Bitcoin As a Means of Exchange

The original purpose of Bitcoin was as a means of exchange. Its peer-to-peer decentralized blockchain network was meant to be an alternative to traditional currencies that functioned outside of standard financial networks and free from governmental authority. Despite its asset to the lofty realms of speculative assets there are valid reasons to use Bitcoin as a means of exchange with decentralized finance and assets like NFTs. Thus, there are valid reasons to stay in Bitcoin even as the value versus the dollar goes down.

Bitcoin As a Store of Value

An oft-repeated argument for buying and holding Bitcoin and other cryptocurrencies is that they are stores of value. Bitcoin has a built in limit to how many will ever exist. Thus, unlike how the Federal Reserve can simply print money like they did during the Financial Crisis and Covid Crash in order to keep the economy afloat the vast majority of all Bitcoin has already been minted. As such, the argument goes, Bitcoin is a store of value and will hold that value when the dollar falls, stand up against inflation, and remain strong when markets crash. Unfortunately, Bitcoin has fallen along with the stock market during the current crash. From its November 2021 high Bitcoin is down 57.5% as of mid-May 2022. Staying in Bitcoin because it is a store of value would appear to be a mistake and a really bad idea.

Future of Digital Currencies

The blockchain has a future of its own apart from being the backbone for cryptocurrencies. Digital currencies have a future as well and that future may not depend at all on cryptocurrencies like Bitcoin. The US will have a digital currency and is currently sorting out how to set it up and how to regulate cryptocurrencies so that governmental agencies are not tripping over one another in their efforts to collect taxes on crypto capital gains, track down illegal funds held and transferred as crypto, and oversee fair trading of Bitcoin and others, protect investors from pump and dump schemes and scams. Regulation will likely solidify the position of Bitcoin and others as digital currencies but will probably reduce their usefulness as speculative assets.

Buy, Sell, or Hold Bitcoin

On the speculative and investing side of Bitcoin, is now the time to buy more because the price is down? Is it time to sell and get out before the long-predicted collapse like with the tulip bulb boom and bust in Holland centuries ago? Bitcoin and others will have non-zero base prices based on their usefulness as mediums of exchange in the worlds of DeFi and NFTs. Because speculators in the world of cryptocurrencies have short memories it is entirely possible that we will see another surge in Bitcoin once the war in Ukraine, Covid crisis in China, global food shortages, raging inflation, and significantly higher US interest rates have settled down. But all of that could take a while. It is instructive to remember that the “1929 stock market crash” was really the “1929 to 1932 stock market crash” and the resulting Great Depression lasted a decade. Long term Bitcoin investors need to ask themselves if they have the staying power to endure all of the coming social, political, and financial chaos while they wait to see if Bitcoin will surge again.

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