I think I would argue the decentralized aspect has also failed.
Because of limited throughput (350k per day), most transact via exchanges and off chain. Some what 90+% of coins are owned by a ridiculously small volume of wallets, with most concentrated in exchanges with a huge volume of coins.
Because of the nature of mining, we are seeing more and more consolidation into fewer parties who can afford the electricity burden and hardware capital. We are long gone the day of people mining btc with their ati cards at home. In fact, I saw a blog about how mining is completely unprofitable.
It is massively controlled at this point by few rich parties (exchanges, miners)
who have disproportionate sway on it's value (wash trading) and transaction throughput. Why exactly should people trust these guys rather than publicly traded/regulated banks or government bodies?
This is a classic case of "The market can remain irrational longer than you remain solvent." Whether Bitcoin continues to con investors into believing any of those theses is not directly related to whether those theses have tunred out to be reliable.
Everyone who has ever disagreed with a market has told themselves the same platitude. It doesn't mean they're right.
It is true that the market can remain irrational longer than you can remain solvent, but it's also true that you can remain irrational longer than you can remain solvent.
Sure. But none of that speaks to whether to the alleged usefulness of Bitcoin. It has failed in every way to prove itself useful in any context it has been billed for.
Yet it's still here and has still provided a novel solution to the Byzantine generals problem.
Beyond that core value, do what you wish with it or not.
It's just a tech stack that has potential value, it is not the end all be all of value networking, or value-as-a-protocal but it's insanely useful in driving innovation in this space.
There it is, promises of future things and "potential value", and the abstract concept of "driving innovation".
Yes, it will be around. But beyond the idea it represents, and the technological invention that is blockchain, there is no value. This is marketing and ideas you invest in.
I think blockchains still have a lot of value, not as currencies or assets, but as decentralized databases for supply chain tracking. We clearly have a lot of issues with our existing global supply chain, especially tracking the origin of every component that goes into things. Blockchain has a lot of legitimate uses for transparently tracking different components along their journey, from raw materials until they reach customers, and helping with industrial planning as well as proving compliance with regulations.
Planned economies haven't worked. Market economies have some clear inefficiencies and potentials for destabilizations. Applying data transparency and tracking to a market economy using supply chain blockchains has the potential to enable more decentralized planning to build better options.
Also, the chart shows Bitcoin price, which does not matter for what it is talking about. What matters is Bitcoin market cap. If only ten Bitcoins exist, a market price of $60k each is easy, or even $120k each.
Bitcoin had a market cap of $1.2 trillion in November. That becomes harder to sustain when quantitative easing is slowing, when the fed funds rate is slowly rising with indications of it rising more in this year if inflation is where it is etc.
It's the problem of all successful Ponzi schemes - eventually they grow too big and implode.
Perhaps not as a speculative investment vehicle but in terms of practicality and taking over the world, it's been twelve years already to show us the benefits.
It doesn't need to take over the world, or even be practical for spending. Simply being a place one can park money that cannot be inflated / printed away is enough to justify it.
And besides, twelve recession-free years doesn't mean a whole lot for a brand new class of currency. We'll see where money goes when there's nowhere good to invest it AND fiat currency is being inflated like crazy.
> Simply being a place one can park money that cannot be inflated / printed away is enough to justify it.
If you parked your money in Bitcoin on Jan 1 because you were worried about inflation that was coming, today that money would only have about 60% of the purchasing power.
When people are talking about "inflation" my inclination is to think about at least 2-3 years as a time frame.
> We're literally seeing that now. The money is flowing out of BTC even faster than all the other investments losing value.
Yes, currently BTC apparently isn't becoming more valuable. But that's not all that relevant to people who're interested in it for the sake of inflation / store of value.
There's more than just index funds out there. People park their money in art, stamps, antiques, rare coins, watches, real estate in the tundra. What does a Monet have to do with real-world economics, other than the hope that we all continue to agree it's valuable?
Please don't put your retirement savings in fine art or antiques unless you have spare funds that you can stand to lose. Collectibles consume wealth (maintenance costs) and do not produce it, so the only way you can make money is by accurately predicting what will be popular and paying to hold onto it for years. Most art and antiques decline in value over time, but you can get lucky. You should absolutely buy art that you love and can afford, but you should think of it as a consumable that can retain some resale value (like a car) and not as an investment.
Rural land is a slightly different story, as there is some underlying productivity there (e.g. agricultural use, or maybe there's something to mine), but tundra real estate doesn't sound like a great buy.
> Is it a way for North Korea to get paid when extorting Western companies? In fact yes, this use case does seem to work.
The "criminals use Bitcoin" while true is the weakest of the arguments against the current or future success of Bitcoin. Criminals still primarily use regular ole' fiat currency for this stuff, or have more sophisticated schemes like selling artwork. In the case of North Korea they'd have to either mine Bitcoin, or they'd have to convert their currency to Bitcoin. But who would sell to take worthless North Korean money? Unless you mean they convert dollars... in which case they were just using the dollars already.
>> Is it a way for North Korea to get paid when extorting Western companies? In fact yes, this use case does seem to work.
> The "criminals use Bitcoin" while true is the weakest of the arguments against the current or future success of Bitcoin. Criminals still primarily use regular ole' fiat currency for this stuff, or have more sophisticated schemes like selling artwork.
Cryptocurrency enables criminal schemes that are totally impractical with cash, such as ransomware malware at scale (have you heard of it?). These schemes are an appealing use for cryptocurrency. Legitimate transactions can use conventional payment networks, but these can't and need a lawless transnational payment network like cryptocurrency provides.
Also, LOL at the idea that criminals are so busy selling artwork that they have no use for cryptocurrency.
> In the case of North Korea they'd have to either mine Bitcoin, or they'd have to convert their currency to Bitcoin. But who would sell to take worthless North Korean money? Unless you mean they convert dollars... in which case they were just using the dollars already.
LOL, I don't think you understand what you're trying to debunk at all. The North Korean state wants foreign hard currency, and cryptocurrency is a mechanism for them to acquire that (e.g. through the aforementioned ransomware).
> Cryptocurrency enables criminal schemes that are totally impractical with cash, such as ransomware malware at scale. These schemes are an appealing use for cryptocurrency, because they require a lawless transnational payment network. Legitimate transactions can use conventional payment networks.
Following that line of reasoning, a briefcase full of cash on an airplane to Colombia enabled criminal schemes that were totally impractical. Having a transnational payment network itself enables schemes. So does not having the government track and verify each and every one of your transactions.
If you wanted to make a good argument here, you'd actually focus on tradeoffs and cost-benefit for Bitcoin. Is "North Korean ransomware" an acceptable tradeoff to have Bitcoin? Idk. But the prevailing "criminals will do bad things" argument is asinine because criminals did bad stuff before Bitcoin/Cryptocurrency too, and they still mostly use fiat currency for "bad things" right now anyway. The fact that North Korea has to convert Bitcoin into dollars that ostensibly they're not allowed to have just proves the point.
The point that I was making was that cryptocurrency has significant criminal use-cases (which the GGP was playing down or was ignorant of).
While cash can be useful for criminal schemes, it's old and has significant legitimate use due to legacy momentum. Cryptocurrency, on the other hand, is new and post-dates regulated payment networks that efficiently handle nearly all legitimate payments, so it suffers from similar problems to unmoderated internet forums: it actively attracts a disproportionate share of bad actors. I'm not saying that cryptocurrency should be banned for that reason, but it's an important fact to note when it's being denied.
IMHO, cryptocurrency isn't the "future of money," because there are no practical reasons for anyone to use it as money. The main reasons people actually use it are (in order): for speculation, criminal activity, or (often questionable) ideological reasons. The latter is a drop in the bucket compared to the first two.
Large amounts of fiat currency are heavy, bulky, and difficult to smuggle. The US got rid of $500 and $1K notes because they proved more useful for doing crimes than for doing business, and the same happened with bearer bonds.
Criminals will do bad things at scale with cryptocurrency. Ransomware existed before bitcoin, but the amounts demanded were pittances compared to what can be demanded today because the difficulty of using cash or the banking system for a transaction increases exponentially as the amounts involved increase.
Wire transfers exist. Paypal scams, etc. I'm just not convinced anything is fundamentally different here. It's a weak criticism. There are much better ones, and even this criticism is better served by arguing about tradeoffs and benefits instead of trying to find some way to express that Bitcoin is categorically different.
It's hard to move cash, but it was harder to move gold ergo we should stop using cash because it's easy for criminals to move and use gold instead. That's the line of reasoning at play here that is espoused by this argument.
Wire transfers are also hard to reverse, but banks have security ceremonies around them to prevent misuse, and good luck to you if you want to pay a $20MM ransom with an international wire transfer. Even if you were able to find a banker who wouldn't call the FBI on you, the recipients of the transfer are exposing themselves to significant risk of capture by interacting with their local banking system and by providing you with the details of their account.
Cash being convenient for small transactions and difficult to use for large ones is a deliberate feature. The point is to strike a balance between usability and vulnerability to misuse. E.g., you have to declare when you're moving more than $10K across an international border, and it's actually hard to smuggle that much cash due to the weight and bulk. Gold is also heavy and bulky, which is an important security feature of Fort Knox (even if you break in, how are you going to abscond with tons of gold bars?).
Do you have any source for your claim "Criminals still primarily use regular ole' fiat currency for this stuff"? Isn't it much easier to get paid for your ransomware in crypto and remain on chain without having to touch fiat and getting blocked by sanctions?
You can't buy a $1MM Amazon gift card. That would be incredibly useful for illegal activity but more or less useless as a gift card.
When financial instruments are primarily used for licit activity, we tend to add features that make illicit activity more difficult but accept that some illicit use will occur. That's why we still have $100 (but with serial numbers) and don't have bearer bonds any more.
>Criminals still primarily use regular ole' fiat currency for this stuff
Overall "money turnover" - idk whats the proper English term for that, basically value of all transactions over some period - is multiple orders of magnitude larger for fiat currency.
That does not change the fact that criminal activity is way, way larger % of crypto turnover.
Yep. To go further, bitcoin hasn't been the darknet currency for a good 5 years now, these days everyone is using monero.
The North Korea is thing is just rumor-mongering, or governments pointing fingers at each other as they always do. The only eastern country I've heard publicly admit to using bitcoin is Ukraine: https://www.nytimes.com/2022/03/11/technology/bitcoin-ukrain...
> Unless you mean they convert dollars... in which case they were just using the dollars already.
It's actually pretty hard to spend dollars when you represent a sanctioned entity. A DPRK official may have a suitcase full of USD, but no western bank will accept their deposit or accept a transfer from a bank or account associated with the North Korean regime. But if they can find someone who will take their USD in exchange for no-questions-asked crypto, then they get to evade sanctions (at least for a little while).
Huh? The argument is that they commit crimes and receive ransoms in BTC that they can then convert to USD, EUR. This is a new incentive to commit crimes that simply didn’t exist before; wire transfers and the like are not a good substitute, by design.
If crypto disappears today, ransoms will still be prevalent, but will be much higher as they will be more difficult to pay. It's not a new incentive at all, it just opened up the ease of payment.
Not only does that not make sense…it doesn’t make sense! Why would unpayable ransoms be higher? And my argument is that in fact, “open[ing] up the ease of payment” enables a new form of monetizing activity, so it is a new incentive because it unlocks a new business model.
I think what they're saying is if something is hard to do, you "go big or go home". If something is super easy to do, you'll accept less because you're probably hitting up a lot more people with it.
Like they might accept a ransomware of $200 instead of nothing from person X because they're hitting up thousands of people with it, whereas if you go through all the effort to physically kidnap someone and leave a ransom note, you're not going to be able to do that thousands of times, probably just a couple at most, so you're going to demand a large ransom payment to make it worth the effort, like $1 million+.
They also didn't say 'unpayable', btw, just more difficult to pay.
Yes, that's what I'm saying. Also, cost of doing business goes up because and margins go down due to ransom payments that fall through the cracks, so according to the laws of capitalism -> ransom payments go up.
It is an asset of perceived value in a world where the equity class has trillions of dollars that they don’t know what to do with. Bitcoin’s rise says more about the lack of other good investments, and makes it clear that assets are priced largely based on how much cash is available to invest rather than any underlying fundamentals of the investments.
To play devil's advocate here, Bitcoin might be a kind of digital gold. It suffers less inflation (supply grows slower), is more divisible, and is easier to move and store.
People might argue gold has other uses, but they don't move the needle, and anyway, so does Bitcoin.
The thing is gold has thousands of years track record as a store of value and as money or something to back money. Bitcoin obviously does not, and it remains to be seen if it can replace gold in that way. I don't see central banks stocking up on it yet.
This is a fair observation, but every time this comes up, I have to wonder, what advantage does Bitcoin offer over gold?
- Gold has no dependency on electricity, computers, or any energy source. Bitcoin ceases to exist without these things.
- Gold has a lot of practical uses and applications as a material. Bitcoin has none.
- Gold is a naturally occurring element. Bitcoin is not.
The only advantage I've ever been able to see is that Bitcoin ownership can be transferred electronically compared to gold that must be moved. However, being able to be moved electronically also means that it can be stolen electronically. A bad actor in North Korea has the potential to steal a person's wallet credentials and transfer Bitcoin out of their possession. They can't do this with physical gold.
Gold is not a perfect store of value - it doesn't serve a fundamental need like food or a blanket - but it has served it's purpose over the millennia and I don't see how Bitcoin is improving on it.
I can hand you a piece of gold and the transfer is done. No 74 character address, no keys, no official public ledger of the transaction happening, just a transfer of value between two parties.
Moving gold across the ocean is expensive. You can only do it so many times before you've expended the full value of the gold. Bitcoin is much easier to move around by comparison.
Keep in mind the vast majority of gold holdings and transactions are between central banks.
Is it a system for remittances to the third world?'
Even more so, I feel like the third world is becoming more of a dumpster for first world crypto experiments where the number of greater fools is declining.
Anecdotally, I hadn't visited Brazil in almost 4 years. Went there some months ago and was definitely surprised (and shocked) by how much chatter about cryptocurrencies was going around. Uber drivers, waiters, bartenders, cashiers, I had experience with them and many other people trying to tell me how they were into crypto, showing me graphs of their earnings (or losses), etc.
It was really alarming to see how many vulnerable people had bought into this mania in a poor country. The moment this bubble pops and crashes it will bring down a lot of non-cryptobros that are being shilled, either by influencers or other "hodlers" friends or family (that may actually think it's a good "investment").
> Clearly not, with slow settlement and high transaction costs
The secondary and tertiary layers are still not worked out yet. I don't follow lightning closely and I'll take your word that it is in a miserable state, however I don't see a fundamental problem. But even now I'm pretty sure Bitcoin is faster and cheaper than anything else for settling high value irreversible, remote transactions.
I think Bitcoin has plenty of potential but right now it's at a point where speculators are vastly outnumbering any other uses. So its potential non speculative uses are invisible or even hindered. It's also hindered because it doesn't have the backing of a powerful government forcing its use upon its citizens. The fundamentals are all still valid and nothing you mentioned proves that it cannot ever work as a currency. One that isn't controlled by a central bank and fractional reserve system that continually erodes the currency's purchasing power.
> But even now I'm pretty sure Bitcoin is faster and cheaper than anything else for settling high value irreversible, remote transactions.
Only if you ignore money transfer laws. If your transfer is legal, the alternatives are easier, cheaper, and faster. If you're willing to ignore the law, you might as well set up a bank that ignores the law and have that bank do the transfer orders of magnitude cheaper and quicker than Bitcoin.
> Is it a store of value based on [insert lurid fantasy about digital energy crystal magic on the blockchain]? No, see above.
To play devil's advocate, I do wonder if once the get rich quick ponzi scheme ends, it will come to represent the "value" of it's investors innate skepticism and hostility toward the institutions that govern the global economy.
The remaining investors would be a cabal of cheerleaders for the destruction the current institutional structures (probably to replace it with yet another "purer' one more to their liking).
Maybe that underlying value isn't $30k but instead is only $5k, or maybe because BTC's only output is destructive (IIUC there is no future revenue stream of consequence - only the burning of fuels), it is $0 once it's "job" is done. I don't know.
But its original thesis involved undermining fiat money and bypassing tax levying authority by taking transactions away from the purview of institutions involved in both.
At it's most potent, I liken it more to a WMD against those institutions (which seems to be why it is particularly popular among the anti government crowd), not as some kind of basis for a hypothetically productive anarchist economy.
And as you say, at it's least potent it's largely, though not exclusively, a means of exchange for illicit and criminal activity.
> Is it a way for North Korea to get paid when extorting Western companies?
To be fair, Bitcoin didn't invent extortion, it is just a better tool that facilitates it at a distance - no suitcases of cash or diamonds or physical middlemen needed. Also traditional banks have come under scrutiny for looking the other way for all kinds of criminal activity, so it's not as easy to move illicit funds as it used to be.
It's absolutely a pyramid scheme. But that doesn't mean it will actually collapse. A lot of the best known pyramid schemes (Amway, Mary Kay) ended being incredibly durable businesses where all the people who lost their shirts failed to dissuade the next generation.
Because bitcoin is simply not a pyramid scheme. It has been argued wrongly for over 10 years. Why not read the definition of what pyramid scheme is first? It would clear all doubts, yet people love to parrot dumb headlines
You can argue semantics (I mean you're not really even trying) but the fact is that most pyramid schemes at least give some bottles of herbal supplements or crystals or something. Crypto is valued exactly as much as the rate that people keep buying it (minus a load of wasted electricity) and nothing else.
It is literally illegal in the US to advertise investments on TV yet there has been an absolute bombardment of marketing trying to get as many average joes as possible to buy crypto to goose the price. Enticing unsophisticated investors with a promise of massive rewards coupled with badgering FOMO is the exact MO of pyramid schemes.
> A pyramid scheme means that you use money from new investors to pay previous investors.
That's a Ponzi scheme.
A pyramid scheme is when you have to pay to your superiors and recruit subordinates, in a way that the main way of recouping your investment is by bringing more subordinates, so that it's only profitable to those in the first few levels of the pyramid.
Let me tell you about a new NFT I'm launching for our fans so they can own a piece of the ~watever~ and show their support to us. Each NFT will be a AI generated thumbs up that's slightly unique, just like you.
# Yep, crypto and it's offshoots are totally not a scam.
the us dollar system is the biggest pyramid scheme :D. Ask people in third world countries. Bitcoin is an alternative from US fiat currency. It is not country backed, but run by individual actors around the world. Will there be volatility? yes, welcome to a true free market system in a high inflation world
No fiat is a pyramid. Fiat currencies are actively managed and the managers are at least partially answerable to elected policy makers. If fiat is a pyramid, then all civilized society and representative democracy is a pyramid.
Gold is ductile and a good conductor. Outside of it's shiny / jewelry uses it's actually a useful metal. Crypto only consumes energy as a product of it's existence.
And when the mining stops, all its value vanishes. Value stored on jelly. Bitcoin has a runaway implosion mechanism built in, and no floor on its price except 0.
Gold is a useful material for some use-cases, and people want it because it's pretty. Even if its intrinsic value is overshadowed by store-of-value value, BTC has nothing on that front.
I guess, but there's no proof the sender has deleted their copies of the keys. You would need to immediately transfer the assets to another wallet, and until you did, the sender could rescind the transfer by moving the coins themselves.
Although meeting in person to physically transfer gold requires a similar amount of trust, so ¯\_(ツ)_/¯
>Fed holdings went from $4T to $9T over the last ten years.
>By contrast, the cumulative crypto complex grew from essentially $0 to $2T before its recent crash. Where did this money come from? It was essentially a money multiplier effect of QE.
>Crypto is now collapsing because the Fed is tightening.
Yes, and when the Fed reverses course after everything breaks from this tightening, BTC will rise again. Why are extreme boom and bust cycles of crypto surprising to anyone anymore?
It is the asset most correlated change in global liquidity. And if the author thinks the liquidity spigot is forever cut off with this much global debt, he's got another think coming. The Fed balance sheet will be going to 15, 20, $30 trillion eventually. No entity has a big enough balance sheet to buy the enormous debt and deficits the US produces, and the Eurodollar market can't function without continued liquidity injections.
> Yes, and when the Fed reverses course after everything breaks from this tightening, BTC will rise again. Why are extreme boom and bust cycles of crypto surprising to anyone anymore?
I wouldn't be so sure. The narrative for crypto was that interest rates were never going to go up, QE was never going to stop, and we were going to see hyper inflation.
Somehow - crypto was uniquely the only possible hedge against this.
This has proven to be false.
It's at least going to need a new narrative. At some point, it's going to run out of narratives, and it's going to need to actually deliver value.
>The narrative for crypto was that interest rates were never going to go up
Who made this claim?
They went up in 2018 and BTC crashed. Then they went back down, Fed expanded their balance sheet, and BTC boomed.
The Fed has no choice but to eventually monetize the debt more. There is no other option. Where is the balance sheet going to come from to fund the massive deficits the US runs? There is no where else.
Meanwhile the US is freezing foreign reserves. Of course they could also mandate penalties for owning or buying BTC which could certainly crash the price for a time. But "rates are currently going up a little bit" is not in any way a refutation of the long term BTC trend. Rates can eventually rise after the $ devalues and the debt to GDP declines significantly. But Fed has not even begun to shrink their balance sheet yet you think they should declare victory?
Lets see what happens when the market falls 50% more. They will reverse course eventually, if not in the short term.
Of course none of this means you should blindly hodl BTC through the crashes. All risk assets are tanking now as long as Fed tightens. Then when they expand their balance sheet again and sent rates back down, you average into BTC as it moons. Being all or nothing on any investment thesis in perpetuity is silly. But look at the charts. You can't say BTC is finished until it fails to have another bull run.
Despite all of the narratives you'd read on HN, I honestly don't think the majority of "regular" people who helped drive the boom needed any story beyond "look how fast it's going up!".
Hell, I'm also guilty of falling for that at times. It can, and likely will, happen again.
There are two components to the crazy asset inflation we saw after COVID:
1) The Fed increasing the money supply. This lead to a situation where there was a lot of money that needed to be put somewhere.
2) The Fed keeping the interest rate near zero. This meant there was no safe place to put all the money the Fed was dumping into the system.
Warren Buffet, someone generally regarded as being very good at estimating value, has said that near-zero interest rates can support near-infinite valuations. That's exactly what we saw play out.
Yes, and with the amount of debt the US has (over 120% dept to GDP), the economy cannot function without low rates, without negative real rates (for long enough until debt to GDP declines).
Without new money pumped into the system it collapses, without steadily increasing asset prices (at least assets not declining for long) the system collapses.
The interest on debt will crowd out everything else and put economy in depression if rates rise meaningfully. With energy becoming more expensive than in decades past ("peak cheap oil"), there is not enough real growth to keep the system going without injections of money/liquidity.
Inflation, however painful, is baked into the cake and is the only real path to devalue the debt. Cutting spending, cutting entitlements, cutting defense, raising taxes...all are politically near impossible and would put US economy into massive depression.
The government debt doesn't really matter because the Fed can always increase the money supply by buying treasuries. For instance, the total U.S. debt is almost 30T, but 9T of that is owed to the Fed. The Fed can do this regardless of interest rate.
> Yes, and when the Fed reverses course after everything breaks from this tightening, ...
This.
I'd really like someone to explain to me, how the central banks and the states are supposedly going to get out of the increasing-debt-spiral we're in right now.
I see literally no way except for governments to tax the rich, which they won't do.
The only other way for governments to still sign off budgets to enact policy is to pile on more debt (going further down the spiral).
BTC is down 50% from ATH while Nasdaq is off 30% and S&P 20%, Bonds (AGG) down 15%, all in the span of 6 months. BTC's investment thesis is not invalidated for sliding along with every single other asset class in one of the worst historic starts to a year.
Try a longer term perspective, and BTC is indeed still deflationary - its potential to replace central bank functionality and to be a secure, global SoV is still valuable to investors.
It's claimed ability to be a SoV is rather damaged by it falling more than other asset classes. If it was a more secure alternative to gold it should have headed in the other direction...
It's only claim to be a SoV (unless you still believe it's on the path to being used as a means of payment) is the belief that it might have the weird countercyclical properties of gold (i.e. everyone buys it out of habit when they lose confidence in assets valued for their future returns like stocks and bonds and/or local currency)
Instead, when asset prices crashed and most countries experienced their highest inflation in decades, BTC not only failed to gain in value as a "safe haven" but actually fell much faster. Impossible to stress how favourable this year should have been to an "uncensorable" abstract store of value whose supply doesnt vary according to economic conditions.
In terms of tech innovations in the modern day, 15 years is an eternity. Google didn't take 15 years to become a massive search engine, FB didn't take 15 years to become the dominant social network.
Bitcoin was supposed to have started acting counter-cyclically (like gold) when it got mass adoption. So, 2018?
Instead, it acts like leveraged NASDAQ in its pricing, and has absolutely none of the utility that a cryptocurrency probably should have. The only benefit of bitcoin is name recognition. That doesn't create a currency or a store of value. The volatility of BTC/USD has only increased, as well as the correlation with QQQ, which does not suggest that BTC will ever become a store of value.
All fundamental signs point to a $0 value for bitcoin. Unfortunately, the dinosaur coin (BTC) will probably drag down the coins with utility (eg Solana, Zcash, and Monero) with it.
It is notable that Bitcoin took fewer years than both Google and FB to reach a 1 trillion market cap. Now market cap is a pretty horrible metric (and 1 trillion is arbitrary), but one way to compare totally different things. Note that bitcoin has always been the dominant cryptocurrency, and google/FB were dominant search engine/social networks much earlier than they reached 1 trillion market cap. What took a long time for them was for the market to value those innovations more highly. In crypto's case, the market valuation actually came quite quickly.
> The volatility of BTC/USD has only increased
Do you have a source for this? The data I have seen is that it is just slightly decreasing if anything, but there are many ways to measure volatility.
No, you get there by having the Tether money printer prop up valuations, until there's too much money to keep printing, and without that upward pull, it just starts correlating with NASDAQ.
Yeh, that stood out to me too. If the author doesn't know that El Salvador uses the dollar and is embracing Bitcoin partly to decouple their economy from USD, then I question everything he says.
One thesis for Bitcoin is that the global economy is transitioning away from the petrodollar system and Bitcoin may play a part in the reserve currencies that replace it. El Salvador just hosted a summit with 44 countries to discuss adopting Bitcoin as legal tender and moving to a new reserve system.
Bitcoin as an investment always struck me as a rather silly idea.
Bitcoin was supposed to be useful because it was a decentralized currency, but a functional currency should, by definition, not be a good investment (that is, something that increases in value more quickly than other assets in the economy).
If the relative value of your currency keeps increasing, then you don't want to spend it, if people aren't spending the currency then it is not in fact a functional currency, and if it is not a functional currency, then it ought not have any value.
If one believes it is useful as a currency, but the world has not yet fully realized that and when it does it will stabilize in a much higher price than today, would you say it makes sense as an investment now?
I find odd that people already have final judgements about bitcoin's success after little more than a decade of existence, when even its issuance schedule is over a century long. Does it really make sense to expect an entirely novel currency/asset/whatever you wanna call it to find its definitive price in one decade?
Education should be free. Food should be healthy. Housing should be affordable. Ultimately, what economists think a currency should be doesn't matter. What matters is what people want.
And I suspect that most people, given a choice, would prefer to get paid in a currency that retains value over time rather than one which loses it.
This choice doesn't exist today. But it could exist in a future where Bitcoin's UX improves and its price becomes less volatile.
A currency could be a good investment if you expect the value backing the currency to outpace or be more stable than the value backing other currencies or assets.
But in my opinion, Bitcoin is not backed by a lot of value, rather it’s backed by a lot of cost, which is confused for value.
Enthusiasts wrongly believe that proof of work (the primary cost) is necessary to create scarcity (the primary value).
Proof of work is not necessary to create scarcity, so it’s a pointless cost, and scarcity is not valuable enough to be the primary value.
While scarcity is important to prevent inflation, we now have many cryptocurrencies which support scarcity. With that plethora of choices, the most valuable currency will be the one that producers and consumers (the real source if value) choose to transact in.
People will choose to transact in the currency that best supports transactions. This comes down to cost, speed, and features.
Yip, we have all the history we need in economics to know what makes a good currency. The problem with crypto is all the tech-utopians making it, never read any economics (or political theory); and all the financiers hyping it, never read any tech, so presume their education isnt relevant.
Bitcoin is a mirror image of bread-coins which subsequently rot. We know not to make currency out of bread (ie., items with negative time-bounded exchange value), I hope we have now discovered not to make them out of blockchain-slices.
> The problem with crypto is all the tech-utopians making it, never read any economics (or political theory) ...
Now that's some claim.
You probably disagree with me when I say that austrian economics [1] is indeed an economic school.
Folks like Saifedean Ammous [2] appear to at least have tried reading up on some economics.
It's something more old-fashioned than modern economics, it's a kind of moral-political economics. Which, I agree, lines up quite well with what Bitcoin is, as a project. A
The problem with the moral premises of this world view is their feudalist concequences, for reasons unknown to me, utopians of this type think that if a premise is true that they dont need to think about concequences.
In this case, if individualism is true, then feudalism cant possibly follow. But reality doesnt follow "ideas" in this sense.
If we create a system of individual ownership of fixed resources (land, crypto, etc.) then the few there first owns everything, and hence, feudalism.
I dont take this sort of "moral economics" seriously, since its not itself a serious sort of either morality, politics or economics. Its an attempt to deduce utopia from naive ridigid principles.
I don't get the message of your first three paragraphs.
Aside from that ..
> ... system of individual ownership of fixed resources (land, crypto, etc.) then the few there first owns everything, and hence, feudalism.
I doubt your claim here. Maybe there's some empirical evidence that these systems of individual ownership of fixed resources tend to lead to few individuals owning most of or "everthing", thus feudalism.
But for one, we do have very high concentration of wealth in the current fiat system. (So the alternative to the system of individual ownership of fixed resources apparently does not appear to have a clearly better outcome.) And two, this possibly existing empirical evidence may just reflect what happened until now, but the world is changing and new circumstances may very well lead to new outcomes.
> I dont take this sort of "moral economics" seriously ..
I don't follow, where you take the "moral" keyword from. To me, Austrian Economics is just a (heterodox) take on economic questions that differs in some key views from the majority of the economics field and what they are currently teaching, publishing, giving advice to governments about or implementing as economic/monetary policy.
> Its an attempt to deduce utopia from naive ridigid principles.
Fair enough, if that's your perception of what AE is, it's totally valid. Such vague counter position (that doesn't address concrete claims) is hardly valuable as an actual critique, though.
> a functional currency should, by definition, not be a good investment
yeah, I've seen it said a currency that's a better investment than the economy it serves is a self-defeating abomination exactly because it incentivizes people not to participate in productive activity
>If the relative value of your currency keeps increasing, then you don't want to spend it, if people aren't spending the currency then it is not in fact a functional currency, and if it is not a functional currency, then it ought not have any value.
There's so much wrong with this essay, it's hard to know were to start. And I'm not just talking about the Bitcoin part.
Let's take this chestnut:
> As the Fed printed more money, more crypto assets were created.
The author is probably referring to Quantitative Easing. But QE is not "money printing." It is an asset swap in which the Fed issues a utility token called "bank reserves" in exchange for a treasury or mortgage backed security. Bank reserves can not be used outside of the Federal Reserve system. They can not be converted to "cash," nor can they be used to pay salaries, bonuses, etc. (They can be converted to treasuries through Quantitative Tightening). Bank reserves are not money. Therefore the fed printed no money. It did, however, do a lot of asset swaps, accumulating a bunch of treasuries and MBS, while issuing a lot of bank reserves.
This is not a mainstream view, but it is supported by the evidence. If you try to find documentary evidence for the notion of the Fed money printer spinning new dollars into existence, you will find none.
Even worse, some economist view QE as a restriction on money. By locking highly valuable collateral (treasuries) on the Fed balance sheet, the financial system is deprived of the stuff that keeps it going. You see this manifest itself with the nearly $2 trillion in reverse repo being done now.
Because it's all most people care about, let's stick with the inflation hedge thing.
> Now, that’s from an all time high but the point is that all time high came before evidence of inflation. Once the inflation arrived, BTC has gone only one direction – the wrong one.
An asset class that correctly hedged against CPI acceleration (as separate from money printing) would show exactly this behavior. A bull market prior to the appearance of CPI acceleration. Then, when the peak is reached, the hedge loses steam and retraces some of the gains.
This behavior is sometimes called "buy the rumor sell the news."
I can see how it might be irritating to separate CPI acceleration from money printing, but this is the conundrum you must resolve for yourself in today's world.
I'm not saying that Bitcoin is a hedge against "inflation." I'm just saying that the authors statements and conclusions aren't the only explanations for the price behavior of Bitcoin. There are many confounding factors under the surface.
There were several other mistakes there, but the most annoying to me was this hand-waving between correlation and causation. Sure, crypto boomed during a period of intense QE. There were also unprecedented cash payments for everyone and a big supply shock. I think the author's analysis of the relationship between inflation and BTC was equally dumb, simply noticing an inverse correlation.
I'm totally not a crypto apologist btw, just pointing out inaccuracies.
>Bank reserves are not money. Therefore the fed printed no money.
My understanding is that the issuance of bank reserves allows banks to issue more loans, thus injecting more cash into the economy. That's the mechanism people are blaming for these asset bubbles. It's also what the Fed intended to happen.
Fed swaps cleaned up balance sheets and allowed those lenders to create more loans. Loans based on fractional reserves creates spendable money from nothing. Some would describe this convoluted debt creation as money printing.
And yet with all this negative sentiment, it still trades at $30k/per. People are still pouring $USD into it even though cash is much harder to come by.
I wonder about the psychological needs of those who come out to declare victory when an asset drops in value. What is their motivation? Why does this person need to believe that Bitcoin is dead?
First of all, the sell price is $30k. That doesn't mean that it's trading at that price but just that nobody is selling it for less, or someone is quickly buying the orders that sell for less, assuming there are only a few, to maintain the appearance that it's trading at this price.
Secondly, the reason why most anti coin people want it to fail is because they hate it. And most people that hate it, do it because they lost money because of it.
As in gambling, over 90% of people lose money in this market. The reason why people don't hate gambling that much after they lose money there is because they think gambling is relatively fair. A lot of people that lost money on crypto did it because a 'promise' made to them by the shillers that we all see, was not met. Or even worse, there was an obvious fraud like the many rug pulls that happen, scams, or so called stable coins losing their value, even though they were not supposed to.
There are more reasons to hate cryptocurrency though, like the fact that it's used by a lot of criminals, the fact that gamers can't find reasonably priced video cards anymore and also the effects it has on climate change.
> That doesn't mean that it's trading at that price but just that nobody is selling it for less, or someone is quickly buying the orders that sell for less,
Yes it does. Volume on Kraken BTCUSD has been around 4-5K BTC daily in the past week, yet the price barely budged from $30k. Any trade means a person selling AND another buying. Therefore someone is buying near $30k.
> And most people that hate it, do it because they lost money because of it.
You have a simplistic view. Two of my friends reject it because of energy waste and unfairly high rewards to early adopters, but none of my friends abandoned it because they lost money in it. Another is worried about their inadequate cybersecurity skills in holding it. Admittedly a small sample size (N=3), but I suspect it's representative of the larger world.
> over 90% of people lose money in this market.
If you do the accounting in national-currencies of evaporating value, your holdings keep going up in the long-term. That is the main value proposition that I see in crypto and Bitcoin.
I stay away from the rug pulls and scams that you mention, which are indeed a threat.
"In two or three years, people won’t even talk about crypto ... Names will be taken off arenas."
Didn't those crypto.com guys buy a 10-year contract?
I really think this is wishful thinking by the author.
I'm not a crypto fan, but it's undeniable that serious investments are now involved, and really, why is crypto much different than gold, or sovereign currencies?
They're all only worth what everyone agrees they're worth, ultimately.
Enron signed a 30 year, $100 million contract for the naming rights to the Houston Astros stadium in 1999. Less than two years later, it was revealed that the entire company was essentially one big accounting fraud.
Sovereign currency isn't really backed by military force so much as it's backed by trillions of $currency being owed in taxes or repayments over a given time period, meaning that obtaining currency has value to individuals and companies with outstanding debt and they're willing to swap goods and services for it. The military force is useful only in the narrow sense that being attacked by neighbours tends to damage the ability to perform services and repay debts and collect taxes, and many nations have perfectly adequate currencies but limited ability to project military power.
(And FWIW cryptocurrencies now have some debt repayable in them which helps stabilise their price somewhat, but the markets are relatively thin and short term, and the companies taking on crypto repayment obligations are generally trying to obtain the crypto by swapping for other volatile tokens in a zero-sum bet rather than borrowing to produce real world goods and services to trade or securing their debts against valuable real estate)
Generally they send a payment demand by registered mail or maybe a bailiff or two, not a tank division.
The military is useful to ensure property in general is still a thing (including ensuring people aren't rounded up and tortured by enemy soldiers hunting their crypto keys) but doesn't play much role in ensuring that people sell their labour to meet mortgage repayments.
I feel like I'm repeating myself, but generally they send a payment demand by registered mail or maybe a bailiff or two, not a tank division.
Debt repayment is enforced by exactly the same rule of law and exactly the same law enforcement as the property ownership of anyone else, including cryptofantasists.
many of us choose crypto for this reason, it isnt backed by military force. it is backed by the work and collaboration and agreement of people all over the world.
>> Sovereign currencies are backed by military force.
> many of us choose crypto for this reason, it isnt backed by military force. it is backed by the work and collaboration and agreement of people all over the world.
You're missing the point. It's not about aesthetics.
I strongly believe that ideas like culture, democracy, collaboration, opensource tech, and "doing the work" are stronger and more powerful forces than military enforcement.
i dont think that for aesthetic reasons. It IS more robust, there is a better chance of survival.
Yes it does, try making a company that does all business in Indian Rupees or bitcoin or whatever other currency. you will find that you produce less. The unit of account absolutely matters
> The conclusion: it’s over. In two or three years, people won’t even talk about crypto. It will become a small corner of the investment world limited to the true believers who refuse to surrender.
It's a bit ironic how all his criticism revolves around Bitcoin's price whereas that is exactly what Bitcoin supporters are invariably criticized for.
Yeah just another BTC is dead bear market article.
It’s funny because the article never talks about the actual valuable part of Bitcoin, the network.
He links articles about how BTC is insecure, but none of those articles are the Bitcoin network itself failing, it was other networks with BTC on them.
Seems like someone just wrote a half assed uninformed article for clicks
I have no need for bitcoin but looking at transaction costs, and the financial restrictions on citizens of many countries there is definitely a need for some kind of crypto currency. I can't see any other cc more trusted that BTC right now.
The problem of transferring value around unjust restrictions is not solved by crypto tokens or the blockchain, it's solved by the money markets around these tokens at both ends of the transaction.
governments have printed money at unprecedented rates worldwide
over the last year. If there were ever a time for BTC to be going
parabolic, it would have been over the last year. What happened?
It went down by half.
It makes sense to look at it on a chart. Here is the money supply vs the Bitcoin price:
I think ultimately the arguments against Bitcoin here revolve around it (still) being a speculative asset. I believe that speculative assets would inherently have the following properties:
* Are high beta (outsized correlation with general market moves)
* Are not (primarily) counter inflationary due inflation being a much smaller and uncorrelated to negatively correlated with speculation
* Are not (primarily) priced by scarcity since sentiment will effect price more than predictably slowing supply
* Are not (primarily) priced by usage since speculation is a greater use case for the time being
It remains to be seen whether Bitcoin will move into a more mature category. I have a small position (~1%, selling along the way) in Bitcoin under the digital gold argument/for fun, but I expect it to remain more volatile than gold for the foreseeable future.
> it's appreciating much faster than inflation over its life
I have no doubt that people who bought in early have beat inflation very well, but that doesn’t make it an inflation hedge. It doesn’t move inversely from inflation.
What would be an inflation hedge that isn't an asset that just goes up in value greater than inflation?
FTA: "An inflation hedge is an investment that is considered to protect the decreased purchasing power of a currency that results from the loss of its value due to rising prices either macro-economically or due to inflation. It typically involves investing in an asset that is expected to maintain or increase its value over a specified period of time. Alternatively, the hedge could involve taking a higher position in assets, which may decrease in value less rapidly than the value of the currency."
It's foolish to make a prediction without the aid of a time machine. Bitcoin has been declared over many times before.
I think one thing he hints at is key to bitcoin: it is part of the global financial system, not an alternative. Regardless of intent or dreams, anything born into this world is subject to the prevailing rules and will be co-opted by those with the power, money & will to do so. Which is why for all crypto's lofty goals, it's largely been used to make money and fund scams.
I always wonder if the people writing these articles understand that a very small fraction of the NFT ecosystem lives on BTC. BTC is the only cryptocurrency it mentions by name, and it then goes on to state "oh yeah, all those NFTs are also worthless, as are the other unnamed cryptocurrencies, which I'm sure are the same thing as Bitcoin"
You didn’t call a bubble…we are in a recession. If you want to continue living with a continually debased fiat currency, that’s your choice. But don’t shit on people that are trying to circumvent the authoritarian control on the monetary system. Yes, I understand that most crypto is a scam. I do think BTC can possibly be different.
Imagine if the U.S. dollar lost 3/4 of its value in a single year, and regularly doubled (and halved) in value. That's the reality of Bitcoin -- anything else is a fantasy, or, at best, a naive hope.
This is why it's not even close to dead and will continue to get flows of liquidity during boom cycles, because many others also see this regularity you've identified.
Apples and oranges. Stocks serve a radically different role than currency. But you are very right about one thing: cryptocurrency behaves a lot like a tech stock.
When's the last time a major index lost 50% of its value? - 2008 crash due to deregulation
Does it happen every two years? - obviously not
Are stocks intended to be currency? - no
Stocks also are attached to real property - ownership in a revenue / profit generating company and their assets. Crypto is only a vehicle for speculation.
A currency should not experience regular crashes or explosions of value. Assets are generally more volatile by their very nature.
If you bet on Bitcoin because of a "debased fiat currency", you have likely lost a grievous amount of value in whatever denomination anyone other than you actually cares about.
Meanwhile, you still can't use it to buy a sandwich and promises to the contrary are over five years old with no progress to speak of. It remains merely environmentally disastrous not-money. Gold buggery is eternal, though; I wonder if the elderly watching right-wing news channels are the next to be targeted with buy-it-now ads.
> If you bet on Bitcoin because of a "debased fiat currency", you have likely lost a grievous amount of value in whatever denomination anyone other than you actually cares about.
I didn’t find a lot of substance in this article to make bold claims like “In two or three years, people won’t even talk about crypto.” My guess is that the author is shorting the major cryptocurrencies and could do with more negative sentiment. I’m sure the claims about crypto dying will age terribly. It may die in a decade, who knows? But in two or three years, with recessions and people wanting more than what governments and corporations can offer? I don’t think so.
> To be fair, the traditional inflation hedge of gold is largely flat over the last year and has underperformed BTC over longer time periods. However, the US dollar index is at 20 year highs!
The USD index is defined in terms of other fiat currencies. It is meaningless; only shows how fast currencies are debasing against each other.
> And many commodities are at 20 year highs to the dollar!
This means the dollar is at its least worth in the past 20 years, so inflation HAS occurred.
Bitcoin is a store for value. An affordable and democratic equivalent to the housing market. The limited and finite quantity of coins means it is destined to rise in value proportionally to the population that can access and afford it.
Well that article is a waste of time even if it was properly formatted. Foe example "Failed Security Promises" sections talks about BTC and links to unrelated Solana bridge hack. There is nothing new or interesting, just snippets of random crypto bashing. I would love to see crypto and related buzzwords dead but this submission fails to convince me it is finally happening.
Bitcoin has proven to be an excellent store of value and if you disagree trying looking at a log scale. I think this is primarily because Bitcoin is a sound money that doesn’t erode from debasement like government money does.
Stores of value are, by definition, stable over time. An ounce of gold has been able to buy you a nice suit for hundreds of years, for example. How can something that fluctuates wildly in price claim to be a store of value? It's nonsensical.
A store of value is any commodity or asset that would normally retain purchasing power into the future and is the function of the asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved.
I stand by my statement that Bitcoin is a store of value because it retains purchasing power into the future. The housing market fluctuates too and most folks consider real estate assets as a store of value.
Did you read this post? If you bet on crypto as a hedge against inflation you lost very badly. The S&P is virtually guaranteed to recover its losses and will likely end up positive for the year. BTC and others we have no idea. This was the big test and it failed miserably.
It absolutely was not obvious. At least not to anyone who believed the mission statement. Read the post and tell me what is wrong. It's a bit coarse, but still accurate. BTC was created ostensibly as a privacy currency. A job it failed at by deflating wildly until it was utterly useless for simple transactions and became an investment asset. Amateurs saw it going up and wanted in, then it crashed much harder than every other investment class. It was supposedly an inflation hedge because it wasn't subject to central bankers, yet it lost value far faster than any fiat currency. What even is the current crash? There's no fundamentals like yields or P/E ratios to say that any crypto has gained or lost any intrinsic value. There's no equity voting rights. There's no index associated to it's purchasing power. There's no bonds denoted in any crypto value. It is driven entirely by sentiment. After the dotcom bust, it took the NASDAQ _17 years_ to fully recover to it's peak. Crypto investors are not going to wait that long.
Also reminds me of the time I went to Russia in 1996. They had serious inflation and a very uncertain post-Soviet economy. You know how they managed it? They asked us all to pay for things with USD as much as possible.
Is it peer-to-peer digital cash like the original white paper claims? Clearly not, with slow settlement and high transaction costs.
Is it an uncorrelated hedge against stock market volatility? No, it trades like leveraged Nasdaq.
Is it a store of value based on [insert lurid fantasy about digital energy crystal magic on the blockchain]? No, see above.
Is it a backbone for other, faster payment systems? No, see the miserable state of the Lightning Network after nearly a decade.
Is it a system for remittances to the third world? No, see El Salvador’s experiment.
Is it a way out of dollar dependency for third world governments? No, see El Salvador again.
Is it a way for North Korea to get paid when extorting Western companies? In fact yes, this use case does seem to work.