Bitcoin: What Is It Good For?

It was just two days ago, that we wrote about last week’s slide in the silver price from around $24, to around $22.50. Well, yesterday and today the price ascended back to around $24.

The question is whether silver is now just as scarce as it was, scarcer, or more abundant? Read on…

But First, Bitcoin

First, we want to touch on what has been happening in the world of bitcoin. We will even break our preference to criticize it only when it’s skyrocketing (the basis of most criticism of bitcoin—or gold and silver—is when the price drops).

Within a period of about 17 hours, bitcoin dropped about $1,500. Prior to that it was skyrocketing. It had been on quite a tear, just about doubling from its low on September 7.

Just imagine if your mortgage doubled! You’re going along, paying about $1,500 a month in September. And boom, before Christmas, you’re now paying $2,900. Could you stay in your home? We can’t answer that without knowing more about your financial situation. However, if it’s not a mortgage on a house, but instead a loan to finance growth of your business, then we are quite confident. Virtually all businesses would default. Few make such a high return on capital that they could survive a doubling of their monthly payment.

Bad for Borrowers

Bitcoin is unsuitable to borrowing, other than to finance a bitcoin “mining” system (an amusing term). If you finance anything from hamburgers to a real mine such as gold or copper, forget about borrowing bitcoin. This is not a hidden flaw. Nor is it something we say to promote gold. This is precisely what bitcoin proponents promise you will happen. The very same people who tell you it’s money openly admit it has a property that makes it suicide to borrow.

That same property, which makes it unsuited to debtors—i.e. bad to have on the liability side of the balance sheet—is attractive on the asset side. So people buy it because it’s going up. And some people did buy it, that fateful minute 1,155 minutes ago. They paid $19,845. Then just 1,035 short minutes later, they sold it for $18,356. A loss of $1,489, or 7.5%.

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