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It used to be that a person could raise legitimate concerns on any issue of personal interest in an atmosphere of genuine and open debate. Maybe I’m deluded in this view and the only real thing that has changed is an ever evolving language designed to suppress or close down open natural debate?

Recently, I raised in a discussion, what I considered were general concerns around the recent dip in the cryptocurrency price and the very shaky foundation upon which it is built. The argument was quickly closed down by levelling the inimical acronym FUD (Fear, Uncertainty, Doubt) at me as an apostate of the cause where my only misdemeanour was an attempt to err on the side of open discourse and reasoned discovery.

In relation to cryptocurrency I’m starting to feel like the boy in the literary folktale the Emperors New Clothes (written by Danish author Hans Christian Andersen) which is about a vain emperor who gets exposed before his subjects due to a resounding dose of generalised confirmation bias. The boy hadn’t swallowed the kingly assertion whole but had seen the situation for what it was. To have a continuous mind and to be able to accommodate new ways of looking at the world is a strength and is in stark contrast to the closeted doctrinaire discontinuous mind. Beware the subject evangelist in any guise!

So to Bitcoin where we can see the obvious superficial positive of distributing economic power away from body politic in the inherent by design blockchain distributed ownership and attendant governance. We are led to assume in this idealism that body politic is not working in the best interests of the societies they serve. It’s easy to see the attraction as decisions made in politics don’t always give succour to that vaulted term subsidiarity. Those that govern do so with the good grace of the governed which works well as long as the latter seek to be well informed, discerning and hold the former to account. Which of course we don’t always do in any meaningful way.

This Bitcoin fundamental tenet in itself is more a statement of political idealism than economic functional realism. Power is power is power and who ever wields it can leverage dominion over others. I’m minded here of Lord Acton who said power tends to corrupt and absolute power corrupts absolutely.

It’s also a truism I think that the big fish always eat the small fish and this is just as true in monetary systems. It may all start off with a sound democratic intent but sure as night follows day power will gradually cede to an ever narrower band of wealth holders who buy up the lions share of (in this case) Bitcoins. As such we would have been lured away from what is at present a faint illusion of democracy to a faceless ungovernable kleptocracy whose actions are predicated on their self-interest alone. In that haste to gain more control over our societal wellbeing we would have inadvertently jumped out of the frying pan into the fire. I would suggest that this is not a good endgame position for the majority of humankind.

Then we have another idealised contention in that Bitcoin is a store of value. That would work out just fine if it were not for market speculation and the human drive to abstract / productise monetary assets. We have an economic system based solidly on gambling. Of course we sanitise the wording and transpose trading for gambling but in the final analysis we are expressing one and the same thing. There are many I’m sure who would not consider Bitcoin (or more generally cryptocurrencies) as being a monetary means by which to successfully maintain their wealth parity and this is all as a result of Bitcoin value speculation. Sometimes the gamblers (aka investor) win and sometimes the house wins but we can note that Bitcoin price volatility strongly suggests that the high ideal of Bitcoin as a store of value is just that an idealism and not based in functional market dynamics.

Speculation and the volatility that follows is grounded in human psychology and we can no more change that than cheat death or taxes. We see this aptly underscored in the Bitcoin Fear and Greed Index which is more a predictor of the store of value than the baser high-ideal expressed above.

It was assumed by Satoshi Nakamoto (the pseudonym given to the creator of Bitcoin) that Bitcoin scarcity of 21M yet to be completely mined tokens would place it on par with Gold as a hedge against bear market dips. But alas Bitcoin has become more aligned to equities rather than precious metals and other scarce commodities. As such when the world falls on harder economic times Bitcoins go down in value in lockstep with equities. This fundamental human attitude to speculate also appears to dispel one of the other hopes of Bitcoin, that its scarcity would make it a safe haven commodity to hold in times of economic woe.

At least Gold and other scarce and precious commodities have an extrinsic value as we can mint the base metals into wearables of ostentation and otherwise employ its properties in technically innovative ways. Not so with Bitcoin as it was gestated in the test tube notion of idealising economic freedom and as such it could be argued it does have intrinsic value as a speculative opportunity but falls short, at present at least, of even being in a position to be spent in the real world. Time may well make amends for the deficit in Bitcoin extrinsic value but only when it becomes just as easy to buy a pint of milk with Bitcoin as it is presently with Fiat money. That day is not here yet, at least not for this Joe.

We live in a less that ideal world and we should aim to keep our minds open, fluid and our minds grounded in reality. Especially when it comes to the seeming simplicity offered up by economic fundamentalism, whether its focus is on cryptocurrency or its arch nemesis fiat money. They may well both have their place but almost certainly not as first idealistically suggested.

To cap this off here’s a a few words of wisdom from Jeremy Grantham:

“Bitcoin is not a good reserve of value, as we’ve seen. It’s terrible for a currency exchange. It’s expensive to transact, but worst of all, it is deadly to the environment. It’s incredibly energy intensive to give you a speculative instrument to wager on, that’s it. The fact that it takes our precious energy and has a carbon footprint is the worst crime of all, and the sooner it goes away, the better.”

“As a speculative instrument, it’s made a lot of money for a couple hundred people who got in early with a lot. Most of the other people playing it have now lost money, we know that. It’s the same old, same old where the rich get richer and the poor get poorer, so any attempt to spin this as an equaliser is just that, it’s pure spin.”