One of the looming questions on making has been and continues to be whether or not the virtual world exists on a tangible plane. Looking at the recent uptick in the use of cryptocurrencies, this question goes even deeper. Can a virtual currency be something that is viable for daily use in the same way that fiat currency is used?
Looking at the top cryptocurrency, Bitcoin, there are many similarities between it and the current financial system that has existed for some time. Given that most of the transactions we do on a daily basis deal with a type of digital money, it is ironic that some big financial names think bitcoin and cryptocurrencies as a whole, are any different. Using a debit or credit card, or paying online is essentially using a digital form of money. There is no physical exchange of currency. The only difference is that fiat currency is backed by some version of a physical currency or something with value such as gold.
Warren Buffett, who is highly regarded as one of the best investors of all time recently stated that “you can’t value bitcoin because it’s not a value-producing asset… it’s a real bubble in that sort of thing.”
So what can one deduce from Buffett’s statement? Well, for starters, he isn’t fully denouncing the currency, rather he is stating that the use of cryptocurrency to invest is not something that is fully tangible, and does not produce earnings or pay dividends like typical stocks do. Because of this, how can one ever value a cryptocurrency?
This has been the driving factor in the price action for cryptocurrency and specifically bitcoin. Since no one can fully derive value from it, the market is driven solely off speculation and investor interest. Only time will tell where this leads.