Why I’m a Bitcoin Perma Bear

I’m a Bitcoin perma-bear. As a Financial Advisor, I’m well aware of the cognitive bias known as confirmation; however, even after introspection, I’ve been unable to find a single concrete hypothesis in support of the long-term future of Bitcoin.

I was a sceptic during the spectacular price rise of 2017, and during the subsequent crash that followed. And I have remained a sceptic throughout the gravity defying rally of 2020 that saw BTC cross $40K USB before scaling back to the $34K levels it is trading at as I write this.

Interestingly, even most professional fund managers whom I talk to are unable to come up with a concrete hypothesis in support of Bitcoin. In fact, some of these money managers have actually bought into the asset (if I may call it that) simply bought it because “others are buying it”. This self-fuelling, manic price rise is reminiscent of almost all asset bubbles of the past, tulip-mania included.

Some say that Bitcoin has a bright future because it is scarce. However, it’s a well-known truth that everything that is scarce is not necessarily valuable. For something to be valuable, it needs to be useful, along with being scarce. After all, even toxic waste is in short supply!

Still others say that Bitcoin will reach $500K because “at those levels, it will equal the market cap of Gold”. This is quite simply the inanest argument I have ever heard. Why Gold? Why not Platinum, or Silver, or while we’re fantasizing – Kryptonite?

I’ve heard people state that Bitcoin is the new Gold. I disagree. Gold has psychic benefits – it can be touched and felt. It can be made into statues and jewellery. It gives you pride of ownership. It’s not the same with Bitcoin, so I think that’s a very unfair comparison.

What about the whole quixotic narrative about Bitcoin replacing fiat currency? If I had bought a real asset using Bitcoin in January, it would already be down 20% in Bitcoin terms. Is it realistic to believe that such an unstable, volatile, speculative and unpredictable asset would ever replace fiat currency? Add to the mix the fact that governments are slowly but steadily cracking the whip on Bitcoin, and you have what can be termed as a brewing perfect storm for the mysterious digital currency.

Can Bitcoin go up further from here? Yes, absolutely. It can even double or triple from these levels - because ultimately, what fuels short term price rises pure liquidity. But when that liquidity is riding on an utter lack of understanding and pure speculation, it’s a matter of time before rationality kicks down the house of cards. Which is why I will not be buying into it, as that would be akin to gambling, not investing.

In the meantime, if Bitcoin does soar to $100K or beyond, I’m going to sit back and watch without regrets. In fact, I would like to boldly state that there will be a day not so far from today when Bitcoin will hold no value, and a lot of people would have unfortunately lost a lot of money on it. Recall the old Buffet adage that states that “risk comes from not knowing what you’re doing”. When it comes to Bitcoin, I doubt if anybody really knows what they are doing!