I’m exasperated reading dodgy logic justifying the heady ascent of Bitcoin. What are the worst 5 arguments I’ve heard?

Full disclosure: I don’t own any Bitcoin, or have any bets on its rise or otherwise.

1. Bitcoin is an insurance against the collapse of capitalism

The booster

The rise of artificial intelligence and mass joblessness will sweep away much of the old order of nation states and their currencies. Bitcoin is independent of government and will survive the coming storm.

A grain of truth

I believe big change in the relative value of labour and capital, and how they contribute to the tax base, is coming faster than politicians expect. And the reactionary backlash in affected countries, such as those voting for Donald Trump, won’t stop this trend.

The sceptic

Bitcoin relies on a chain of other technologies which may well get disrupted with the collapse of capitalism: cheap power supply, a global internet and secure online vaults to hold the private keys and transact the Bitcoin. If you’re betting on the end of the world as we know it, hunting and farming skills are going to be more useful!

 

2. Bitcoin’s limited supply makes it deflationary by default

The booster

Unlike fiat money (e.g. the US dollar) which can be printed at will by central banks, the total number of Bitcoin is mathematically limited to 21 million. That means, as other currencies inflate, Bitcoin will hold its value – i.e. it’s digital gold

A grain of truth

As developed countries around the world are forced to borrow themselves out of the hole of shrinking tax bases and increasing healthcare costs, they may try to inflate their currencies to erode the debt.

The sceptic

Central banks have a positive inflation target for a reason: in a deflationary currency, no-one wants to spend the currency and so there’s no circulation of wealth. If one Bitcoin could have bought me a coffee in 2016, but at the time of writing could have bought a car, why would I ever spend it? And if no one spends the currency then it has no tangible value.

 

3. Bitcoin is the leader of the blockchain revolution

The booster

Blockchain is one of the few game-changing technologies to be invented the last two decades. It will revolutionise the world of finance, and you need to own Bitcoin to be part of that.

A grain of truth

The blockchain ledger, keeping a public record of all transactions, and reducing the possibility for fraud or interception, will certainly change many aspects of finance. There are many projects underway in financial trading and government.

The sceptic

Just because Bitcoin was the first use-case of the technology, does not make it essential to newer blockchains. Equally, its first-mover advantage may not even make it the winning cryptocurrency. That said, I wouldn’t go out buying a basket of other cryptocurrencies just yet – they are all overinflated by Bitcoin’s rise.

 

4. The increasing mining cost of Bitcoin underpins its value

The booster

New bitcoin gets exponentially harder to mine, so since the cost of electricity for the miner’s servers won’t fall, the cost per bitcoin mine is rising all the time. And if you can’t mine them, you’ll have to buy them.

The sceptic

Yes.. but what if no one needs Bitcoins at all? Mining gold is subject to the same economic forces, but if the gold goes out of fashion as a value store (as it did an the turn of the Millennium) it still had industrial value for conducting electricity and aesthetic value for jewellery. Bitcoin has neither of those.

 

5. The rise of bitcoin is 2017 shows it has won out as the cryptocurrency of choice

The argument

Bitcoin is now the established alternative store of value, which is why it has risen so fast in 2017. And what if all the pension funds and institutional investors now buy up a slice to ensure an allocation of this new asset class?

A grain of truth

There’s no rational way to value Bitcoin: it does not pay dividends or have intrinsic worth (see point 4). So it could be worth anything .. or nothing.

The sceptic

Every decade a new mania comes along for investors to follow. The vast chatter on LinkedIn, Facebook and other forums only heightens the mania by allowing unchecked falsehoods to flourish. You only have to look at the South Sea Bubble and Tulip mania to see there is nothing new under the sun. Enjoy the roller-coaster ride up .. because everything that goes up, must come down.

 

 

 

mm
Edward

Product manager with broad experience helping companies with business analytics (for Accenture and Reed Business Information), and also building software tools with a simple user experience at their heart (most notably Teachable).

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