Thoughts On Bitcoin And Cryptocurrencies

Summary

-Bitcoin and other crypto coins are way too volatile to be used on a large scale for transactions.

-Bitcoin and other crypto coins are not practical for businesses to use in everyday operations.

-Bitcoin does not fit the definition of a store of value.

In this article, I will be looking at various aspects of Bitcoin (COIN) and cryptocurrencies that show why they only have a small chance of being used for transactions on a large scale, are not practical for everyday business operations and are not a store of value. In addition, there is a new trend where companies are essentially securitizing illiquid items like loyalty/rewards programs. Before I get into those items, on a fun note, I had an interesting thought of what mining crypto coins reminded me of, and then it struck me, Bitcoin and other coins are like a social gaming coin that has moved from fantasy to reality/tradability.

Does this quote sound similar to mining a crypto coin?

"Coins can be earned by harvesting seeds, trees and animals, as well as being a reward for earning ribbons."
In fact, that quote is from the description from the FarmVille Coin Wiki. Essentially crypto coins are like a social gaming coin that can be traded. Mining crypto coins is just like earning social gaming coins in that you are rewarded for doing something.

Extreme Volatility

The definition of a currency is that it is a medium of exchange and for most mediums of exchange, the value has very little fluctuation day to day. Some will say but Bitcoin is a "store of value" like Gold, so I will include that in the data I will be examining. The following chart shows the daily volatility of the three largest coins over the last three months compared to the U.S. dollar (UUP), the euro (FXE), the yen (FXY), and gold (GLD). As you can see, all the coins are massively more volatile than any currency, and for those thinking Bitcoin is a store of value, it is nearly 11x more volatile than gold.