I knew about Bitcoin in 2012 when it was worth $6. I loved the idea of a decentralized currency that is digital and we know exactly how much is out there. Unfortunately in 2012 I was just starting college and had about $0 to my name to buy any of it.
I did manage to get about 0.3 BTC at the time (today’s equivalent of $3,300 worth). I played around with it and basically forgot about it. One day I noticed the price was up to about $100 so I got interested again. I traded binary between BTC and dollars on the exchange Mt. Gox and got up to around 0.35 BTC.
Again, I left it there and before I knew it BTC was climbing again. Unfortunately in February of 2014, the largest BTC exchange collapsed. Someone had stolen an extremely hefty sum of Bitcoin from them.
Bitcoin prices nose-dived and really didn’t recover for 3 years, and it has more than recovered.
But this recovery and subsequent $11k price is driven by speculation, not usage. People see the hockey stick graph and drop tons of money into it. But none of them have any intention of using the currency, just “investing” in it. I have a lot of friends who are in it to make $$$. They don’t want to make BTC, they don’t want to earn more digital currency to have buying power in the future. No, they want dollars.
That’s why I haven’t put any money into it.
You see, a currency is only given its value by its usage. Sure, price can fluctuate depending on demand to trade other currencies for it, but that isn’t a stable value. It completely depends on market sentiment. One bad Mt. Gox-type news story and billions of dollars in value will disappear.
Consider the US dollar. It isn’t valuable because it is backed by the government or because people want to have some in their account. It is valuable because I can buy things with it, and I have confidence that I can continue to buy things with it because the supply is causing minimal inflation. That’s why I want a lot of it, because it can buy me things.
Similarly with digital currencies. If people buy things with them, they are valuable. The more things people want to buy, the more valuable the currency is.
Someday, BTC may be insanely valuable. But that will require a cultural shift to using it as a means for exchange at the store. When I can walk into my local grocery store and buy milk and eggs with BTC, then I’ll definitely buy into it. I’ll probably look for signs of the change before it gets to that point of course, but that’s definitely when I know it will be stable.
It is possible that the current hockey-stick graph will spur that cultural shift where people start adopting BTC at the counter to sell their goods with. But right now, all the value is due to price speculation and could dive at any moment.