Bitcoin Is Nothing

I always hesitate before putting digital pen to digital page if the subject is Bitcoin. As long-time readers are apprised, I'm not a "believer," as it were, in cryptocurrencies. As such, I'm not inclined to devote much time to "analyzing" them, despite the potential to generate lengthy (not to mention highly entertaining) discussions. For one thing, cryptocurrencies are vulnerable to government intervention. In theory, a government can simply make it illegal to facilitate the conversion of cry

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59 thoughts on “Bitcoin Is Nothing

    1. And you know, people ask me: Are you jealous of someone who bought Bitcoin at $50 (or whatever)?

      I always think: What kind of question is that? That’s like asking someone if they’re “jealous” of someone else who bought a stamp that eventually appreciated 1000X. Or if they’re “jealous” of someone who bought a comic book that is now worth 10,000 times its cover price. Or a baseball card, etc. etc.

      It’s like: Well, sure. I guess? But is that “jealousy,” really? I don’t think anyone would say you’re “jealous” of the comic book geek or the baseball card collector. You’re actually more likely to be happy for them, but at the same time, you’d be justified if you were thinking “Jesus man, sell that comic book before something goes wrong.”

      1. Besides I could only be jealous if you actually converted it to dollars, but then you could only buy it back for the current price and as H points out, that is now open to even greater risk than it was at $50. On the island of Yap rocks of a certain size were money but who could spend it?

  1. I am a Real Vision member. I really like his macro analysis, but Raoul Pal is head over heals in love with bitcoin. He thinks it is a huge game changer. I have yet to understand his case for thinking this other than the “greater fool” theory. I feel I am missing something but when I read this article I realized I am not wrong to be puzzled at all the excitement over cryptocurrencies.

  2. On the top of the 2019 Schedule1 that is attached to Form 1040, for the first time I noticed the following question:
    “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

    I am guessing the IRS is trying to persuade those who trade in virtual currencies to report any income….hoping that people won’t be able to lie, when directly asked the question.

    1. Its more cunning than that – if they ask and you say ‘No’ when the truth was yes, they have you. If they don’t ask, you have a lot more room to argue the issue.

      1. And see, this just speaks to the government risk. You’d almost be safer engaging in actually illicit activity. Because while a lot of these platforms probably tell you they value your “privacy” and while some of them (I assume) are still based offshore, the fact is, there’s a digital paper trail there. Maybe the IRS will never be able to access it. But maybe they will. There’s no paper trail for illicit dealings in physical contraband unless you’re just a moron. 🙂

  3. I wonder, though, about influential people with a lot of money who might want to see something like Bitcoin legitimized for personal benefit.

    I mean, we have a president (and a complicit party) that thinks nothing of making proclamations and passing laws for their own benefit (and hurting others in the process). Some would say that was unthinkable just five years ago.

    I’m no fan of crypto as I agree it’s . . . well, it’s something, but nothing I’m interested in. Currently, it has zero impact on regular people who not only don’t know what it is, but have no means to purchase it or trade in it.

    BUT . . . but they might/could be suckered in if someone influential allows investment firms to trade in it (crypto funds may eventually be approved for retirement plans) and people can buy shares as a way to board the train that’s touted to head to a cryptocurrency utopia.

    I mean, it wouldn’t be the first time financial vehicles have been approved with the supposed aim of providing “regular” people with the means to play with the big boys.

  4. Isn’t everything subject to government intervention?

    This is a nice subscription for me. Your point of view is often different from mine, however that’s is what I need or at least what I look for (if written by a person that is well informed, which your are, from what I can discern) and I find that your writing is not condescending when I may be one of those you are targeted against, and even on occasion self-deprecating (something I am also accused of, quite often).

    Best wishes to you and all of your readers.

    “The surest sign that intelligent life exists elsewhere in the universe is that it has never tried to contact us.”
    — Bill Watterson.

    “Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so.”
    — Douglas Adams

    “Always forgive your enemies — nothing annoys them so much.”
    — Oscar Wilde

    1. I’m guilty of being condescending in the virtual sphere (i.e., here) on occasion. Some readers can attest to that. But, what I can confidently say is that I am never (ever) condescending in person to anyone under any circumstances. And that’s what’s important.

  5. I don’t know to whom this article is addressed. The people who own or want to own Bitcoin will not be convinced and the people who do not wish to own Bitcoin are already convinced. Gold can be seized (1933: Executive Order 6102; civil forfeiture by police). Anything can be taken by the government as civil forfeiture cases in the US show. Nothing is absolutely safe, including Bitcoin. Anybody who doesn’t understand that virtual currencies are speculative risk assets deserves their fates. Does “Intellectual Property” have value independent of laws which give it value? Think of virtual currency as a type of intellectual property; its value can be destroyed as you suggest or its value can be enhanced, depending on the regulations and laws in place.

    1. You beat me to it… I made the same argument below, without being as precise re. gold seizure. Good point on IP and their reliance of IP laws. Exactly what I meant by hyper technological world.

  6. What’s gold? A shiny rock i.e. not quite nothing (then again, BTC is lines of code so not ‘nothing’ stricto sensu).

    Like so much else in our hyper technological world, it has the value we collectively find in it and attribute to it. The store of value thesis will fail or succeed based on adoption.

    Can governments unilaterally destroy it? Of course. Just as they can destroy AMZN or gold. Gold via confiscation, AMZN by legally dissolving the company. Modern governments have near limitless powers, if they just decided to flex. But it’s a hallmark of civilisation that they don’t.

    1. that has industrial use, comestic value, that is finite and that has been used as barter or currency for thousands of years. ermmm and maybe just the biggest point of them all is used by most governments to safe guard their own currencies.

      1. Governments no longer use gold to safeguard their own currencies in any meaningful way.

        The industrial and jewelry points are well taken but that’s not really what we’re talking about here and I honestly doubt that gold is popular nowadays as an alternative store of value b/c you got micro traces of it in computers and/or b/c some people still like to wear some.

  7. Bitcoin fanboys crack me up. It has ‘scarcity’… but you can create a new one of any size you like. It’s ‘independent of central authorities’ but… relies on the Internet infrastructure that those central authorities created (and control, to any extent they deem necessary). It’s a ‘store of value’ that has volatility that would make Tesla blush. Fools and money, parting. Currencies are ultimately backed by force – that’s where the trust comes from. Bitcoin doesn’t have that.

    1. And force is backed by popular consent (at least, till they get the killer drones autonomous). If BTCs get popular consent…

    2. Good point, that crypto depends on an infrastructure that “central authorities created (and control, to any extent they deem necessary)”. I’m not being sarcastic here, it is a fair point, one that we should consider. Transactions over the internet can be governed by so-called authorities. I hadn’t gone that far in my thinking. But…

      Has “the internet” become something which is hardly in “control” by a central authority? My ears are open because crypto has undisputed advantages in improving transactional costs which excel far substantially from the burden we bear with banks standing in the middle.

      That, my friend, is where crypto has a place in the global economy. To wit, Oscar Williamson gained the Nobel Prize in economics for his contributions on the load that transactional cost has on an economy.

      1. Excellent comments! Hit all the cogent points. To the argument that government can try to obstruct or cancel this market out, what about eminent domain? Whole neighborhoods were destroyed putting in the cross Bronx expressway. Our own fiat currency has been depreciating to the tune of>90% for the last 107 years due to intervention backed by the government. Fact is institutions are piling in and Pay Pal and others want in. Sorry this has gone beyond the power of the US government to destroy. Moving to another country just got so much easier with crypto. The horse is out of the barn. Thanks for your insights.

        1. “Sorry this has gone beyond the power of the US government to destroy”

          Nothing is beyond the power of the US government to destroy. Just ask any country we’ve invaded to disastrous effect.

          1. Like Viet Nam? They seem to be doing fine. Especially during COVID. It goes beyond our borders or any country we invade, that is part of the value. Best wishes to you with your views. Mine have served me well these last 25 years. Just sold some of my $300 gold coins that I bought in 2000 to buy some Bitcoin to better my asset allocation. Time will tell my friend. Please comment on Anaximader’s comments. He’s spot on in my book.

          2. US has only attacked and invaded non nuclear countries.. Countries that do not have the capability to retaliate-vietnam, Afghanistan, Iraq..

            Crypto space is dominated by China and the Chinese govt is steadily moving to digital platforms. This is the biggest reason why US govt does not ban crypto. On one hand dollar is under threat but if they ban cryptos then China together with Russia will be the leaders in this technology. There is no good decision here for the US. Time will tell.

  8. Ok, I’ll weigh in (really step in the dung here). Just to clarify first, I have no interest in arguing, or in proselytizing. I am writing in solidarity — out of respect for Professor H, this site, and the community of readers here, from whom I have learned much over the past several years.

    Bitcoin is a network of trust. The best way to value a network is from the perspective of Metcalf’s Law and the S shaped adoption curve of technologies. We are still in the “first inning” of adoption, as per Paul Tudor Jones, which I more or less agree with. Because Bitcoin is not ‘a company’, people have a hard time understanding this. The network is organically secured by a global community of miners, immutable, and has a hard-coded money supply of 21 million BTC. It is an ultra hard asset, harder than gold, even if it is ‘intangible’. Facebook is a network. Google is a network. The internet itself is a network. How does one value the concept of the internet? How does one value a global ecosystem? Bitcoin is an internet of value or money. It is the dematerialization of value.

    The financial system (SWIFT, USD reserves, etc.) is itself a group of networks. How else can one explain the ongoing use of 50-year old legacy financial and banking technology (that is expensive to use, doesn’t operate on weekends, and takes days or weeks to work as opposed to seconds)? How else can one explain the ongoing use of a USD reserve system that no longer works for anyone outside of the 0.1%, including dollar-starved emerging markets that need to settle global trade flows, and 90+% of the US population who are forced to compete for a currency overvalued by virtue of rest-of-world demand, and as such are stuck in a country that is unable to build a manufacturing or export industry? The world is locked into a current system of financial networks that are essentially broken. Bitcoin is a hedge against this system, not against the day to day fluctuations in the equity markets. In an acute liquidity crisis, it will sell off just like gold. The history of technology shows that legacy systems are eventually supplanted in ‘a leap’ to something that works better by several orders of magnitude. Almost 50% of the world remains unbanked. They will leap directly into the ‘crypto’ future via mobile phone, and nothing is going to stop this from happening because it solves a fundamental problem.

    The other good way to approach Bitcoin is from the perspective of gold. Gold has not real ‘inherent’ value, and yet it served as a primary store of value for thousands of years, and formed the foundation of banking systems. A $100M Picasso is worth nothing without the beholder. The many tech stocks that IPO with negative earnings are not ‘inherently’ valuable either (their price is purely a belief in future potential). With the coming death of the 60/40 portfolio, the trillions earning negative real yields (is it around $50T now?) are going to go to diversify into additional places, especially hard assets such as gold at Bitcoin.

    There are other ‘cryptocurrencies’. This term is a misnomer. Ethereum is a network of utility, digital oil to Bitcoin’s digital gold. Some of these will have value and solve problems. Many will not. It’s important to know that there is little agreement at the moment around taxonomy. There are a lot of different problems being addressed. From my perspective, Bitcoin has already won the ‘store-of-value’ domain. Others will win other domains.

    There are of course political risks. Professor H. has highlighted a few of them, but with a little research, one can easily see that the world is not racing to ban this technology, but to embrace it, regulate it, and tax it. Believe it or not, the ECB, SEC, and the FED are not total Luddites. Deep down, I think they know the global financial system is broken, and see the writing on the wall. They are also rushing to compete with China, who is way ahead in this race. Alipay and Wechat are taking over in the developing world, and will become ever more blockchain/crypto enabled. In my view, the biggest risk to Bitcoin is the concentration of network mining power in China. At the current moment, the CCP could hold a gun to the head of the Bitcoin miners there, force a 51% attack, and destabilize the trust of the global network if they wanted to. But that may not be the case for much longer, and certainly not forever.

    For those interested to learn more, I would recommend taking a look at the list of resources Microstrategy put together to build internal consensus before committing $500M of the cash on its balance sheet to Bitcoin as a reserve asset. Corporate treasury money, and institutional money is starting to flow in. Fidelity and other players are building the pipes, and custody solutions, for the financial system.

    1. By the way, it should be clear to any readers of my previous comments that I am no ‘libertarian’ – far, far from it. The fact that the BItcoin libertarians and I have an overlappng agreement here is, to me, a very bullish sign.

      1. Do you have any concern about the concentration of the “global community of miners” in one country?

        What percentage of miners are now in China, where the government subsidies them via low electric power rates?

        I ask sincerely. I have not kept up for a while. But there was a time not long ago where around 60% of the successful miners were located in China.

        Perhaps that has changed. perhaps not. If not, how comfortable are you with that?

        1. Yes, this is my biggest concern. Currently around 65% of ‘hashrate’ is concentrated in mining pools within China. As per the above, the CCP could force them to commit a 51% attack, which would not confiscate anyone’s Bitcoin, but would destabilize the trust of the network going forward and lead to a ‘hard fork’. If the country became internally unstable, and the CCP was afraid of capital flight, they might have some reason to do this. At the same time, I wonder if in such a scenario it wouldn’t just easier for them to shut down their ports and borders. As it stands, Bitcoin can be used to import capital, and I have to believe this is of importance to them. They are currently hoarding gold and reducing their US Treasury reserves. I assume the PBOC is probably also diversifying into Bitcoin. China sees the technology race for what it is, and aims to win. I’m not sure what other reasons they might have that would point to blowing up a field of innovation, a profitable technology industry for them, and an area where they are currently outcompeting the West. Once the Bitcoin mining concentration drops below 50% and is more widely dispersed, this hypothetical scenario would no longer be nearly as relevant. I think a lot of the mining will eventually be dispersed ‘behind the meter’ at renewable energy sites around the world (running off-peak with excess energy at low prices).

    2. Smart contrarian views are important learning opportunities. When I saw the original headline, I was looking forward to learn from Heisenberg’s perspective, of what I might miss (on the topic of “crypto”, I generally fully disagree with Heisenberg, but respect H.’s thoughtful and agree with many other articles). Finding this COMMENT is an absolute highlight. @anaximander: this is a fantastic “blog” and I would like to share / quote / attribute it correctly. Let me know how to best “give credit”.

  9. Is it necessary to hack the mining code to counterfeit a million Bitcoins or do you just make the coins?? If you are a buyer of Bitcoins and someone walks in and shows you a coin that looks like a real one and feels like a real one how do you know if it’s a real Bitcoin?? Do you ask for paperwork to prove it’s real?? Do you have to verify it on the Bitcoin website?? How do you know that the real Bitcoin isn’t sitting in a bank safety deposit box and the guy isn’t who he says he is??

  10. Can a bitcoin destroy a dollar? Not now and maybe never. If I understand H, a dollar (the sovereign country behind it) can destroy a bitcoin.

    1. What is gold? Could the government not sanction the private ownership of gold and require holders to either forfeit their gold or sell it at a “below market” price to the government?

  11. I agree with H that the biggest threat to crypto is that all governments ban it or tax it so aggressively it becomes hard to redeem for other assets or currencies. Moreover, Central Bank Digital Currencies “CBDCs” are already in development and are coming within 1-2 years, which will be digital tokens of the traditional currency based on blockchain ledger technology. These will certainly be easy to use and convert, providing the benefits of crypto and pulling much of the demand for crypto to the official CBDCs. The CBDCs will be so easy to use that like a frog in boiling water, most people will just start to use them and find them very useful, and they will allow CBs to directly give MMT to individuals and make Fed reserves legal tender. Great, right? Unfortunately, they may eventually be designed with ultimate central big brother control, like automatic taxation, no anonymity, variable interest rates per individual, expiring tokens that must be redeemed within 2 months, etc. CB Digital currency is coming. See the IMF conference last week and how every country is lining up, including JPow. See the US Senate “Banking for All Act” March 23, 2020.

    However, I have 2 arguments against the death of crypto– the groundwork has been advancing quickly for banks to custody digital assets legally, ETFs are being constructed, and industrial crypto products are advancing quickly– this more points toward the government wanting to allow it, regulate, and tax it rather than ban it. They want the growth, the tax income, the jobs, the DeFi enterprises. Second and more important is game theory. Crypto may very well be the new heart of a new massive wealth creation as people jump in to hedge for the future of global MMT and fiat currency devaluation/inflation. Let’s say the stampede to crypto happens and the market balloons to rival gold at $9T. Can you imagine that ALL countries in the world will simultaneously turn their backs on all that value/money and choose to destroy it? Game theory would suggest that there are many countries in the world that would gladly welcome the crypto enterprises that the US turns away. China says- you can convert to CNY if you donate 10% in USD to the CCP poverty fund. Russia is happy to convert 1/2 to USD and 1/2 to rubles. Perhaps Barbados says: you can run your transactions here, but we take a 2% overhead on each trade, payable in USD. Another country does something similar. Another place just adopts BTC as their national currency. Pretty soon you have a vibrant international market and ways to redeem the crypto in various markets.


  12. Bitcoin is not worthless. It in fact has negative value, because its creation has led to the use of real-world energy to mine more bitcoins, and this energy consumption contributes to carbon emissions, depletion of petroleum, and pollution. On this basis alone, governments should ban bitcoin and other similar cryptocurrencies.

    1. Oh please! Bitcoin is a Network that keeps the blockchain stable and secure. The coins are the incentive to add your electrical or solar power into your mining rig. The value of BTC is the technology behind it. We live in a world where borders are slowly dissappearing. Anyone traveling know how muxh they lose to conversion rates. Bitcoin is transparent, it is encrypted and secure. It has value because it makes life easier on many and it does act as a hedge against the paper we call money. At the end of the day,, with so little of it, any company could buy all the mined BTC and save a fortune in recording data and keeping it safe. Or it will be digital art. Why don’t you close all the lights during games or stop sending rockets into space or eating meat for that mattzr. Americans male up 4% of the world’s population, yet consome over 20%, of resources and you think BTC is bad for climate change?

  13. I disagree completely, but if someone doesn’t get it at this point they never will (by choice or ignorance, perhaps both)

    1. Here is what you said two years ago:

      “Reminds me of the beanie baby toy craze in the 90s… eventually people realized they were paying up to 4 figures for a sack of beans, then a few months later they were sitting on shelves for a retail value of $3. Even if you consider cryptocurrency to be the real deal, there are simply too many alternatives that take up a lot less of your truly fungible dollars and offer arguably better potential reward.”

  14. Thank you for clarifying Bitcoin so well. This article helps me avoid any investment in Bitcoin as Bitcoin risk exceeds my baseline. However I see great potential of open ledger to help with various accounting and materials tracking tasks.

  15. I’m surprised no one has yet touched on this: Bitcoin and other crypto currencies will continue to have value as long as they can be used in the black market to acquire goods, to transfer money with a hard-to-follow trace (you can carry millions in a USB stick), and to launder money (you can pay taxes on crypto “trading”).

    No need to store illegally acquired dollars in plastic drums if you can keep some of its value in a hard drive.

    If you purchase Bitcoin chances are you’re financing rogue states, cartels, and human traffickers.

  16. I think the arguments you are making in this article are squishy at best. The whole “What If…?” argument could easily be said about almost anything. What if [company x] has a [bad thing y] happen? You can easily write an article about any topic using that template.

    Bitcoin has higher volatility than other assets, sure, but compiling a list of “what if” negative scenarios doesn’t make it “worthless”.

    1. No, what makes it worthless is that it’s worthless. It has no intrinsic value, no internal rate of return, exists only in the digital sphere, and is priced in the very thing (dollars and other currencies) that it purports to “replace” or otherwise supplant. And the government regulation hypothetical is hardly some far-fetched idea. This is a persistent theme in crypto land. It’s not as if I just made this up. This isn’t like saying “What if Pepsi turned out to be made from the blood of dead kittens?”

  17. Here’s a secret, folks: there is no “inherent” value in anything, in the ultimate sense. Neither in Apple shares, a Picasso painting, a red rose, a czarist-era card table inset with fine marquetry, nor in a penthouse in Trump Tower. Nada, zilch, zero. All value is assigned by the human mind, projected upon phenomena through a long practice of habituation and cultural acceptance.

    Even the mere existence of independent objects appearing in our world of “stuff” is derived from the mental act of carving out singular things from the totality of manifestations.

    Were you to sit calmy and carefully disect every part, molecule and atom of a work of art, a building, a corporation, a gold brick or Enron bond – you would never find value. In fact, you would never find the very “thing” you searched for, which is a disturbing discovery for many people.

    Yes, value inheres in a conventional sense; but not in the ultimate sense. Were value stable, maybe it could be called “real.” But it ain’t so.

    Understanding the true nature of reality is quite liberating because things begin to lose their grasp on your soul.

  18. I agree with H. on this one as I have had multiple discussions with friends who are miners about the utility of Bitcoin. I do disagree that it will completely go away as many institutions are developing the framework to be able to house and turn into financial instruments.

    I do have a concern as an American that adoption of these tools will accelerate the demise of the dollar as a reserve currency and all the MMT theories are espoused on this and other platforms, that would help justify and potentially allow gov’t to spend on infrastructure, healthcare etc. would be moot.

  19. What happens when the Federal Reserve and/or Congress decide that bitcoin is a big enough threat to the US government’s ability to print USD (physical paper or an electronic version) that bitcoin transactions are prohibited in USA and US tax filers are not allowed to hold/transact anywhere, even outside the USA, in bitcoin?
    The rules for US tax payers regarding foreign bank accounts are getting stricter, not more lenient.

    1. You underestimate the US government and their willingness to be extra-territorial. They could quite easily threaten to deny access to the US economy and the USD banking system to any individual or company (or even country) that partakes with crypto-currency in any way. I am not saying I think this is likely, but depending on how much of a threat they perceive, they could quite easily ‘go nuclear’.

  20. The only value crypyocurrencies have comes from: ability to transfer and store large amounts of money without a trace (you can store millions in a USB stick), launder dollars (you can pay taxes on “trading” gains), buy illicit items.

    If you give dollars to get cryptocurrencies, chances are you’re financing rogue states, human traffickers, and the mafia.

    1. What about paypal and square which are payment processors getting into Bitcoin in a big way. Square just purchased 40 M USD worth of Bitcoin. Legitimacy is your only valid argument and this action legitimizes it for transactions better than anything else….would love to know how you are these two companies moves

  21. So many comments… Now I know why H doesn’t usually like to discuss Bitcoin. Its always contentious to challenge people’s faith.

  22. Biased much?

    People once feared cars, and they said they would never work. They feared aircraft. They feared going to the Moon. And here you are fearing the future again.

    This article will not age well. I trust that in the years ahead, you will feel suitably foolish for having written it.

    1. In which a commenter compares Bitcoin to the moon landing. This absolutely validates my worst fears for the crypto crowd. I hope it turns out well. I really do. But, whenever you hear people comparing any kind of “asset” (purported or real) to space travel, you know you’ve probably got yourself a bubble.

  23. The removal of the bank as intermediary, and the decentralisation of power to manipulate currency is the genuine evolution here. I was a cynic also, another iteration of Dutch tulips and a new class of investor about tu learn some age old lessons, I thought.

    But 8 years after selling by my first stake I’ve taken a second look. Have you read the bitcoin white paper? I think this technology is genuinely disruptive, an Internet of money if you will, and perhaps deserves a closer look…. The concept of intrinsic value , promissary notes and money generally is not always as binary as you make out…

    P s kudos to anaximader for aceing that summary better than I could

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