Beware: Bitcoins are useless, worthless
You’ve been writing to me a lot lately, asking about bitcoin. What is this technology? What is it used for? Should you get involved?
As of this writing, a bitcoin costs roughly $50,000, up from $10,000 a year ago. Could it go to $200,000? Sure, $200,000 sounds great.
That’s not a prediction.
What do I think is the right price for bitcoin? Roughly, zero. But it could take a while to get there. Now, blockchain — the innovative technology of which bitcoin is the best-known example — may have real uses. I’m open to that. Blockchain allows for anonymous transactions that can be verified between parties who neither know nor trust each other. Theoretically, blockchain obviates the need for government
regulation or third-party verification.
Applied to money, bitcoin, theoretically removes transactions from the purview or limitations of existing financial infrastructure.
Dollars involve pesky government issuers, unreliable central banks and the meddling institutions of the existing global finance system. To its proponents, bitcoin is like money unshackled from politics, regulators and borders.
To be clear: I totally disagree with the need for unshackling. I think dollars are awesome. I even buy products and services with them! I’ve honestly never felt limited by dollars, except obviously by the amount of them that I control. By contrast, I believe bitcoins are a useless fiction, and therefore a fraud. I prefer my fictions to be useful.
What is the real-world use of bitcoin?
Bitcoin is not a useful store of value in the way that dollars are. Anything whose value can soar 500 percent in the past year, as Bitcoin has, can also drop 80 percent the following year. Or the following month. That makes it entirely inappropriate for “storing value.”
Can bitcoin be delightful as a pure gamble, like buying a lottery ticket? Sure. But no sensible person advocates lottery tickets as a store of value.
Bitcoin has all the makings of collective financial madness: Magical thinking! A difficult-to-grasp technology! Breathless media coverage of its ever-increasing price! Celebrities might be buying it!
Bitcoin’s only plausible real-world uses — as a medium of exchange rather than speculation — are tax evasion, drug dealing, prostitution, child pornography, assassinations, arms-dealing, illegal gambling and ransomware for computer hackers. As I have yet to engage in any of these activities, I have yet to find an actual use for bitcoin in my own life.
Incidentally, bitcoin is probably not even anonymous. One of the features of the blockchain is that all transactions are traceable and reproducible. That’s the plausible key to blockchain technology’s usefulness in the future — that all transactions create a permanent record, visible to all counterparties.
But that feature of permanence undermines anonymity. A block chain-sophisticated FBI should be able to see exactly who sold you bitcoin, and who you in turn sold bitcoin to — meaning your drug deal or tax evasion with bitcoin was not as anonymous as you thought it was! This is neither business nor legal advice, but do you know what is really anonymous? A suitcase full of unmarked, non-sequential dollar bills.
Should you take my word for it on bitcoin? I can only warn you about my similarly strong feelings in the past and how that worked out.
In the one and only market call I have ever made in this space in 7.5 years, I said Tesla was a terrible stock in 2015.
It promptly quadrupled in value. So I reiterated my hatred for that stock’s price in 2020.
My bold call clearly triggered the value of that stock to septuple over this past year. You’re welcome.
I’m just saying don’t look to me if you’re itching to speculate.
Bitcoin is far, far, stupider than Tesla shares will ever be. Naturally, Tesla announced last month that it had speculated with its corporate cash by acquiring $1.5 billion in bitcoin. Because LOLs. And YOLO. And FOMO.
Tesla CEO Elon Musk’s explanation: “Bitcoin is almost as bs as fiat money. The key word is ‘almost.’”
Ah, yes, such wisdom! What mysterious sagacity from 2021’s newest richest man in the world. Take all my money, please, you carnival-barking promoter of fictions.
Never underestimate the power of greed and magical thinking to keep things irrational longer than you can stay solvent.
Cryptocurrency enthusiasts like to point out that traditional “fiat” money like dollars, un-moored from a metallic base like silver or gold, is based on a collective fiction. In that sense, would-be sophisticates (and Musk) argue, the collective fiction of bitcoin is no worse than dollars.
Gold is also a collective fiction, albeit one that’s a few thousand years old. Shells have made for a collective fiction in the past. The rai stones of Micronesia were a collective fiction. What is money anyway?
U.S. dollars are also a collective fiction, except for the fact that my government demands, and accepts, dollars for taxes. As far as I can tell, this is the basis for fundamental value in a currency — what my government accepts in taxes.
A convenient currency is more useful than barter. My local, state and federal governments do not currently accept extremely well-reasoned and delightfully funny finance writing as a means of discharging my tax obligations. I need to first convert finance columns to dollars, which my government then does accept.
When President Elon Musk declares in 2028 that we can and must make tax payments in bitcoin, then — and only then — will I agree that bitcoin has any fundamental value. It may well go to $200,000 (and beyond!) in the meantime for all I know.
Until Musk runs for president, I expect a zero value future for this particular collective fiction.