One bitcoin is worth nearly $400 today. Think that sounds like a lot for a currency you can't physically touch and that has been around for only a few years? Well, it could go much, much higher, according to one observer.
To be able to make an assessment whether to invest in bitcoin or not, you need to understand where it comes from and what might make it valuable. This, however, is not an easy task for someone who is not well versed in cryptography and monetary policy. To get a better understanding, we sat down with a prolific writer within the bitcoin space, Datavetaren, to learn more about his viewpoints on bitcoin, blockchain and what the future might hold.
Datavetaren, as he is best known as through his blog and active twitter account is probably best described by some of his own tweets.
— Datavetaren (@Datavetaren) 6 december 2015
The greatest invention with #bitcoin blockchain is that you don't have to trust anyone.
— Datavetaren (@Datavetaren) 5 december 2015
#bitcoin is backed by the inability of arbitrary debasement.
— Datavetaren (@Datavetaren) 27 november 2015
Transact internationally without bank accounts. #bitcoin
TheStreet: Why are you interested in bitcoin and blockchain technology?
Datavetaren: When I first heard about bitcoin in 2011, I thought that this cannot possibly work. It should not be possible to get it secure enough and make it "unhackable." Then I heard about it again in early 2012 and thought "Why is it still here?" At this point I got curious and actually read the technical white paper written by Satoshi and looked at the bitcoin core source code. Now I was completely knocked to the ground; this was an invention comparable to the Internet, electricity or the steam engine of its time. I started asking myself questions such as "Where does money comes from?" and "Why is bitcoin different?" To reuse Steve Jobs' expression: Bitcoin is reinventing money.
TheStreet: What is your view on the regulatory landscape of these technologies?
Datavetaren: Bitcoin as technology cannot be regulated (it is designed that way.) What remains is the interaction between bitcoin and the current economy. That can be regulated and already is when it comes to bitcoin exchanges. My opinion is that that bitcoin should be treated as a foreign currency like ECJ [European Court of Justice] recently declared. Merchants, in a free market economy, should be allowed to accept the currency, like any other foreign currency. It is wrong to try to regulate bitcoin as something special. The standard rules we have for foreign currencies should apply to bitcoin as well. Nothing less, nothing more.
TheStreet: What are your thoughts on bitcoin as an investment for private investors?
Datavetaren: If you are patient enough, the leverage of bitcoin is huge. We are talking about $1,000,000 (possibly more) per coin in the long run (current price is around $400 at the time of writing.) It will replace gold (which is a trillion dollar market) as a safe haven. Gold gained this status because it cannot be forged and it is scarce, durable, and fungible. Bitcoin has all those properties as well, and, in addition, it comes with an international payment/settlement network. There's no need for "bitcoin certificates" as you can directly verify your ownership by checking the bitcoin blockchain. It is extremely important though that purchased coins on an exchange are cashed out. If you do not have special equipment for this, then, at least, use bitaddress.org to create your own paper notes.
TheStreet: What are your thoughts on bitcoin as an investment for institutional investors?
Datavetaren: Institutional investors are heavily regulated on what kind of assets they are allowed to invest in. Bitcoin is currently too mysterious for institutional investors to pay attention to. Currently, some institutions are investing in bitcoin derivatives such as ETNs (exchange traded notes) but it is somewhat odd that it is based on trusting a third-party which goes against the bitcoin spirit. However, as more central banks are applying negative interest rates on the private banks' deposit accounts, it may become an escape route. Recently, a Swiss pension fund manager tried to withdraw the fund in cash to avoid the negative interest rate. Although denied, and possibly illegally so, it would be much easier in future to store the wealth electronically in the bitcoin blockchain ledger instead of piling up a stash of paper notes in a vault.
TheStreet: What are your thoughts on investing in bitcoin to diversify your portfolio?
Datavetaren: Bitcoin is high risk, but very high return. Treat it as any other such investment. The only chance/risk, as I see it, is whether bitcoin will be improved or stagnated. If bitcoin (the technology) is improved, then its future will be very bright. If not, it will die or be superseded by something else.
TheStreet: Are you invested/would you consider investing in bitcoin?
Datavetaren: I am heavily invested in bitcoin. I have all my savings in bitcoin. That is how much I believe in this thing; the currency as well as the technology. The main reason is that bitcoin is the first invention that allows you to control your own wealth digitally. My bitcoin account balance cannot be modified by anyone else without my permission. That is very different from how regular electronic money works. That by itself is revolutionary.
TheStreet: What is your opinion on the current price of bitcoin?
Datavetaren: Bitcoin price is currently very volatile. There are two main reasons: 1) low velocity; 2) high wealth concentration. Both reasons will dissipate over time. It is low velocity because not many people are using it. However, the number of users are growing, and as noticed, the volatility has also become less. The wealth concentration is high, but as price goes up the bitcoin, wealthy people feel really wealthy and start spending or selling their coins, which causes wealth spread.
TheStreet: What is your opinion on the price of bitcoin in a longer time-frame?
Datavetaren: $1,000,000-plus per coin. There are many reasons.
The number of bitcoin that will ever be issued is capped at 21 million. Today there are about 15 million. In the year 2140, there'll be 21 million. Take any suggested market capitalization and divide by this number to calculate the price of a single bitcoin.
Bitcoin with an additional layer on top can solve the problem with international digital micropayments. This is especially good for various intellectual property, such as news articles, music, video, and other content not necessarily created by professionals. Bitcoin will enable monetization of digital work.
There'll be no competition from regular currencies. The reason is that blockchain technology is inherently incompatible with regular currencies (a.k.a. fiat currencies.) Blockchain technology means giving up control so that no single authority can control it. This is precisely the reason why the money supply in bitcoin is fixed. Otherwise, a hacker could expand the money supply to make it worthless. Central banks cannot give up control by definition. Hence regular currencies will never become blockchain based.
Bitcoin transactions are irreversible. At first, that sounds like a limitation, but it is a feature. It means that a transaction can be trusted, and the account balances reflect the truth (i.e. they'll keep their value today, tomorrow and forever if kept untouched by the owner.) No risk means cheaper transactions. Other payment systems will not be able to compete on that (because they are reversible.)
There's a programming language built into the coins themselves. Recently, researchers have been able to use this programming language to propose payment networks to enable instant settlements that are not even required to be broadcasted on the bitcoin network. It promises a VISA style transaction throughput.
Store of value. Bitcoin is much smarter to use than gold. You need a relatively sophisticated equipment to check that your gold is not fake. For bitcoin it is trivial to check that your account has the right balance.
TheStreet: What are you negative about regarding this industry?
Datavetaren: Some core bitcoin developers are way too angry when disagreeing. I'd like people to be calm and rational.
TheStreet: What are you positive about regarding this industry?
Datavetaren: Bitcoin is being improved, and major technological progress is being made by various contributors in the bitcoin community. The people working in the bitcoin field are incredibly smart, possibly the smartest computer science people in the world. And there are hundreds of them.