Bitcoin (BTC) is probably the most FOMO-inducing thing in the world. People have always regretted not doing something about it.
First they regretted not buying bitcoin at all.
Then they regretted not selling out at $16,000.
Now they regret not buying enough at $20,000.
What will investors regret about it next?
If you lay out predictions from the most credible investors, you’ll get a scale that goes from “rat poison squared” to millions of dollars. So guessing Bitcoin’s price, say, a year from now is no better than predicting the weather on January 7 next year.
But to have at least an opinion about where Bitcoin could go, we first have to answer ourselves what Bitcoin is and what we might weigh it up against.
After all, we can’t value it as a currency (or a medium of exchange). There is very little we can buy with it without the involvement of a fiat currency like the dollar.
It’s not an investment either. It doesn’t generate earnings, nor does it pay a dividend.
What Bitcoin actually is at this point—or at least is attempting to become—is a store of value. In other words, Bitcoin is not competing with paper money like the dollar or euro. It’s competing with “insurance” against paper money.
And that’s where its biggest potential lies.
Governments are protecting their currencies like mama bears
A decentralized currency is a lovely democratic idea. And you can discuss its merits against fiat currencies day and night. But the thing is: no government will let a decentralized currency take away its powers.
As legendary hedge fund manager Ray Dalio said: “If it [Bitcoin] becomes successful enough to compete and be threatening enough to currencies that governments control, the governments will outlaw it and make it too dangerous to use.”
You don’t have to look far back to see what governments are capable of.
Take gold, which has long been an alternative to paper money. After all, most major currencies were backed by it before the world wars. That meant you could walk into a bank and swap your dollars for physical gold based on a fixed exchange rate.
And yet, any time gold threatened to strip the government of its power to control money, lawmakers quickly stepped in.
A good example is the U.S. during the Great Depression.
In 1931, the nation was in the heat of the worst financial crisis in history. But unlike today, the Fed’s hands were mostly tied. It couldn’t print more dollars to prop up the economy because the currency was linked to gold.
So Franklin Roosevelt passed Executive Order 6102, later dubbed the “Great Confiscation.” In short, it forced Americans to turn in their gold and sell it to the government at well below market rates.
This allowed the Fed to print more dollars to support the economy and shore up the exchange rate. Later the dollar was re-pegged to gold at a ~50% higher price.
And the U.S. is not alone. In…