Eating Crow on Bitcoin

It briefly hit $123,000 on Monday, about $118,600 7/16/25

Note: after writing this post, I learned that both the house and the senate have passed the “Genius Act”, to promote the use of “stablecoins” for everyday commerce, so I’m adding this update. A stablecoin is a digital currency that is pegged to the dollar, ie, in effect, a digital dollar. Another bill, the Anti-CBDC Surveillance State Act seeks to prohibit the issuance of a retail central bank digital currency, also referred to as a CBDC. That bill also passed 219–210.

I haven’t read these two bills yet, but one thing I didn’t see in news reports was the fact that stablecoins can be “staked”, or locked in for a period during which you can’t sell it - kind of like a CD that can’t be cashed, at least not without a penalty, for a specified period of time. If you stake your stablecoin, the platform holding it will pay interest. I have some stablecoin (USDC) that I’ve staked with the Coinbase brokerage and have been receiving about 4% interest.

Of course, since stablecoins are pegged to the dollar, they carry the same risk of losing value due to inflation. However, they greatly facilitate financial transactions, because they are direct, with no banker middlemen.

Last year, I held off buying any more bitcoin, because I saw too much risk for an old guy who is just trying to preserve capital for his childrens’ children to inherit, if it’s the Lord’s will.

When Bitcoin was $26,500 in September 2023 I wrote “Re-Evaluating Bitcoin” and when I wrote “Re-evaluating Bitcoin Again” in April 2024, it was $70,000.

As I said at the time, “It’s a good thing I’m not an investment advisor”. I had written about the risks. However, all of the risks still exist, as far as I can see.

from the April ‘24 article:

“The risks are hackers, the difficulty of cashing out, the high exchange fees, the lack of ease of use as shown in El Salvadore’s experiment, the very complicated process of securing your Bitcoin with a hardware wallet, the near impossibility of Bitcoin ever becoming universal as a currency because of the time it takes to add each transaction to the blockchain, the number of fraudulent actors like Sam Bankman-Fried in the business, and the difficulty of Bitcoin mining.

To understand what I now see as a new threat, first we have to look at the difference between Bitcoin and Ethereum. Bitcoin transactions are verified on the blockchain by “proof of work”. The “work” is using vast computer power for each transaction to find a blockchain identifier (like a very long password) that hasn’t already been used. Actually, being “decentralized”, it’s the vast computer power of many miners all over the world all trying at the same time to be the first to find the next identifier. The first one to accomplish this gets the reward, which is in Bitcoins. All this computing power is eating up huge amounts of electrical power for the computing and for cooling the computers. That’s why Bitcoin miners try to locate their data centers close to power sources.

Meanwhile, Ethereum is a platform for developers of crypto programs, software utilizing blockchain technology. Ethereum per se is not a currency, although it is associated with it’s own coin, ETH, which is like a currency. Unlike Bitcoin, ETH uses “proof of stake” to verify each transaction. It is decentralized in that thousands of stakeholders check and verify each transaction before adding it to the blockchain. Proof of stake is quicker than proof of work, and it uses much less electricity.

So the threat, as I see it, is that the power demands of mining Bitcoin will soon force it to change to proof of stake or be outlawed. Our power grid is so vulnerable now with so much of it being based on unreliable wind and solar that serious grid outages are bound to happen in the next few years, and unnecessary power consumption will be in the crosshairs. So far, Bitcoin has refused to consider switching to proof of stake, so whatever will happen is uncertain.

Since ETH uses much less power, and it has actual use cases of value, it may have a much brighter future than Bitcoin.

The second threat that I see, to both Bitcoin and Ethereum and all crypto, is from quantum computing. It sounds like quantum computers may soon be able to crack the blockchain and all encryption and passwords. It’s hard to imagine what that would be like, but it might make it easy for any bad character with access to quantum computing to steal any crypto currency.

At that point, physical gold will regain its luster. Or anything real and tangible”

Now that Bitcoin is about $118,600, it looks like I was just a wee bit wrong (LOL), or at least my timing was off - we will see; time will tell.

One more risk that I didn’t mention is the danger of loss of internet and all digital communications caused by an EMP (electromagnetic pulse) hit, either from solar flares or a high-altitude nuclear detonation (HEMP). We are presently in the midst of record peak solar activity, by the way.

Ethereum has not gone up like Bitcoin, so apparently folks aren’t worried about Bitcoin’s limited use as a currency - they are seeing it as a store of value against inflation, like gold.

I was right about gold, though - it too is up, although not as much percentage-wise, but re-claiming its traditional role as a store of value - tangible value that you can hold in your hand - time proven value for thousands of years - as a hedge against inflation, or in other words, the constant erosion of the value of fiat paper currencies, and a protection against the historical rise and fall of nations and their currencies.

Fortunately, I didn’t sell my modest holding of Bitcoin - just didn’t buy any more than I already had because of the risks I see. Yes, I am very conservative.

That’s the bottom line for any investment - always take a good hard look at the risks and just invest an amount that let’s you sleep well at night.

If you’ve been more aggressive and are profiting nicely from buying Bitcoin, you might want to take a little off the table, just in case it goes down again.

“A good man leaves an inheritance for their children’s children” Proverbs 13:22a