BITCOIN ARE PORK BELLIES, NOT GOLD
Bitcoin proponents often refer to cryptocurrencies as “digital gold.” But aside from both having few practical uses, bitcoin and gold have little in common. Yet despite its lack of utility, bitcoin continues to trade. Along with other cryptocurrencies, bitcoin seems to have taken on a life of its own as a vehicle for speculation. The emergence is not just limited to the financial market. Cryptos are often in the news, despite a lack of connection to the economy or other financial assets.
Once upon a time, frozen pork bellies also caught the imagination of the public. Most people know pork belly as the origin of bacon. But from the 1960s through the 1990s, they were also the iconic futures contract. Eddie Murphy even used pork bellies in the 1983 movie Trading Places to explain how futures markets operated. When I started trading futures in the 1980s, people often asked me about pork bellies even though I was trading stock index and treasury futures. Oddly, trade volume in pork belly futures dwarfed trading in whole hogs for many years, even though it was just a part of the pig. Why? People evidently just liked the sheer novelty of trading bellies, despite their limited use. The CME even said, “Few commodities offer the profit potential and market action of CME Frozen Pork Belly futures” in a 2008 publication.1 But eventually the novelty wore off and bellies stopped trading in 2011.
That brings us back to bitcoin and other cryptocurrencies. Why do people trade cryptos even though they seemingly have little use, high volatility and no intrinsic value? I think that like pork bellies, some people just like the idea of trading them. It’s something in popular culture, a symbol of our digital age. Few other trading vehicles offer “the profit potential and market action” of cryptos. But unlike gold, which would still be around if the Earth exploded, an electromagnetic pulse would destroy all evidence of cryptos. They are completely ephemeral. Gold may have few uses, but at least it’s immortal, which is why it has been used for centuries as a store of value.
So in the end, cryptos may be just fun to trade. They’re a cultural phenomenon. But if investors consider trading them, we might think of them as a novelty like pork bellies, not an immutable substance like gold.
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