Bitcoin and other cryptocurrencies fail both as investments and useful money, wrote MarketWatch columnist Brett Arends yesterday. Does he have a point? Well in some ways yes, but many others no.
As Bitcoin and other cryptocurrency proponents, we’re well-used to hearing disparaging talk about the technology we follow. It’s easy and tempting to ignore, whether you’re a long-time holder living off the gains, or a newcomer trying to build the financial infrastructure of the future.
Check out the original article here.
Trolling any technology with a rabid fanbase is also a great way for a writer to get pageviews. Maybe that’s Arends’ motive — or maybe he wrote his piece out of genuine concern. We all know a few naive folk who know little about crypto, and will inevitably make bad decisions if they jump in.
Either way, the article deserves a good Fisking so we’re happy to deliver it. Here goes:
The column begins with a conversion no-one has ever heard in this industry. It’s with a bitcoin fan who thinks the technology is amazing but can’t think of a single use case:
Fan: Really, the “blockchain” technology is a total masterpiece, way ahead of its time!
You: Yes, yes, I understand that. But what is it actually for?
Fan: You don’t understand! It’s a completely decentralized money system! Totally revolutionary!
You: Honestly, does it have a purpose? Any purpose at all?
Fan: It’s the wave of the future!
And on it will go.
Really, the fan couldn’t even come up with the old trope about banking the unbanked? About how one might not trust our highly-manipulated central bank and stock market economy? About financial privacy? Recall Wences Casares’ tales of his family’s wealth ruined after frequent currency collapses in Argentina?
Those might be cliches by now, but surely a Bitcoin fan could pull one out of his hat. Onward:
Vice and Crime, and Nothing Else
Cryptocurrencies, or cybercurrencies, which have been in a massive financial mania until their sudden selloff this week, have two actual applications: online gambling and money laundering. Neither is the heart of a major business model. But that’s it.
We’ll ignore the word “cybercurrency” that no serious person actually uses. But notice how mainstream journalists love to point to a one-week price window and suggest that’s the final word on Bitcoin? Yes the price crashed. It has crashed before, and recovered, and crashed again. We know the price is volatile and it’s good advice to warn newcomers of that. But even if BTC suddenly dropped by $1,000 today, it’d still be far higher than a year ago. Was it a mistake to buy? Depends when you bought.
Then there’s suggestion that cryptos have only two applications: gambling and money laundering. He didn’t even say drugs or tax evasion, both of which are also great uses. Yes, criminals use cryptocurrencies. To a far greater degree they also use dollars. If something has value, bad people will use it for nefarious purposes. And in a twisted way, it helps to prove the technology actually works.
There are plenty of reasons the average person would value financial privacy. However some can’t see why. In a world where credit card hacks and identity theft are commonplace, where corporations know a frightening amount about our personal lives and use that information irresponsibly, greater privacy is a necessity. I don’t want to supply my name, address, full biography and purchase history every time I buy something — and that’s what you do with all the digital payment options available today.
Inflation, Debasement, Prices, and Money You Can Use
Are they really protections against the ravages of “inflation” and “monetary debasement” imposed by wicked governments? If so, how come people who keep their money in bitcoin and ethereum and the like have experienced Weimar Republic levels of consumer-price inflation just this week?
This argument is a bit nonsensical, since almost nothing is actually priced in bitcoin. Most items have a fiat value and you pay the BTC equivalent. It will remain that way so long as fiat currencies are the dominant payment method and bitcoin is the alternative.
If that ever changes, the price of the dominant payment method (BTC, ETH, diamonds or cans of mackerel) would likely stabilize. And if your local fiat currency does implode — quickly via hyperinflation or slowly via debasement — then yes, you’ll need something else as an alternative.
Bitcoin Is for Speculation, Not Money
Admittedly, before all this, the price of these cybercurrencies had skyrocketed. Those who got in at the start of the year have turned $1 into $30. But this looks more like a speculation than a currency. And what will tomorrow bring? I have a pretty good idea how many potatoes I can buy with my dollars next week. Bitcoins? Good luck with that.
I’ll admit, price volatility makes for a poor currency. And right now, cryptocurrencies are both speculative and experimental. The technology has only existed since 2009 and first gained mainstream attention in 2013. We’d be foolish to assume bitcoin or ethereum are ready to step in and replace the currency of a major country tomorrow. You can make a quick buck this week if you’re lucky with price movements; otherwise cryptos are a long-term bet.
You notice, incidentally, that these bitcoiners continue to measure the market price of their beloved new currencies in terms of, er, old-fashioned U.S. dollars.
Of course we do, because like it or not, local fiat currencies are the current established norm and we all need to use them in daily life. Most businesses don’t accept cryptocurrency — yet — and we’ll always have to pay our taxes in the government-sanctioned unit. We’re betting that this could change at some point in the future.
But don’t worry, our financial system is completely stable and flawless. Nothing could possibly go wrong… right?
There Are Too Many Damn Blockchains
Bitcoin, the grandaddy of them all, might at one point have claimed value as a unique entity. If it held a monopoly among the people who wanted to use a cryptocurrency so they could play online poker or finance international crime, it would have some worth. Yet in the past few years multiple competitors have erupted. There are now 25 with individual market values above $100 million, several above $1 billion. Yet all the bitcoins in the world are still “valued” at around $40 billion.
Fast-growing rival ethereum was worth bupkis at the start of the year. Today it’s valued at $31 billion, or almost 10 times as much as the company ESRT, -0.05% that owns the Empire State Building.
Preposterous? You make the call.
Indeed that’s a crazy rise. But you’ll even find thousands of bitcoiners who think ETH shouldn’t be worth that much. The “cryptocurrency community” isn’t a homogenous blob of enthusiasm for everything blockchain, by any means. Some are good ideas, some are terrible. Most of us “fans” aren’t advising anyone to pour their life savings into one platform.
For what it’s worth, I visited the Empire State Building in February. It’s beautiful and iconic — but it’s also aging and dusty, with amenities unsuitable for today’s businesses. These days it struggles to attract quality tenants. In 2012, SeekingAlpha noted it has 875,000 square feet of vacant space and advised readers not to buy it.
OK, that’s a very specific example. But the point is, even a shiny symbol of prosperity eventually wears out — and is replaced by something with features more suited to its time. Is it the same with money? The ways we pay today are very different to 100 years ago. Our current system worked for a while, but it’s showing a few cracks. Shouldn’t we at least be trying to create something better?
Do you have any better arguments? Sure you do. Let’s hear them.
Images via Pixabay, Quickmeme,