Bitcoin’s relentless rise in the past year forced even some its most vocal critics to throw in the towel. Kevin O’Leary, for example, used to call Bitcoin “garbage”, but recently said that he has 3% of his portfolio in BTC and ETH. And indeed, many, us included, have been calling Bitcoin a bubble for years, yet it keeps going higher. It’s becoming increasingly hard for the skeptics to resist the pressure, especially as some big names appear to be embracing crypto.
Elon Musk’s Tesla (NASDAQ:TSLA) poured $1.5
B in Bitcoin and said it is thinking about allowing customers to pay for its cars with it. Mastercard (NYSE:MA), the payments giant, announced it is about to start supporting select cryptocurrencies on their network. Pay
Pal is doing the same. Goldman Sachs (NYSE:GS) is restarting its crypto trading desk and Bank of New York Mellon (NYSE:BK) is forming a new unit to help clients hold and transfer digital assets.
AN ATTEMPT TO STAY RATIONAL ABOUT BITCOIN
With the big guns warming up to the idea, how can one argue?
We, at EWM Interactive, remain skeptical. We see Tesla’s Bitcoin purchase as nothing more than another speculative bet by its eccentric CEO. As for Mastercard’s, Goldman’s and Bank of NY Mellon’s involvement, note that none of these huge financial companies is actually using Bitcoin for its own business operations. They are simply going to earn fees from clients trading crypto. This is a big difference. In other words, none of them is actually “embracing” it. They are just taking advantage of the current mania to fatten their bottom lines.
So if you think about buying Bitcoin because the big names are buying it, think twice. At one point during the dot-com bubble in the late-1990s Amazon (NASDAQ:AMZN) owned 54% of Pets.com. Many saw this as a validation of the latter’s business model. Alas, Pets.com went bankrupt and was liquidated in 2000. The big guys can fall for a fad just as easily as everyone else.
As the father of value investing Ben Graham put it, “the investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.“
So what are the facts? Can Bitcoin really become a global payments network and replace the US dollar as the dominant currency?
THE REAL PROBLEM WITH BITCOIN ‘S WORLD DOMINATION AMBITIONS
Bitcoin becoming a global currency is physically and mathematically impossible. Here is why.
Bitcoin is an extremely inefficient payment method. Forget about all the risks its high volatility poses to any real business or person. We’re talking about the number of transactions the Bitcoin network can process and the energy it consumes.
The payments network of Visa (NYSE:V), Mastercard’s main competitor, has the capacity to process up to 65 000 transactions per second. Mastercard itself, can handle around 40 000 transactions per second. Bitcoin, on the other hand, manages just 7.
BTC-Visa-Mastercard Transaction Capacity