Digital Currency

Friends, if you are into digital currency, we need to talk.

Currency. Money. A representation of value backed by goods and services. OK, so what is the world-wide total GDP right now? Roughly $81 trillion (nominal 2017 by worldmeters.info). What is the total value of all crypto currencies right now? Roughly $2.5 trillion.

What portion of those goods and services are exchanged using crypto currencies? Not much. Really not much.

So, let me get this straight. Crypto currencies (and currencies in general) are not a good or a service. They are presented as money which is a medium of exchange for goods and services. And, the value of them is already 1/32th of total world GDP. All the goods and services in the world. But, those goods and services are almost entirely exchanged without digital currency.

That's a bubble. That's speculation.

"But, Stephen. You don't understand."

I've seen this movie. Get out.

"Everyone says that..."

I've seen this movie. Get out.

What will the trigger be? As the value of all digital currencies approach world GDP, it will begin to occur to some that this isn't sustainable. There is no more room for up. So, why hold it? They will sell or begin to sell.

Speculators will anticipate this and will try to sell sooner. Other speculators will anticipate that and will try to sell even sooner. It works its way back to just a tickle in someone's mind, and then it is a mad rush for the door.

I've seen this movie. Get out. I cannot imagine that the relatively untested exchanges have the capacity for so much leaving at once. You'll be stuck and unable to escape.

That said, I am not against digital forms of currency that are actually used as a medium of exchange for real goods and services. At a certain price, Bitcoin and others are useful for that. I'm not anti-Bitcoin or anti-Ethereum. I greatly admire the distributed journal technology except that it uses a lot of energy. And, the exchanges are digital currency's Achilles heel.

After the crash, there will be a lot of talk about how digital currency is evil nasty bad, and that won't be true either. It has its place. Just because there was a tulip bubble doesn't mean tulips are bad things.

I've seen this movie. Get out.

The above is in my own words, but my opinions are not investment advice. I am not an investment advisor, planner, or broker. I have no credentials or certifications in this area. Full disclosure, I do own less than $1000 in Bitcoin and Bitcash that is currently tied up in a rehabilitation suit in Japan. I am not able to close that position at the current time. In any case, you're on your own.