Opinion: How to trade the new bitcoin ETFs in your 401(k) or IRA

There are plenty of reasons to think this may go up, now that bitcoin “spot” ETFs have been approved.

Read: Bitcoin ETFs finally approved after a chaotic, ‘embarrassing’ 24 hours for SEC

There is a limited amount of bitcoin around. The launch of these new ETFs, backed by Wall Street marketing machines, will presumably add to demand. As supply is fixed, this should cause the price to rise.

That’s the theory, anyway.

Don’t be surprised if reality turns out differently. Bitcoin’s price has already risen 90% since last summer in anticipation of these ETFs. Buy on the rumor, sell on the news, as they say on Wall Street.

But let’s say these new ETFs do stimulate demand, and that boosts the price still further. What then?

As human beings are highly fallible, and are wired for stupid things like recency bias and herd mentality, short-term action may beget more short-term action. This is how all bubbles operate.

Read:Vanguard’s decision to shun bitcoin ETFs triggers backlash — with some customers moving to crypto-friendly competitors like Fidelity

But bitcoin, like all investments that generate no income, is effectively a Ponzi scheme. Your profits can only come from other, new money coming into the scheme. In the short term this is good for traders. But generally in these cases the new money dries up sooner or later. When that happens, the stampede of money into the scheme can quickly turn into a stampede of money back out. This is how bubbles burst.

What is the long term investment case for bitcoin? It doesn’t exist. It never has.

The main purpose of bitcoin is simply to gamble on the price of bitcoin. That’s been the case for years.

The other purpose is for crime, such as money laundering and blackmail, which is how it first became popular. Today, with the launch of these ETFs, we can add a third purpose of bitcoin: they stimulate the profits of investment companies on Wall Street.

We are all still waiting for someone — anyone — to explain any other actual, real-world, purpose for this thing. We have all been waiting since the digital currency was first created, in January 2009.

We are used to technological revolutions in our era. I am old enough to remember the world before smartphones or even mobile phones. Or before Amazon
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and YouTube
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and so on. We actually use these things. They allow us to do things we enjoy, that we now take for granted, and which were simply inconceivable 30 years ago. They have transformed the world.

What does bitcoin allow me to do that I can’t do already?

If I want financial privacy—if I want to hide money—I have ready access to gold bullion. The price is much more stable and it is exchangeable for currency anywhere in the world. If I want to make digital payments I can do that with a credit card, a smartphone, or even a smartwatch. If I want to transfer money abroad I can generally do that pretty easily online, too. If I am worried about inflation, and currency debasement, I can buy inflation-protected Treasury bonds, or foreign currencies, or stocks, or gold, or whatever.

If I am living in a country like Argentina, where the currency gets wiped out every so often, yes, indeed, something like bitcoin can allow me to transfer the money elsewhere very quickly. But it is not a one-way street. For me to be able to sell my pesos for bitcoin, somebody else has to want to exchange their bitcoin for pesos. So it is no different than swapping my pesos for dollars, or gold.

The Argentine peso just suffered a shocking 50% devaluation against the dollar. But in the past six years bitcoin has suffered two 75% devaluations against the dollar, plus another one of 50%. Stable store of value? Are you kidding me?

Meanwhile, in the midst of what we are assured is an environmental crisis, bitcoin is also a shocking, appalling source of energy waste and greenhouse gases. Running this giant Ponzi scheme uses more energy per year than all of America’s lights and TVs. It uses more energy than the entire population of Sweden, or the Netherlands.

For bitcoin to have actual long-term value, two things have to be true. First, it has to serve some sort of purpose: It has to meet some human need or want. And, second, it has to be resistant to substitution or competition.

Air serves a human need, but there’s no shortage of it. A patented device for scrambling eggs inside the shell may be resistant to substitution, but it serves no need.

Bitcoin? It fails on both fronts. It is completely pointless. It serves no real need or purpose, other than for gambling on its own price. (Oh, and for online crime.) And there is no end to competition. Coinmarketcap.com lists thousands of these digital currencies. About 1,000 of them have total “market values” of at least $10 million.

Many of them, incidentally, are now much better suited than bitcoin to online crime, money-laundering, and privacy.

Bottom line: It may be a fantastic trade, but it is a terrible investment.

Unless it can find an important purpose, the underlying value of bitcoin can already be calculated, exactly, in round numbers. Very round.