Is bitcoin a good investment?

This resource is a wikidebate, a collaborative effort to gather and organize all arguments on a given issue. It is a tool of argument analysis or pro-and-con analysis. This is not a place to defend your preferred points of view, but original arguments are allowed and welcome. See the Wikidebate guidelines for more.

Disclaimer: This is an amateur-made debate/argument analysis, not an investment advice. There is no guarantee that gaps in the arguments made will be properly pointed out in objections.

Bitcoin is a good investment

Pro

• Pro Bitcoin is a digital analogue of gold, and in the phase before it reaches something like its saturation, it is likely to offer extreme profit yields, which, by the mean value of the investment, compensate the investor for the extreme risk. This makes bitcoin good as an item in investment portfolio, for investors who can afford to lose the bitcoin portion of investment.
  • Objection Unlike bitcoin, gold has some uses beyond being a store of value.
    • Objection Sure, but the price of gold is derived from its use as a store of value rather than from the other uses; the price derived solely from the other uses would be a fraction of it.
  • Objection Unlike bitcoin, gold price level is fundamentally stabilized (despite its considerable volatility), not subject to the huge appreciation observed in bitcoin.
• Pro Expanding on the above, as of March 2024, bitcoin market capitalization is about 10% that of gold. If one takes bitcoin to be an analogue of gold, that suggests good room for growth.
  • Objection On the other hand, as of March 2024, bitcoin market capitalization surpassed that of silver. It is not clear what makes bitcoin more of an analogue of gold than of silver.
    • Objection Gold is the leader among the physical/material/commodity store-of-value assets (unlike silver) and bitcoin is the leader among cryptographic store-of-value assets. That makes bitcoin more like gold and less like silver.
• Pro Expanding on the above, bitcoin seems to have a unique differentiator against gold in that it seems much harder to be seized/confiscated by governments. And governments sometimes turn rogue and unjustly seize property, e.g. those run by Communists in the 20th century. As per river.com, "However, bitcoin is a uniquely seizure-resistant type of property. There is no amount of physical force or legal coercion that can transfer bitcoin from one party to another without the corresponding private keys. However, if authorities can ascertain the real-world identity of an individual and their bitcoin addresses, they can coerce that individual to divulge the private keys required to move the bitcoin. Bitcoin may be seizure-resistant, but humans are still vulnerable to physical threats, blackmail, and other forms of coercion.".
  • Objection Seizing of bitcoin by government already did happen.
• Pro Expanding on the above, bitcoin transactions seem to provide the benefit of anonymity: while the transaction and the amount are publically available, who made the transaction not so.
  • Objection That does not seem to provide any benefit over directly owning gold.
  • Objection Not a benefit over cash transactions (as opposed to electronic ones), which can also be anonymous.
  • Objection The anonymity contributes to regulatory risk; it is part of the appeal of bitcoin to criminals.
  • Objection A Wired story puts the anonymity of bitcoin into doubt.
  • Comment The purchase of bitcoin seems not anonymous when made via an intermediary.

Con

• Con Capable investor Warren Buffett dissuades from bitcoin. Inconclusive yet suggestive.
• Con Microsoft co-founder and philantropist Bill Gates looks down on bitcoin. Inconclusive yet suggestive.
• Con JPMorgan Chase chairman and CEO Jamie Dimon looks down on bitcoin. Inconclusive yet suggestive.
• Con Nassim Nicholas Taleb (noted for the book The Black Swan) looks down on bitcoin. Inconclusive yet suggestive.
• Con Computer scientist Nicholas Weaver is very critical of cryptocurrencies.
• Con A bitcoin investor is exposed to regulatory risk, e.g. that state regulators will make bitcoin illegal.
• Con A bitcoin holder is either exposed to intermediary risk (of the intermediary company defaulting) or has to own bitcoin directly using methods liable to hardware theft, hardware loss or destruction, password loss/forgetting, and computer hacking.
  • Objection Other currencies, such as gold or fiat, can also be lost, stolen or destroyed.
• Con Cryptocurrencies are vulnerable to what U.K.'s FCA calls cyber-attacks (requires clarification and detail).
• Con Bitcoin has no intrinsic yield unlike e.g. a field of wheat, a block of apartment buildings or a company held via shares.
  • Objection Bitcoin does not differ from gold in that regard. The above does not detract from the possibility of bitcoin providing great yields in its early adoption phase.
• Con Bitcoin is similar to a Ponzi scheme: the late comers pay for the huge profits of the early comers. The bitcoin investors merely speculate on whether they will be the early comers--the winners--or the late comers--losers, and they bet on being the early comers. (This is an expansion on or rephrasing of the above, bitcoin having no intrinsic yield.)
  • Objection Perhaps bitcoin does have an intrinsic yield, following from its serving criminals to realize their profits.
    • Objection Even that kind of yield does not provide for a huge growth of bitcoin price in the decades to come: once something like a saturation overall bitcoin price level is reached, the huge profits realized from huge mid-term growth are over.
  • Objection A Ponzi scheme is a fraud; by contrast, in bitcoin, the buyers know the nature of the asset (no intrinsic yield).
    • Objection Fair enough as for Ponzi scheme. However, the logic of the late comers paying for the profit of the early comers holds true enough.
• Con Bitcoin mining is energy intensive and its energy consumption grows exponentially with use. Unless the underlying proof-of-work algorithm changes (like Ethereum did), Bitcoin will eventually become unsustainable and public opinion will turn against it, causing it to sink.
  • Objection It is not clear what it means for bitcoin to "sink", nor is it clear how environmentalism-related unfavorable public option will cause bitcoin to lose value since its value depends only on the opinion of those who hold it and trade in it.
  • Objection The Wikipedia article used above as a reference does not contain the word "exponential" and it is therefore not clear it can substantiate that bitcoin energy consumption "grows exponentially with use".
  • Objection Wikipedia, used above for reference, is not a reliable source: anything that can be sourced from Wikipedia one should be able to source directly from sources used by Wikipedia.
    • Objection There are many sources for bitcoin's heavy toll on the environment – more can be found here.
      • Objection It does not seem straightforward to find the sources in the referenced kialo.com page, but if it was, it should be reasonably easy to copy the reliable sources to the present debate.
      • Objection The statement to be sourced is not "heavy toll on the environment" but rather "its energy consumption grows exponentially with use".
  • Objection If the market value of one bitcoin drops significantly below the energy cost (and hardware cost, etc.) required for mining an additional bitcoin, one would think the mining will stop or greatly slow down, which will solve the environmental problem. And if the energy cost of mining an additional bitcoin will be exponentially increasing, the described condition will surely set in relatively soon.
• Con Bitcoin is not really a cryptocurrency (not really a currency); it is a cryptoasset. Thus, it cannot realistically replace currencies. Some supporting reasoning is given by The Conversation.. More support is at Yermack 2015.
  • Objection That seems not quite true given there are companies that accept bitcoin as a method of payment.
  • Objection Bitcoin does not need to be a currency (used to pay for everyday things) to be a store-of-value asset like gold and compete with gold.
• Con An analysis by the Bank for International Settlements (BIS) reports losses of many investors: "Data on major crypto trading platforms over August 2015–December 2022 show that, as a result, a majority of crypto app users in nearly all economies made losses on their bitcoin holdings."
  • Objection The analysis seems to use asssumptions that are possibly too simplifying.

Further reading

• Bitcoin#Use for investment and status as an economic bubble, wikipedia.org
• Bitcoin Price Prediction – Forbes Advisor Australia, forbes.com
• The brutal truth about Bitcoin, brookings.edu
• ETF approval for bitcoin – the naked emperor’s new clothes, 2024, ecb.europa.eu
• Cryptocurrencies II: Last Week Tonight with John Oliver (HBO), 24 Apr 2023, youtube.com
• Opinion | Transaction Costs and Tethers: Why I’m a Crypto Skeptic by Paul Krugman, 31 Jul 2018, nytimes.com
• Rebuttal — Transaction Costs and Tethers: Why I’m Not a Crypto Skeptic by Calvin Cooper, 2018, medium.com
• Nobel prize-winning economist Joseph Stiglitz criticizes bitcoin by Ali Montag, 2018, cnbc.com
• Wirtschaftsprofessor: Darum hat der Bitcoin keine Zukunft // Mission Money, 2 Mar 2021, youtube.com (in German) -- an interview with Swiss economist Thorsten Hens
• Coinbase Bitcoin, fred.stlouisfed.org -- bitcoin price development