Despite a recent market correction, Bitcoin's trading value is now sky high:
On May 24, bitcoin hit an all-time high of $2.791.69. But on Monday, the digital currency was trading at an intra-day high of $2,267.73, marking a more than $520 drop or 18.7 percent decline since the record high, according to data from CoinDesk.
I keep seeing Bitcoin enthusiasts super-excited about this rise, which seems seriously strange for several reasons:
- The higher Bitcoin's price goes, the less likely anyone is to buy Bitcoin.
- The less likely anyone is to buy Bitcoin, the less likely it is to become useful as an actual currency for buying actual goods and services.
This strengthens the observation from a Bitcoin insider that it's really a Ponzi scheme: When the currency goes up, the few buyers who got in early at a low rate can only hope that some rich sucker will make them an offer. As Edmund Edgar put it early this year:
Demand to send transactions still seems to be going up, so the cost of sending a transaction has been increasing. I think (although I'm not confident) the amount of value in each transaction has been tending to increase, so effectively low-value transactions are getting priced out, and it's being used for progressively higher ones. The upshot is that Bitcoin is becoming progressively less useful as money, and being used increasingly as a "store of value" (or phrased less charitably, an enormous Ponzi scheme).
But as the cost of entering the Bitcoin market grows, the pool of likely buyers shrinks. And so it's stuck where it's been for the last twelve months: