valued. There are almost $16 trillion of negative-yielding bonds in the world. Despite the rise in the US 10-year bond, the yield is below the current rate of inflation. What appears to be a mostly liquidity-driven rally has lifted equity valuations to historical extremes, including what are regarded as zombie companies.  

Many think that crypto can fulfill that purpose, though I am skeptical. Bitcoin and much of the crypto space is not based on anything and is the ultimate private fiat. It is a speculative vehicle, and the fact that it draws some institutional investors or even some companies does not change this fact. Bitcoin has no earnings stream that can be modeled. It has no break-up or replacement cost. There is no intrinsic value. They have no use-value the way economists understand it. Bitcoin ownership seems to reflect the disparities of wealth and power in our society. A recent article in the Financial Times cited research that concluded that 2.8% of IP addresses account for 95% of the supply. Nearly 2/3 of Bitcoin supply has not changed hands (IP addresses) in the past year, and 44% of the supply is thought to be dormant since September 2018. Nearly a third of Bitcoin supply has been in the same electronic wallet for at least three years. Hold on for dear life (HODL), indeed. 

Bitcoins and cryptocurrencies are only currencies because they say they are. They do not fulfill the economists' definition of money: a means of exchange, a store of value, and a unit of account. The rapid appreciation says nothing about its moneyness or store of value. The first issue of Action Comics that featured Superman sold for 10 cents in 1938, which would be the equivalent of $2 in 2019. The Comic Buyer Guide estimated that only 50-100 original copies still exist. One with a rating of 9.0 was sold for $3.2 mln in 2014, and one with a rating of 8.0 sold for a little more than $2 mln in 2018. Yet, despite the scarcity and price appreciation, no one will confuse a comic for money. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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