Bitcoin has a market capitalisation of approximately US $200bn with 24 hour trading 7 days a week, making it the perfect TRADING instrument.

At present the value of mining a bitcoin, is sustained by the price of bitcoin, which is sustained by net new money into the market, which is sustained by……(insert your own ideas).

When all 21m bitcoins have been mined or by 2140, miners who verify transactions will no longer be rewarded for mining but only by the transaction fee they can charge.

However the cost in electricity to do one transaction in bitcoin is the same as approximately 400,000 Visa transactions.

For bitcoin use as a transaction medium to be valid when the last coin is mined requires huge productivity falls from Visa to equate the two systems.

Or the protocols of bitcoin can be changed by 95% support from the last 2,016 miners, to lower the cost of validation. Either by increasing the amount of bitcoins, i.e. a reduction in the value of a bitcoin or, they could change the method for validation (the highly praised algorithm).

Further approximately 80% of mining pools are in China, making bitcoin protocol susceptible to that countries political system.

Whilst we have been a huge successful INVESTOR in the Chinese economy it has been with companies that ADR list, therefore providing transparent and recognised reporting. Unfortunately for us, bitcoin remains an instrument too far.

Steven J Cohen CFA, August 26th 2019.

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