Bitcoin = Certified Wooden Tulips
What really is the difference between the BitCoin protocol and a company producing a steady supply of certified Wooden Tulips?
The answer is simple: none.
BitCoin is not an asset
The BitCoin protocol is essentially a commonly owned factors of certified and hard to copy Tulips that is required to provide a steady production of those Tulips. And which has no production facility or any asset owned that produces these Tulips. It is like a Tulip tree that sheds the wooden Tulips in a steady flow. This is why BitCoin is not an asset. It is a medium of exchange.
BitCoin has no market cap
BitCoin also has no market cap. Because there is no productive business behind BitCoin. An increase in the price of BitCoin does not lead to any impact on BitCoins ability to lend money to invest in assets that would produce new revenues from a source that from the BitCoin price. Because it does not produce anything or generate any revenue.
To have a market cap, there would need to be a counterparty that would be either
(a) willing and able to liquidate to pay out its shareholders (asset based valueation), or
(b) willing and able to sell the entire operation to a new owner in order to pay out all its shareholders (bitcoin holders) its value cash or kind.
Unlike a central bank, there is also no single authority that could swap the entire “market cap” for another asset.
In reality, BitCoin is a system that allows people to trade their fiat money for wooden Tulips. And to sell their wooden Tulips for fiat money. At the price where others are willing to buy wooden tulips.
A sophisticated ecosystem
Never the less, we can say that BitCoin as long as it is stable AND volatile provides a wonderful mechanism for its ecosystem to generate fiat money.
- By investing into mining equipment, it offers miner a way to get cash out of gullible people’s pockets.
- By allowing highly leveraged futures trading, it allows many people to up their fiat money income by trading on the very volatile value of BitCoin.
- By being reasonably stable and upward trending — in the adoption stage — it allows people to park cash and move cash without material losses out of jurisdictions to new jurisdictions.
- By its steady acceptance from governments and financial institutions and a proper reaction of the legal system, it allows to invest into markets that were before uninvestible. E.g. it gives anyone with a laptop and internet connection and a bitcoin account the ability to offer services for bitcoin. Without the need of banking infrastructure.
It is because 1 and 2 that BitCoin is attracting capital and has some liquidity. It is because 3 that liquidity is tied to the economic sphere and real economy. And it is 4 why BitCoin seems so liberating. After all, it is a digital binary wooden Tulip.
But it is still a Tulip. And as such, there is no reason to believe that any App Company that offers unregulated virtual payment systems around the world would not offer the same benefits. The only different being that with the BitCoin protocol, this company is distributed to many companies that can not defect from providing a steady supply.
So why is this accepted as a new money in the world despite all its drawbacks? Simple. Because it tracks transactions among people who believe to be free from scrutiny, observation and tracking. It is the best research experiment on the planet when it comes to understanding the circulation of money across borders and individuals while it also allows to connect financial activity in the black markets with IP addressses and potential owners. Some people called it a honey pot operation. That’s what is in for the regulators.
Never the less, BitCoin has to vanish at some point.