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Cryptocurrency Alchemy | the Digital Value Transformation

November 2, 2017

 

 

Some of the big investor types are feeling the need to comment on the recent rise of Bitcoin. Billionaire investor Warren Buffett is one.

 

“Bitcoin is bubble territory,” he claims of the market for this leading virtual currency. He has also issued a criticism of proposals for applying a value to the cryptocurrency.

 

Based on a report by MarketWatch, Buffett presented his views on Bitcoin and the cryptocurrency market during an annual question-and-answer session in Omaha, Nebraska in early October 2017. During his remarks, Buffett claimed that Bitcoin is a “real bubble.”

 

"People get excited from big price movements, and Wall Street accommodates. You can’t value Bitcoin because it’s not a value-producing asset."

 

Another critic, Prince Al-Waleed bin Talal of Saudi Arabia has claimed he does not believe in Bitcoin completely and expects the digital currency to fail.

 

"It doesn't make sense. This thing is not regulated. It's not under control. It's not under the supervision [of] any federal – elect – United States Federal Reserve or any other central bank. I don't believe in this whole thing at all. I think it's going to implode."

 

Even with all of the faultfinding--no regulation, no place to spend it, and an inflated value--Bitcoin has managed to reach an astounding $6070.99 What can it mean?

 

Certainly, not all pundits are of the same mind.

 

In his new blog post, New York University’s “Dean of Valuation,” Aswath Damodaran, asserted that Bitcoin is a true currency and not a fraud. In fact, CNBC has quoted him as saying, “digital currencies will ‘sooner or later’ compete with the major paper currencies.” And, perhaps that moment is almost here.

 

When Mastercard dips into the blockchain technology used by Ripple to leverage cross-border payment flows for B2B business, the competition might just be ramping up.

Gold Comparisons

In some ways, digital currency is actually safer than gold. Here are a couple of its notable attractions:

- limited supply (no more is being made)

- hard to get ‘mining’ limits supply also

- gold is actually higher risk because a sudden surprise find of mass quantity of gold could cause the gold bubble to burst

 

Those cryptocurrencies that have a fluid, strong market such as Bitcoin and Ethereum are actually being exchanged at market values and are starting to be used to purchase product.

 

Furthermore, some crypto currencies seem to be used within well-defined specific marketplaces. Here are some big name companies currently accepting bitcoin:

 

As of 2014 | Overstock.com

As of 2014 Dish Network for some of their content

As of 2014 | some users purchasing XBox and Windows apps in some Microsoft stores

As of 2014 | Intuit for Tax software

As of 2014 | PayPal began acting as an intermediary for GoCoin, CoinBase, and BitPay

 

It’s true that some cryptocurrencies may only be used as an investment. This bucket is a bit special since it seems that control for this designation falls under the auspices of the U.S. Securities and Exchange Commission (SEC).

 

And, there are some coins--utility tokens to be exact--that aren’t investment grade and of which there are less clear regulatory requirements. Time will tell.

 

Final Thoughts

As cryptocurrencies come into use with greater frequency, general trust will increase. The use of utility grade currencies for usual purchases will increasingly be encouraged. Market demand for these currencies will drive valuations.

 

The greater ability to use a currency, and uses of these currencies to reduce costs and reduce friction, will increase the values of certain currencies.

 

With that fluid exchange of currencies, I would expect an increasing fluidity of exchange between cryptocurrencies as trading markets peg value back to US$ or other fiat currencies around the globe.

 

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