The big question for Bitcoin: Is Bitcoin like a commodity or like an equity?
I say it’s a big question because commodities bubble and when they do, they follow a series of mini booms and busts that shrink in scale over an extended period.
After the commodities bubble of the early 1970s, commodities bubbled every few years until in the end the commodity market was as dead as a dodo.
It would be unfortunate if Bitcoin was like commodities in that way.
Equities bubble and technology stocks bubble every few years. While it isn’t necessarily the same technology that froths up, it is still the same sector. These booms grow with the economy and only get bigger. In the recent two tech bubbles the same big names have appeared: Amazon, Apple and Microsoft, and that is the kind of model that Bitcoin believers want from their crypto assets.
Right now, Bitcoin certainly looks like a commodity after an initial bubble was followed by a recent and tremendous rally. This progress looks rather like a commodity aftershock. Yet commodities collapse after a bubble because the mining companies over invest in mining more of the thing and then dump a glut onto the market causing a price collapse. These price slumps force mines out of business, creating a drop of supply that in turn creates a price spike and the cycles repeats. Underneath it all is the march of technology making the basic process ever cheaper, undercutting prices and swelling production.
This isn’t how crypto mining works.
Bitcoin might be the new gold, but gold is not like Bitcoin.
Last year, 14 million ounces of gold was mined worth about 2.5 million bitcoin. Next year and for every year to come as far as we are concerned, that much gold is likely to come out of the ground. Now in value terms the amount of future bitcoin that is ever going to be produced is currently worth less than 18 months of future gold production.
The controlled supply mechanism of bitcoin is one of many…