It gets a bad wrap but Bitcoin turns out to be a relatively stable store of wealth and very useful to people who hold it.IF you are like most people, you will have been shaking your head every time cryptocurrencies and in particular Bitcoin were in the news since their creation some fifteen years ago.
Bitcoin
One Bitcoin was worth as much as US$67,623 in November 2021, but today it has dropped 60 per cent to US$27,394 (on 11 October 2023).
Surely, something that can go up and down like that isn’t a serious currency?
Still, respected commentators have said that Bitcoin (and the thousands and thousands of cryptocurrencies created since Bitcoin started in 2009) is very similar to gold.
Gold
Gold is often regarded as a safe store of value, but is it really? Just a little digging (no pun intended) shows that gold is as dubious a store of value as Bitcoin.
In the year 2000, gold was worth about US$275 an ounce. In 2012, gold peaked at US$1,675, up 609 per cent, only to drop 37 per cent to US$1,061 in 2015. It peaked again in 2020 at US$1,888, up 78 per cent in five years! Today, it’s worth about US$1,860.
So, gold turns out to be about as much of a rollercoaster as Bitcoin!
But what if we wanted to do the same type of thing for the Aussie dollar?
The Aussie
We plotted the rises and falls of Bitcoin and gold in US dollars. So, if we look at the value of the Aussie dollar expressed in US dollars, what do we get: a smooth ride or a rollercoaster?
You guessed it! A rollercoaster, and not just any rollercoaster either!
August 1993, one Aussie dollar buys 66.5 US cents.
Then it went down 26 per cent to 49 cents in September 2001!
Then up 212 per cent by August 2011 to US$1.04.
Today it’s about 64 cents again.
The volatility of the Aussie dollar is positively worse than that of Bitcoin and gold.
Your pension in $$ or Bitcoin?
Our bet is that you would still prefer your Age Pension to be paid in Aussie dollars rather than in Bitcoin.
Why is that you probably feel that way?
Part of the reason is that you can’t pay with Bitcoins (or gold bars, for that matter) at Aldi, Coles and Woolies, and you can with Aussie dollars.
Another part of the reason is that Aldi Coles and Woolies are in Australia, not in the US. Who cares what the Aussie dollar buys in an American supermarket, unless you’re holidaying there?
It’s the same with Bitcoin really. It’s very useful, even though an often-heard criticism of Bitcoin is that you can’t use it for anything.
You can.
Bitcoin is useful for storing and laundering ill-gotten wealth, away from the glare and scrutiny of law enforcement.
Bitcoin is very useful if you are a criminal.
It’s just that the vast majority of people aren’t criminals.
When criminals need to buy groceries (or the latest Mercedes Benz or Lamborghini), they simply exchange a bit of Bitcoin for the far more volatile and unreliable Aussie dollar.
The same Aussie dollar in which the Age Pension is paid.
Also read:
What’s the cash rate when it’s at home and how does it work?
Things you didn’t know about the $250,000 bank guarantee
IF you are like most people, you will have been shaking your head every time cryptocurrencies and in particular Bitcoin were in the news since their creation some fifteen years ago.
Bitcoin
One Bitcoin was worth as much as US$67,623 in November 2021, but today it has dropped 60 per cent to US$27,394 (on 11 October 2023).
Surely, something that can go up and down like that isn’t a serious currency?
Still, respected commentators have said that Bitcoin (and the thousands and thousands of cryptocurrencies created since Bitcoin started in 2009) is very similar to gold.
Gold
Gold is often regarded as a safe store of value, but is it really? Just a little digging (no pun intended) shows that gold is as dubious a store of value as Bitcoin.
In the year 2000, gold was worth about US$275 an ounce. In 2012, gold peaked at US$1,675, up 609 per cent, only to drop 37 per cent to US$1,061 in 2015. It peaked again in 2020 at US$1,888, up 78 per cent in five years! Today, it’s worth about US$1,860.
So, gold turns out to be about as much of a rollercoaster as Bitcoin!
But what if we wanted to do the same type of thing for the Aussie dollar?
The Aussie
We plotted the rises and falls of Bitcoin and gold in US dollars. So, if we look at the value of the Aussie dollar expressed in US dollars, what do we get: a smooth ride or a rollercoaster?
You guessed it! A rollercoaster, and not just any rollercoaster either!
August 1993, one Aussie dollar buys 66.5 US cents.
Then it went down 26 per cent to 49 cents in September 2001!
Then up 212 per cent by August 2011 to US$1.04.
Today it’s about 64 cents again.
The volatility of the Aussie dollar is positively worse than that of Bitcoin and gold.
Your pension in $$ or Bitcoin?
Our bet is that you would still prefer your Age Pension to be paid in Aussie dollars rather than in Bitcoin.
Why is that you probably feel that way?
Part of the reason is that you can’t pay with Bitcoins (or gold bars, for that matter) at Aldi, Coles and Woolies, and you can with Aussie dollars.
Another part of the reason is that Aldi Coles and Woolies are in Australia, not in the US. Who cares what the Aussie dollar buys in an American supermarket, unless you’re holidaying there?
It’s the same with Bitcoin really. It’s very useful, even though an often-heard criticism of Bitcoin is that you can’t use it for anything.
You can.
Bitcoin is useful for storing and laundering ill-gotten wealth, away from the glare and scrutiny of law enforcement.
Bitcoin is very useful if you are a criminal.
It’s just that the vast majority of people aren’t criminals.
When criminals need to buy groceries (or the latest Mercedes Benz or Lamborghini), they simply exchange a bit of Bitcoin for the far more volatile and unreliable Aussie dollar.
The same Aussie dollar in which the Age Pension is paid.
Also read:
What’s the cash rate when it’s at home and how does it work?
Things you didn’t know about the $250,000 bank guarantee
