3 reasons why bitcoin’s surge may not be a bubble

It’s all about utility, WYSIWYG and the pool of buyers, says Charles Hugh Smith

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Pop goes the bitcoin?

So says OfTwoMinds.com financial blogger Charles Hugh Smith in his latest post.

Below are three key points from Smith’s take on the hot virtual currency.

1. Bitcoin has an actual purpose: Cryptocurrencies are not like Beanie Babies, because they have utility value — namely, they facilitate international payments for goods and services, Smith says.

He is hardly alone in making that point. The Economist notes that bitcoinBTCUSD, +1.96%  aspires to be a means of exchange like the dollar DXY, +0.02%  , rather than just a form of digital gold GLD, +0.74%  .

Chinese investors have used bitcoin to get money out of that country and are seen as helping drive its price higher.

 2. It’s a WYSIWYG market, not a scam: The primary cryptocurrencies are based on transparent rules and are not a scam, says Smith, whose take served as our Need to Know column’s call of the day.

It’s a “what you see is what you get” market, he writes, using a computing term that is abbreviated WYSIWG and pronounced “wizzy wig.”

That means both the buyer and seller know all there is to know about the exchange, Smith says. That’s not true of rackets like offloading a package of toxic mortgages as a mortgage-backed security.


3. Everyone hasn’t piled in: The pool of potential buyers is thousands of times larger than the pool of present owners, Smith says.

Yes, that does sound a bit like the “cash on the sidelines” line that stock-market bulls like to use. But hear him out.

“Bubbles occur when everyone and their sister is trading/buying into a ‘hot’ market,” the blogger says. “While a few of my global correspondents own/use the primary cryptocurrencies, and a few speculate in the pool of hundreds of lesser cryptocurrencies, I know of only one friend/relative/colleague/neighbor who owns cryptocurrency.”

Many big institutional investors could start adding bitcoin as a core holding, he writes.

Go here to read his full post.


Contact Randy Rule

Dislaimer: This is not investing advice, this website is for educational purposes only.

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