Bitcoin is stupid. The cryptocurrency, launched in 2010, has no purpose, no value and is, in fact, making the world a worse place. Its most ardent supporters are kooks, and if Bitcoin—whose price is highly volatile—crashes, a lot of people will be hurt and without any recourse. A microcosm of Bitcoin’s vapidity can be gleamed in the not particularly shocking fact that fully 20% of the finite reserve of Bitcoin is “lost or otherwise stranded [in] wallets.” That simply does not happen with dollar investments.
It is important to distinguish between the two cases for Bitcoin. I’ll call the first argument the “blind investor” argument. This position is not outright stupid, certainly not as stupid as the second argument, but it’s still not smart. Basically, the blind investor argues that Bitcoin is good because it has gained enormous amounts of value since 2010. Bitcoin is now worth about $59k per coin, representing enormous growth over the cryptocurrency’s near valueless beginning in 2010. This, however, is a very risky argument. I don’t claim to have knowledge, or even to believe, that Bitcoin will crash this year or next year, but the underlying fact remains the same: there is no real reason that Bitcoin is worth 59k.
When stocks gain value, it’s because corporate profits rose and the economy grew. Bitcoin has no such claim. Put most simply, Bitcoin does not do anything useful for the economy; it does not make people’s cars drive, it does not grow food for restaurants, and it does not produce laptops. As an investment category, Bitcoin most resembles a commodity, a fact recognized by the Commodities Futures Trading Commission, yet Bitcoin is a strange commodity. Oil or beef are valuable commodities because people use them to do things, but Bitcoin is only valuable because…? Most obviously, you can use Bitcoin to buy things, but that’s often a difficult, convoluted process, and Bitcoin purchases are still dwarfed by anything occurring in fiat currency. Also, Bitcoin is not recognized as a currency by any state, so its ability to purchase things is not an inherent part of its value like the dollar’s recognized place as the American currency. Bitcoin is nothing but a lucrative method of gambling.
The second argument for Bitcoin is difficult to name as concisely as the first, but to adopt Bitcoin-speak, it may be called the “Elon Musk Doomer” argument. This argument is a synthesis of gold money fanatics, tea party skeptics of the Fed and fiscal policy, and obnoxious tech bros. The basic tenet, expressed in varyingly extreme degrees, is that the world is sleepwalking into disaster because, and this is rich, the dollar has no inherent value!
Somehow, to resolve the fact that the dollar is a fiat currency and not tied to the value of gold (which also has no inherent value), Musk Doomers invest in Bitcoin as a new form of “hard currency,” or more concretely, as an inflation-hedge. The basic idea is that the loose monetary policy of the Federal Reserve since the Great Recession will soon set off an inflationary spiral in which dollar savings will become nearly worthless. Enthusiasts argue that Bitcoin–because it has some mystery, inherent value–is insulated from inflation. The most extreme Doomers basically want to go back to using gold coins, only converted into Bitcoin, for payments. A second thread of this argument is that Bitcoin’s privacy and security features help protect people from their governments and will help democratize access to banking services.
These arguments are either incoherent from the beginning or not borne out by the reality of Bitcoin. The fetishization of hard money is particularly disturbing due to hard money’s incredibly poor performance record. The simplest case against hard money is a historical one: the gold standard almost certainly made the Great Depression worse and arguably made it such such a great economic depression to begin with. The Federal Reserve had to raise interest rates just as gold became scarce, exacerbating the crisis. A fiat currency allows the Federal Government to expend enormous amounts of money in times of crisis without impacting the value of the dollar, a practice which was absolutely essential to avoiding economic catastrophe last year as COVID emerged. To be clear, there is little short-term chance that Bitcoin will soon replace the dollar as the primary currency in circulation, meaning that the Federal Reserve’s monetary policy will not be constrained by the finite stock of Bitcoin. Instead, I am primarily concerned with making clear that Doomer’s have nothing of value to say about monetary policy.
At the same time, the problems hard money tries to solve are not, well, problems. Inflation has been incredibly low for almost a decade now, so there is no inflation problem to even begin with. Even if there were inflation, Bitcoin is unlikely to be immune especially compared to other commodities. As such, the argument that Bitcoin is a wise inflation-hedge is null.
The claim that Bitcoin will democratize banking is almost laughable. “95% of Bitcoin is owned by just 2.4% of accounts,” making Bitcoin a great way for the enormously rich to store their money. At least in the West, no one who lacks access to traditional banking structures will own any considerable amount of Bitcoin, and citizens of regimes in which privacy is necessary also do not own any Bitcoin.
But remember, Bitcoin is not just worthless; instead, Bitcoin is destructive. Sure, Bitcoin makes people say dumb things, but plenty of things do that. No, Bitcoin is truly bad because—even as it does nothing of value for the world—it is slowly helping destroy the world through enormous amounts of carbon emissions from Bitcoin mining.
Bitcoin now uses more energy than a country the size of Ireland. This bears repeating. In the year of our lord 2021, when the most important long-term investment we can make for human society is carbon emission reductions, we are emitting entire countries worth of carbon into the atmosphere for a stupid meme called Dogecoin. Eliminating cryptocurrency mining will not solve climate change, but it is still entirely unacceptable that we waste .6% of the world’s total energy use on something of no value.
At this point, I am not entirely convinced that the United States ought not to simply ban cryptocurrencies. The longer we allow cryptocurrencies to grow, the more destruction they will wreck upon the environment and the more the bubble—because it is a bubble—will grow. If Bitcoin becomes widespread enough and then faces monetary crisis, it will be entirely unclear who ought to save the currency, even as its collapse would harm the entire, sane, economy.
Banning Bitcoin would also free me from ever having to hear about it again which, given how little Bitcoin does for anything else, is reason enough to be done with cryptocurrencies.
