Doug Casey on Why Bitcoin Is Money

by Doug Casey, Casey Research:

Bitcoin is up 286% this year. Ethereum, another major cryptocurrency, is up 3,222% since the start of the year. Smaller cryptos have soared more than 10,000%.

Every investor is now wondering if this mania has legs, or if it’s a bubble that’s about to burst.

To answer this question, I called up Casey Research founder Doug Casey. You see, Doug’s been on the winning side of more manias than we can count. He was also an early investor in bitcoin.

Below is a transcript of our conversation. I encourage you to read it closely. It’s one of the more eye-opening Conversations with Casey we’ve ever published.

Justin: Doug, you’ve owned Bitcoin for some time now. How’d you get started in cryptocurrencies?

Doug: I was first introduced to them several years ago in Cafayate, Argentina. A lot of interesting people come through town.

A young Belgian guy came to visit, and I bought him lunch, and we discussed Bitcoin. He was a very early enthusiast. Because I bought him lunch, he gave me a physical Bitcoin as a souvenir. They actually exist. They’re collectibles that have the codes inscribed on them.

I still have that Bitcoin. At the time, a Bitcoin was worth $13. Now, they’re trading for about $4,000.

So, for that reason, that was the cheapest lunch I ever bought anyone. I wish I had listened to his argument, because I could have made millions. About 300-1 over just a few years…

Justin: Yeah, it’s crazy how much Bitcoin’s run over the last few years.

Do you think it’s headed even higher? Or is it a bubble about to burst?

Doug: I’m suspicious of where Bitcoin currently trades. The bright side is that there will never be more than 21 million created. I understand that only about half of them have come into existence.

And there are only about 25 million people in the world that own Bitcoin right now.

That’s a tiny proportion of the people in the world, and it’s going to grow. There’s going to be a lot more buying of Bitcoins and other cryptocurrencies simply because so few people own them right now, and there’s good reason to own them.

Justin: I agree that the market for cryptocurrencies will get bigger. But why exactly?

Doug: Cryptocurrencies are only the first and most obvious application of blockchain technology.

I’m not a computer jock, but that’s unimportant when it comes to seeing the implications of the technology—much as it was unnecessary to be either a driver or a mechanic 100 years ago to appreciate the merits of the automobile. It’s been said that the blockchain technology may be the most important single development since the invention of the internet itself.

It’s going to change the way documents are transmitted, the way real estate is sold and registered, the way stocks and bonds are tracked, the way inventory is tracked. It’s a game changer in many ways.

As far as the cryptocurrencies are concerned, my original objection to Bitcoin was that it’s not backed by anything. So, it’s really a fiat currency. It’s very much like the US dollar, the Zambian Kwacha, the Argentine peso, or any of the other 150-plus currencies in today’s world. It’s a floating abstraction.

But I missed something when I said, back then, that it had no value. It’s a fiat currency, but it has much more value than any other.

Justin: And what did you miss?

Doug: Aristotle defined the five characteristics of good money in the 4th century BC. And his analysis is as accurate now as it was then. It must be durable, divisible, convenient, consistent, and have use value in and of itself. Based on that, Aristotle believed gold and silver were best suited for use as money. Let’s analyze how Bitcoin does by these five criteria.

Durable. Bitcoin and other cryptocurrencies are definitely durable, unless we have an electromagnetic pulse (EMP) or a significant solar flare that wipes out all the computers. They’re not as durable as the metals, but they’re adequate, barring a collapse of civilization.

Divisible. They’re infinitely divisible. Better than the physical metals—although the metals can be accounted in tiny fractions too.

Convenient. Yes—as long as you have a smartphone, Bitcoin is very convenient. But your smartphone, or something like it, may not always be with you. And your counterparty also has to have one. And it’s not very convenient if someone doesn’t know or trust Bitcoin. Right now, that’s probably 98% of humanity.

Consistent. Absolutely. Every Bitcoin is exactly like another one. It’s at least as good as .999 fine gold that way.

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