John, Mary and Kate are three “investors” who are buying bitcoins. Each time one of them buys a bitcoin, the value of bitcoins rises due to increased demand.
John got in early and bought 10 bitcoins for $1 each. So John’s investment is a total of $10.
Mary got in a month ago and bought 10 bitcoins for $20 each. So Mary’s total investment is $200.
Kate just bought her bitcoins, purchasing 10 of them for $200 each. So Mary’s total investment is $2,000.
The total amount of their combined purchases as $10 + $200 + $2000, or a grand total of $2210.
But the three of them, in total, THINK they have a grand total of $6,000 worth of bitcoins because ALL the bitcoins they purchased are now “valued” at the most recent purchase price of $200.
In other words:
John currently owns 10 bitcoins valued at $200 each, so John thinks he’s got “$2,000 worth of bitcoins” in his account.
Mary’s 10 bitcoins are also valued at $200 each, so Mary thinks she’s got “$2,000 worth of bitcoins.”
Kate’s bitcoins are also worth $200 each, so Kate has $2,000 worth of bitcoins.
In total, these three people believe they have $6,000 worth of bitcoins.
Yet, they only “invested” $2210.
Somehow, $3,790 in “value” was created out of nothing.
Where did this extra $3,790 come from?
Answer: It doesn’t exist. It is an illusion.
Bitcoins, like stocks, create the illusion of free wealth during a rise in valuation