As usual, I want to start with a quote, in this case, Naval Ravikant, a notorious entrepeneur and angel Investor.  For those uninformed about this branch of investing: Angel investors are the first investors in embryonic projects, namely start-ups. Naval is active on Twitter (@Naval) and, if you are interested, I warmly suggest you to follow his profile. 

Is bitcoin a speculation? 

Yes, it is, but why?
Because cryptocurrencies don’t generate Cash Flow. 

Is speculation a  bad thing? 
It depends. In this term, even gold is speculation. However, I see a rationale behind cryptocurrencies, and I will explain my point of view. 

To objectively evaluate the feasibility of an investment (or speculation) we will use the long- term horizon lens. Indeed, we will eliminate the noise (example, hyper advertised method to become a billionaire with cryptocurrency xyz) and we’re going to focus only on the signal. In other words, we’re going to analyze why there would be a place for the crypto in a balanced portfolio. I’ll suggest you to read my article about inflation first (Article 5.1 Appendix inflation). It’s essential to understand inflation in order to give a sense to our reality.
Cryptocurrencies as Bitcoin (BTC) suffered the classic bubble price evolution, in the past, even housewives speculated on Bitcoin.
The result of this behavior, like almost every bubble, is that many people who believe they are getting rich, but in reality, they lose money. (Article Mr Market) 
Consequently, they have lost confidence in cryptocurrencies and even in the investing world. But being caught in a bubble is our fault, it doesn’t mean that the underlying securities don’t have value. 

Now, cryptocurrencies are bets, we don’t know what the future holds for them. If we invest in a company that delivers products, we could expect that those products will still there in the future, and this dynamic will generate money for us as investors. In the case of cryptocurrencies, we can’t apply the same reasoning.
Cryptocurrencies are asymmetric bets (upside much greater than downside) against adverse macroeconomic events or simply bet on a digital revolution in the financial sector, a bet on an unorthodox and alternative future where central banks and governments lose control of inflation levers.

What is a currency? 
A currency is a medium of exchange.

What happens if that medium loses value? Simply, our savings lose value (inflation). 

What’s the main difference between FIAT currency (e.g., USD, CHF, EUR, YEN, RNB, …) and cryptocurrencies like Bitcoin is?
The scarcity, in other words, Bitcoin is a finite resource like gold (21 million is the finite number of BTC). Indeed, historical, when there is a debasement of the currencies, people run to buy gold. Perhaps your anxiety about Bitcoin is the volatility of the price. Forget about volatility, you must reason over the long period where daily/monthly/yearly price action has no meaning.

“When an investor focuses on short-term investments, he or she is observing the variability of the portfolio, not the returns – in short, being fooled by randomness.” 

Nassim N. Taleb 

In the short term, price fluctuations are random events, these are unpredictable.
We have to think of risk/reward terms over the long run. I heard the crowd shouting about the instability of bitcoin and the other cryptocurrencies. But what if volatility is only the first phase of the acquisition process? I mean, capitalization is low and there is a lot of uncertainty, but if step by step people will gain trust, volatility will decrease.

Who will decide which will be the winner? 
Gold has value as a storage of value because we had decided so as a human collective. A long time ago, there were no more efficient ways to store value.

“In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value”

Satoshi Nakamoto 2009-02-18

The advantage of cryptocurrencies over gold is that: I don’t need a vault to secure my wealth. Moreover, cryptocurrencies are divisible and transportable and in some cases cryptocurrencies allow smart contracts. (i.e., automatized contracts for Ethereum).
Smart contracts can automatize financial processes and revolutionize the financial world as we know it. (Worried about your job? Get ready! Fintech is unavoidable). A smart contract can literally vaporize the financial and bureaucratic complexity of our times, allowing a plumber in Mumbai to make reliable contracts with his customers without being backed by the institutions. Cryptocurrencies like Bitcoin are antifragile (Nassim Taleb – Antifragile, November 27, 2012), because every transaction is encrypted in a node, every computer involved in the blockchain holds a copy of the transactions ledger, then this ledger will survive until there is a copy of the ledger. 
Like a Hydra, you can cut one head, but another head will pop. 

What are governments going to do? 
Actually, nobody knows. At the moment various governments around the world are working on their own cryptocurrencies, the most advanced in this field is the PRC (People’s of China) with its DCEP (Digital Currency Electronic Payment).

Then is it possible they will try to repress decentralized cryptocurrencies?
(ELI5: decentralized cryptocurrencies are cryptocurrencies like Ethereum and Bitcoin that   aren’t controlled by any entity but conversely are distributed worldwide through all the computers involved in the blockchain (ledger that records digital transactions).

Yes, it is possible, and, it has already been done.

But Bitcoin seems antifragile, in other words, the fact that it is decentralized makes it difficult to prevent Bitcoin from spreading, mostly in countries that are experiencing inflation right now.
To date, since the start of the pandemic, the Federal reserve US printed 3 trillion USD, and other western countries are doing the same.

Inflation doesn’t only depend on money growth but is the relation between circulating money and velocity of money (ELI5 velocity of money equals the number of times an average dollar is used to buy goods and services in a given time unit).
When an  economic machine shut down, as in the case of covid pandemic lockdowns, the  velocity of money decreases, we will see what will happen when the system restarts to cruise speed.
Inflation is a strange beast even for economists.

“I think that the Internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing, but that will soon be developed, is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B without A knowing B or B knowing A.” 

Milton Friedman, Nobel Memorial Prize in Economic Sciences, 1999. 

I want you to remember that giving financial advice  is not my role. I only want to share my thoughts about what I read and consequently what I think about financial topics. I have deliberately reduced the information in order to distill what I think is notable about this topic.
In the end, Bitcoin  is a bet, a bet on a financial revolution that, in my opinion, has to start. 

Disclosure: Bitcoin has been part of my portfolio for two years (2%), the rest is invested in earnings assets and cash. If you decide to put money in cryptocurrencies, expect turbulences in price. The goal of the blog isn’t speculation. Anyhow,  I prefer to remain open- minded and to analyze other opportunities. This is indispensable and required to develop correct mental models about our world. Suppose you are new to my blog and you don’t understand investing basics. In that case, I discourage you to speculate, and I suggest you to follow my main topic: a series of articles where I try to explain the basics of investing in solid businesses. (Be prepared)

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