Bitcoins – How much are they worth?
November 6, 2013
The interesting thing about bitcoins is that for them to succeed as a currency the value isn’t important, what’s important is stability.
If I exchange $10,000 USD for 1 bitcoin then that’s OK as long as it maintains its purchasing power. Bitcoins are fractional so you don’t need to hold a whole bitcoin, you could exchange $1,000 USD for one tenth of a coin.
The problem with a currency that keeps increasing in value is that people can’t borrow it; imagine taking out a mortgage in bitcoin and then a year later, the value of the bitcoin mortgage you owe is 50% more than your house is worth. Although house values can and do drop, there’s only so far they can drop ($0). Theoretically your bitcoin loan could go up to almost anything – a $200,000 loan could become equal to a $2 billion loan.
So if bitcoin replaced the USD in America, no-one would be able to buy houses – even if you got paid in bitcoins you would see your salary decreasing regularly. You are probably used to salary gradually increasing each year, this is due to inflation but with deflation you would need to get used to your salary decreasing over time. Store prices would also decrease so you would have the same purchasing power but your home mortgage and any other debt would bankrupt you eventually.
For people to hold substantial amounts of bitcoin for everyday transactions they need to know that the value wont suddenly drop. It doesn’t matter much where the price stabilizes as long as it does. Until then it will continue to be a speculative item.
As this is a new item that hasn’t really been traded for very long there are many more buyers than sellers so the price is going up, this will eventually change.
Bitcoin will never succeed as a currency, there is no real need for it. People cite the ability to send money anywhere in the world with virtually no fees as being a benefit but the fact is that the fees you pay for sending USD to other countries are simply price gouging – it doesn’t actually cost the banks the amount they charge and if they see real competition from bitcoin they will simply reduce their fees.
Other comments are that no government can stop bitcoin – don’t be so naive. Maybe they couldn’t kill it completely but they could make it so difficult that its value would plummet.
So, should you buy bitcoins and how much are they worth?
They are worth nothing + however much someone is willing to pay
And if you like a gamble then go for it – buy as many as you like however the price will crash so get ready to get out quickly.
If you find you have too many then send any spare ones to 15BpRXgX8Lrp5EpH9JaGcFUofAgDwgDW3d where they will be looked after :).