Bitcoin is demonstrating once again that it's not money. With a price change of more than 10% in less than 24 hours, no contract can be written against it. It cannot even be used as a medium of exchange, rendering it useless for anything other than gambling. But hardly anyone is mentioning this inconvenient fact. Bitcoin's price is going up, and that's all that matters to those lured into the casino.
Bitcoin explodes above 33,000 dollars, and the explanation for this has nothing to do with utility. It's all about liquidity. There's a lot of demand and little offer. The few coins available are therefore chased higher in price. The fact that this is yet another reason to dismiss Bitcoin as money is not mentioned. But money has to be liquid in order to function correctly. A small increase in price should unleash a flood of demand, and a small drop should produce a corresponding flood of offer. If this doesn't happen, the medium is too open to manipulation. A company can corner the market and drive the price up and down at will, which appears to be what's going on with Bitcoin at the moment.
Grayscale is a company specializing in crypto investing. It buys up pretty much all Bitcoins on offer while discouraging people from selling through aggressive pro-Bitcoin marketing. The result is the illiquid bubble that we're currently witnessing. However, illiquidity goes both ways. It can drive prices down just as much as it can drive prices up. If Grayscale starts selling Bitcoin it will crash, so the only way Grayscale can cash in on its paper profits is by pulling unsuspecting victims into the Bitcoin mania. But with 20 billion dollars in unrealized assets, who's going to come forward to buy it all?
Some may say that the stimulus cheques going out these days will create sufficient demand to support the price. But Grayscale alone will require 33 million people to put their 600 dollar cheques into Bitcoin for them to realize their paper gains. That's hardly going to happen. Yet, someone has to pay the electricity bill associated with the Bitcoin network so the offer will not go away. Without a steady supply of new buyers, offer will eventually surpass demand, and the price will drop like a stone.
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