I would like to know exactly what bitcoin is? Why it's worth 67K one month and then 47K a month or two later? How does it differ from Dutch Tulips? How do I value it?
Great question! I hope this came in a good-faith manner, I think it did.
Bitcoin invented a way to transfer value online without a third-party intermediary, completely peer to peer. It also invented a protocol in which all transactions (and all holding of participants) is known by all, can't be changed, can't be f*cked with and is completely fair.
There is no way to cheat the bitcoin network since all miners and node operators have a copy of the entire bitcoin blockchain. For example, if I suddenly said I had 100 bitcoin everybody would know I was full of shit since that is not on anybody's copy of the bitcoin blockchain.
An analogy is the bible. I could buy a bible, change it, then say "look Jesus didn't die on the cross he was actually stabbed to death" problem is nobody would believe me since everybody has their own copy of the bible and it doesn't say that. Bitcoin is the same way.
Another of bitcoins inventions is the ability to prove you own something in the digital realm. Before bitcoin, digital items (think documents, music files, PDFs, etc) could just be copied and sent around. There was no value there, since everything can be copied. Bitcoin solved this. You cant just copy a bitcoin and now say you have 2 bitcoin. The implications of this are huge.
Another big point, coming from a former bond trader (me), is that bitcoin is a true bearer asset. Paying somebody in bitcoin is similar to giving them cash in the sense that there is an immediate final settlement. Contrast this to the modern financial system ... nothing is settled immediately. Every bond trade I have ever done either settles the next day, in 2 days, in 3 days or longer. Same with international payments, credit card transactions, etc. Bitcoin can thus be used as a global settlement layer with much more efficiency than the current, fragmented financial system.
Yet another use case is the absolute scarcity of the asset. There will only be 21 million bitcoin (and no, the fact that there can be other cryptos doesn't change this fact.). Couple the scarcity with its ability for cheap storage, its divisibility (1BTC = 100,000,000 satoshis), its security (you can't cheat the network), its nonsovereign/global nature (no 1 country controls it) and its relative non correlation with traditional assets (outside panics, which makes almost everything correlated) and you are left with a much better version of what people have used gold for for 5000 years (in my opinion of course).
Oh yea and by the way the bitcoin network literally cant be turned off. Its more like a living organism than a corporation. Even if the US banned it lets say, as long as somebody, somewhere is running a bitcoin miner of a bitcoin node, the network will work as advertised. This is pretty crazy stuff.
That leads to valuation and "why" its priced like it is. Obviously, people are going to have differing opinions on this, just like the value of pretty much anything.
As a simple mental model, its my opinion that bitcoin is a much better, 21st century version of gold. In that context, gold's market cap is 11T and bitcoins is 1T. That argues for a 10x increase from here to match golds market cap. I think its much better than gold, so I can make the argument that it shouldn't match golds market cap but surpass it.
Oh yea, it can also be used as currency. In this use case I am not as bullish. We will see, but the volatility certainly has to come down if we are ever going to use it as a day-to-day currency. I do think people are making a huge mistake by not investing just because its not used as a currency. As I hope I outlined above, there is a ton more upside even if it never becomes a widely used currency.
There ya go. Please poke holes in my arguements!
