Jim’s Mailbox

Posted at 2:16 PM (CST) by & filed under Jim's Mailbox.

Dear Wolfgang,

Bitcoin and all it new brothers and sisters are Tulips and OTC South Sea companies. Do not knock. If you are a trader, there are trades to be made. That is until the musical chairs stop.

Jim

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Jim/Bill,

What is Bitcoin?

I’ve always believed it was an alternative currency.

It can be used to transact business, but is certainly not a storehouse of value or stability. It’s too volatile and has nothing backing it.

Slowly but surely, I’ve seen companies reversing (and yes, many are adopting) their position on accepting bitcoin as the volatility has become too extreme. Imagine accepting $150,000 in bitcoin payment for a Mercedes, only to find a short while later, it’s value dropped to $100,000.

Stability is its inherent flaw.

Which brings me to another point…..what is bitcoin referenced to?

Currencies are always referenced to each other. If money flows into one (increasing its value), it flows out of others (decreasing their value). Essentially, the Dollar’s value is based on its relationship to other currencies.

Commodities (hard, soft, and often real estate) are referenced to the Dollar, primarily because the Dollar is used to transact those commodities. If the Dollar drops in value, commodities rise in value, and vice versa.

Yet bitcoin has none of those relationships.

This leads me to believe it’s not a currency….it is not governed by fluctuations in global currencies in relation to each other. There is no referential connection.

It also leads me to believe it’s not a commodity….it’s price is not governed in any way by fluctuations in global currencies. Again, there is no direct relationship.

So, what it bitcoin?

Is it purely an ephemeral and totally virtual, object of speculation?

Is it simply an IOU, which certainly its M.O.?

Someone please enlighten me.

CIGA Wolfgang Rech