When you pull up a chart for bitcoin, you probably just check the price and move on...
Most people look at (and think about) bitcoin in terms of dollars. That's for the same reason you'd price any asset in dollars – it makes it easy to track. People want to see when bitcoin is in a rally or a sell-off. So tracking it in dollars makes it easy to keep score.
But don't forget that bitcoin – and the bitcoin network – doesn't have anything to do with dollars.
Thinking about price and nothing else can lead to misconceptions when it comes to bitcoin and other cryptocurrencies. And it can hold you back as a crypto investor.
Let me show you what I mean...
The bitcoin network doesn't move dollars. It moves bitcoin – and only bitcoin.
Now, there may be a human at either end of a bitcoin transaction who does care about dollars and does care about price. And as investors, we're part of that – we join in on that dollar talk.
But then you hear something like Citibank's statement in 2021... calling for bitcoin to "become the currency of choice for international trade."
OK. Thank you, Citibank... for catching up to where we've been for years.
Of course bitcoin can work in international trade. If you put bitcoin on one end of the network and send it around the world to someone else at the other end of the network, they can convert it to anything they want. Or they can simply keep it.
Bitcoin isn't directly linked to dollars.
Instead, when we talk about cryptocurrency prices, what we're really talking about is the value that the market is putting on it...
We're dealing with the market and its perception, risk tolerance, and expectations of profit. It's about all the people who participate in the market and what they believe will happen.
So, if I say bitcoin is going to reach a million dollars in our lifetime, that means I have the expectation that when bitcoin costs $80,000, it's undervalued on a lifetime basis. But it might be overvalued on a short-term basis. It's all about value.
Why Crypto Is More Like Gold Than You Think
All of this might sound obvious. But I want to help folks break away from limited thinking and misconceptions...
I've heard people talk about transferring dollars over the bitcoin network. That isn't how it works. You could build a network on top of bitcoin where someone holds dollars on one end, and someone else then feels confident that they could withdraw dollars from somebody else.
You could do that. But it's important to know that the transactions on the bitcoin network are independent of dollars... other than the "brackets" at either end of any transaction. That's the human who's saying, "I'm going to buy bitcoin with my dollars."
You can't just walk up to the bitcoin network, hand it some dollars, and have those dollars move across the network and show up at the other end. It's not the same as a bank wire.
Even more important, this understanding matters to your investments, too...
We're all looking to build our net worth. But when you're building your position in cryptocurrencies or related technologies, does it change things if you take dollars out of the equation? Do you still look at your cryptos the same way?
Try putting the dollars and the price appreciation of the token out of your mind once in a while. Instead, ask yourself, "Do I want to own this disruptive technology that has unique new monetization principles? Do I want to own it regardless of the dollar change in value?"
Because that dollar change is just a human on the other side who's willing to buy it for that price. And technology doesn't always answer to price.
So, try holding your portfolio to this standard...
Look at it the same way you would an ounce, 40 ounces, or 400 ounces of gold. We know that dollars are going to fluctuate on that. But a bar of gold doesn't ask how much it's worth when you pick it up and hold it in your hands, does it?
Then neither does bitcoin.
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