ABERDEEN, SCOTLAND – I’m keenly aware that I’ve been bumbling on about bitcoin very frequently in this letter, monopolising our conversation and without giving you a moment to speak on the subject.
I want to know your views. Even if you don’t follow the asset closely (or at all), you’ll probably have a fair amount of knowledge on the situation just from reading these letters. So here we go, it’s time for a poll…
Has the bitcoin price peaked?
(For those who think bitcoin will go higher over the long term, but think it’s overheated for now – click “YES”.)
I’ll share the results in Monday’s letter. In the meantime, I’ve been receiving some interesting emails from readers over the past few weeks on a variety of topics that I’d like share.
As you’ve heard me being so bullish on bitcoin for so long, I thought it was time you heard from a reader in the “bear cave”:
Personally I think that when all bitcoins are produced (or before) their value will plummet.
I think they are only increasing in value due to the gambling instinct.
People will eventually realise that there is actually nothing tangible in a bitcoin.
I suspect that as we get closer to the maximum number those who think like me will sell up and the suckers will be left carrying the can.
I think this concept has to be promoted in articles such as yours. We need to rid the world of this bitcoin idea. Its wastes electrical power. It is little use as a currency. It has reduced the gold price. It is leading people to ruin.
There’s a lot in there. I’ll start with where I agree with this reader.
Number one: it is worrying to see hugely speculative activity take place in bitcoin. The spectacle of individuals taking out loans to buy BTC (even mortgaging their houses in some cases) is grossly irresponsible and is to be discouraged – like all forms of general stupidity.
Number two, there isn’t anything “tangible in a bitcoin”. But that was never the point. Bitcoin was never meant to be “backed” by anything physical, and I don’t believe anybody buying it thinks so either.
I often hear this tangibility argument come from my fellow gold bugs, who are trying to view bitcoin through the lens of gold. Trying to view BTC as though it’s a precious metal, as though it is similar, or even a rival to gold. Many bitcoiners make this mistake too.
The good news is that they aren’t the same thing at all, and shouldn’t be compared as though they are – neither asset is going to take the place of the other, and they do entirely different things in a portfolio. While bitcoin has some of the attributes of gold such as scarcity, its real value comes from its network. Its scarcity is what adds trust to those that use it, but that’s not where its value ultimately comes from.
For those struggling with the lack of tangibility to bitcoin, I would encourage them to consider the value of email. An email in and of itself is not tangible. But that doesn’t mean that email itself has no value. While email providers are centralised networks for transmitting information, bitcoin is a decentralised monetary network for the transmission of value.
There is evidence that some investment flows have shifted from gold into bitcoin in the short term… but what’s wrong with that? If you’re a gold investor, you should treasure the opportunity to buy gold on the cheap.
As for bitcoin having little use as a currency… you’ll find plenty of folks in Venezuela, Iran, and Nigeria who beg to differ. And hell, plenty more even in nations where the government isn’t (yet) trashing its citizens savings. I’ve made all manner of bitcoin transactions over the years, and it still works just fine for me.
Bitcoin transactions themselves take a little while to be fully confirmed in the blockchain, but nothing extreme. There are fees of course, but again, nothing extreme. And bitcoin payments are only the base or settlement layer of bitcoin transactions – the future of BTC payments is via faster “second layer” networks built above it, like the Lightning Network. Lightning has flown under the radar of the mainstream press (no surprises there) but it is in my view one of the most exciting elements of the digital asset space.
Using Lightning you can make payments of a fraction of a fraction of penny (in BTC) to any member of the Lightning Network, quicker than the eye can see. This flips the idea of bitcoin being too slow and expensive on its head for micropayments alone, let alone instant ones, which is something impossible via the traditional banking system.
The true potential of this technology has yet to be fully imagined, just like the applications of the internet in its early years. But a simple way this might effect change would be to flip subscription payment models upside down. For example: it would be possible to pay a penny to read an online article without having to buy a year’s subscription, because banks can’t process micropayments at a profit and thus force a minimum payment level.
Another one: forget payday, how about payminute? Instead of waiting for a paycheque at the end of every month, you could be paid for your labour in real time. Every hour, or even every minute, you were at work, your salary would be arriving in your digital wallet – you could watch it tick up instead of the clock.
And finally, you should be very wary of any politicos peddling the “bitcoin uses too much energy” narrative. This is a disingenuous and insidious tale being spun by to change public opinion on BTC by politicos who fear its nature.
While the argument itself has been refuted to hell and back (and with great panache – see here for a good example), one should zoom out further and inspect what the question implies. Since when did we start arbitrarily deciding what energy should and should not be directed towards? What is this, the Soviet Union?
Kids have been using copious amounts of electricity to murder each other in video games for years. Lord knows how much energy has been expended keeping Christmas lights on over the decades. Why were none of the guys promoting this nonsense about bitcoin today moaning about these more obvious “unnecessary” uses of electricity over the years? Why weren’t they trying to ban tumble dryers, or the practice of leaving electronic devices on standby?
Because it’s not about electricity usage.
It’s about control. Control over money.
The bitcoin project may fail. But it has enough potential in its current state to scare the men and women in ivory towers who fear a form of money that they could not manipulate. And that’s why it is facing the negative PR campaign about electricity usage. Bitcoin’s electricity consumption is a big number (like the electricity consumption for a lot of things, funnily enough) and this has been used to scapegoat the project. Ultimately however, this is a red herring: a deception.
Be very wary when somebody starts telling you how energy “should” be directed in society. For it’s a conversation about the future of your very freedom.
All the best,
Editor, Capital & Conflict
PS I’m still receiving some great suggestions as to what the collective noun for gold sovereigns should be…
Did nobody suggest a ‘reign’ for the collective noun? It was the first idea that came to my mind. And, of course, it has homophonic associations with it ‘raining sovereigns’, and also with the idea ‘reining in’ inflation and debt.
A “reign” of sovereigns does have a good ring to it. Though I think I’ll be sticking with “splendour” for the moment…
Category: Investing in Bitcoin