Bitcoin Is An Ecological And Monetary Disaster And It Happens To Be Worth Zero.
In December of 2018, I was invited to dinner with some of the world’s largest Bitcoin holders at the Guggenheim museum in New York. The ‘whales’, as they are known, competed with each other in predicting the ways in which Bitcoin would destroy or reform every known industry. The main target was banking – which the largest whale claimed would be wiped out imminently because Bitcoin could be lent from one user to another without a middleman. I proceeded to remark that banks are not just middlemen – they propagate money by lending out multiples more than they take in through deposits. The whale had not thought of that caveat and could not think of a mechanism whereby Bitcoin could replicate the leverage provided by banks. Their other prognostications were just as ill thought out.
Today, Bitcoin’s most ardent proponent is Michael Saylor, the founder of Micro Strategies. Mr. Saylor is not new to financial fame or hyperbole - in the late 90’s, he was charged by the SEC with accounting fraud, having been found to have ‘materially overstat[ed] … revenues and earnings’ and incurred the largest penalty until then outside of insider trading.1 Mr. Saylor has remarkably managed to remain the CEO of Micro Strategies, a software company that has seen its revenues decline by 10% since 2015, and operating profits by 75%. Yet over that same timeline shares in Micro Strategies (MSTR) have nearly quadrupled as the company has taken on leverage to buy Bitcoin. Mr. Saylor claims that Bitcoin will become a widely adopted currency going forward. The problem is that currencies need to be stable to be usable – and Bitcoin is over 10,000 times more volatile than any western currency. When presented with this fact in a recent interview, Mr. Saylor retorted that ‘volatility is vitality’2 - which may be the most absurd claim in the history of finance. You might as well say death is breath…
While I do not know where Bitcoin’s price heads next, I believe that its actual value is zero, for the following reasons:
A. Already a failure
Bitcoin prophets claimed years ago that Bitcoin would have widely used as a currency by 2020, but that has not happened, and never will - for the following reasons:
Bitcoin’s volatility has ensured that it never gains traction as a currency. Any successful currency needs to remain largely stable in value against a typical basket of goods and services in its local jurisdiction. Throughout its life, Bitcoin’s volatility has exceeded that of western currencies by a factor of over 10,000. Consumers prefer to plan their purchases based on need rather than their currency’s gyrations.
A Bitcoin payment takes as much time and energy as 33,000 credit card swipes3 – which again renders it unusable. The first purchaser who tried to pay for his Tesla with Bitcoin found that it consistently takes longer to transfer Bitcoin than the 30-minute payment window allotted by Tesla.4 Imagine waiting 45 minutes to effect 33,000 credit card swipe equivalents worth of energy and digital data dissemination to pay for a bottle of water with Bitcoin!
- Bitcoin is for Fraudsters
Janet Yellen noted in January 2021 that Bitcoin is used, "at least in a transactions sense—mainly for illicit financing." As an unregulated entity that purports to be a currency, Bitcoin is well known as a facilitator of money laundering transactions. David Green of Real Vision recently concluded that up to 40% of all Bitcoin transactions (used to settle the purchase of goods and services) are fraudulent. Meanwhile, it is difficult to keep count of the number of cryptocurrency accounts that get hacked and depleted, or the number of crypto exchange founders who disappear along with billions of dollars worth of bitcoins.5