Bitcoin maximalist fan boys are wont to claim that Bitcoin is digital gold. Almost a year ago, around 12-April-2021, BTC peaked at $63,503.64 before crashing to $29,807.35 on 19-July-2021. The crash began on the annoucement by the US government of the worst inflation news in 30 years.
See:
- Bitcoin Had to Crash. The Bitcoin Crash of 2021. This is Early Stages of the Beginning of the End for Bitcoin, Forever.
- Touted as Digital Gold, Bitcoin Sure is Looking Like Fool's Gold After the Crash of May 2021
Since that -53% decline. Bitcoin peaked again $67,566.83 on 7-November-2022. Crashing again to $35,030.25 on 22-January-2022, BTC has only crawled up to $43,356.26 as of this writing, 8-April-2022. Thus BTC is up 23.8% from its recent low and 45.5% from its 2021 big crash low.
Yet, dollar hyper-inflation from a crazy level of US Treasuries and mortgage-backed securities buying by the Federal Reserve (see: What Has Caused the 2021-2022 Inflation in the USA? A Shocking $8.5 trillion of US Treasuries and Mortgage-Backed Securities on the Federal Reserve Balance Sheet. Will Quantitative Tightening Ever Happen?) has not resulted in BTC price near its previous top. Thus, BTC is not an inflation hedge. Hardly could anyone of sound reasoning consider BTC to be digital gold.
True Price of Bitcoin
The true price of BTC is closer to the dollar quotation of the drugs, prostitution tricks, Nigerian rental payments and the tiny sum of worldwide retail sales currently being transacted in BTC. Anything above that is greater-fool speculative premium.
In 2018, the estimate of illicit drug sales using BTC came to $72 billion. In 2019, that sum increased to $76 billion. From those estimates, we can assume the sum of illicit drug sales transacted in BTC has grown at least to $82 billion today.
Assuming the dollar equivalent of drugs, prostitution tricks and Nigerian rent sums to $83 billion, then with 19,006,075 coins in circulation, the reasoned price for one BTC is closer $4,367.02 rather than the current price of $43,328.67. Thus, BTC trades at a 9.9 times premium over its actual worth in goods and services.
Looking at the chart, the 11/2018 to 4/2019 price of BTC likely was closer to its true price.
Likely 99% of all BTC transactions are for bank notes whether USD, JPY, EUR, GBP or something else. It is not the trade in goods that gives people a reason to earn BTC, more or less. It is merely the desire to have property (right of ownership) in another speculative vehicle that trades on an organized exchange.
Miners mine not to get BTC to keep but to sell BTC they have mined for USD, JPY, EUR, GBP, etc.
Ukraine-Russia 2022. Where is the Effect on BTC?
Right now there is not even a premium for BTC owing to Ukraine-Russia War of 2022. There is strong expectation that owing to the boomerang effect of sanctions, the EU will have caused serious economic depression in Europe as Europeans cut off themselves from Russian oil, Russian natural gas, Russian grains and Russian fertilizers.
Eurozone central bankers will be forced to inflate Euros to paper over the economic depression. Yet, the BTC price is not being lifted in anticipation of that inflation.
Prices of commodities have been skyrocketing over a one year period, the same year that BTC has crashed twice and now languishes.
Year over year, oil is up 79.1%. Leveraged oil is up 187%. Natural gas is up 130%. Wheat is up 67%. Corn is up 58.1%.
Oil
Natural Gas
Grains
Not until the trade of total BTC for bank notes falls well below 50% permanently, if ever, will BTC become a future, digital gold, or digital money. If that never happens, BTC will be merely another speculative play with a price floor set by the illicit drug trade along with some novelty transactions, notably in countries with always-inflationary central bank policies.
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