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New Zealand's longest-running online daily news and commentary publication, now in its 25th year. The opinion pieces presented here are not purported to be fact but reasonable effort is made to ensure accuracy.

Content copyright © 1995 - 2019 to Bruce Simpson (aka Aardvark), the logo was kindly created for Aardvark Daily by the folks at aardvark.co.uk



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Crypto-crash?

20 May 2021

Bitcoin is in free-fall.

Well that's what the media are telling us today after Bitcoin experienced a significant drop in value overnight.

Or has it dropped in value?

How do you determine the value of a Bitcoin or any other crypto-currency for that matter?

If you use the metric of how many US dollars you can buy with a single coin then yes, Bitcoin and others have taken a significant hit. However, is that really the best way to measure the value that these currencies really represent?

What if you never wanted or needed to convert your crypto into Fiat-based currency?

Many people seem to have forgotten the raison d'etre for crypto currencies in the first place.

Crypto was born as a way of eliminating dependence on offical, government-backed currencies such as the dollar, the pound, the peso etc.

The problem is that the purpose of crypto has been hijacked by those who see the opportunity to get rich by doing little other than trading and speculating on the conversion between crypto and Fiat currencies. These people and institutions are the reason that currencies like Bitcoin have grown so enormously in value over recent years and they are the reason it is now plunging.

If we removed Fiat-based currencies from the world and replaced them all with crypto then it's very unlikely we'd see the huge rises and falls that have occurred in recent times. When a currency represents a true value rather than a speculative one it tends to be more stable and its worth is based on the health of the overal world economy.

You don't have to go back too long to the days when a pizza cost half a Bitcoin. Why should a pizza cost any more than half a Bitcoin today? The only reason is because someone thinks they can buy that half coin for US$13,000 today and sell it for US$20,000 tomorrow.

The real problem with crypto-currencies is *real* money -- the notes and coins you keep in your wallet.

Sadly I think that crypto has ankle-tapped itself as a viable alternative to other currencies because of all this speculation.

You can't buy much directly with Bitcoin because its value is too volatile. Who wants to accept Bitcoin for payment when, by the time you get to spend it, the value may have fallen by 10, 20 or even 30 percent? You can't hope to run a business when being paid in a currency that is so volatile, which probably explains why Tesla are no longer accepting the coin as payment.

What's more, because so few businesses are accepting Bitcoin, it has little *real* value outside the realm of the speculators and miners. I can't buy my groceries anywhere nearby using it. I can't pay my power bill with it and the banks won't accept Bitcoin for my next mortgage payment.

If there hadn't been this rampant speculation, crypto currencies may have had a chance as a totally separate way of trading "value" or credit. Nobody's going to risk using it for that now though. Even if the speculators abandon crypto, the damage will likely have already been done and it will have a hard time gaining traction within the ranks of the great unwashed -- who will forever remember the great crypto crash and the speed with which the value of currencies was wiped out.

Or who knows... Bitcoin could be back up to over US$100K by Christmas.

What's your take on crypto? To the forums with you!

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