Editor’s note: This article was first published in November 2022, during the crypto crash; “the current state of cryptocurrencies” refers to that moment. Later developments, such as US spot Bitcoin ETFs in 2024 and the EU MiCA regulation, bear on its claims that Bitcoin is unregulated.
These are some of the arguments cryptocurrency investors give us to explain why Bitcoin will one day displace gold and currencies such as the euro and the dollar. It will even make banks disappear, they say. And as always, we feel obliged to call a spade a spade, so here are some short answers to those arguments from Bitcoin lovers.
The first argument has already been answered by the current state of cryptocurrencies. You may remember that Bitcoin supporters claimed that, being a decentralised currency, it would serve as a safe haven against inflation. Back then we said that was unlikely, because the crypto market is fed by dollars and euros, and anything that affects the dollar and the euro will, in turn, affect cryptocurrencies.
Answering the arguments of Bitcoin supporters
“Fiat money has no intrinsic value either, and like Bitcoin it’s backed by nothing but users’ trust”
It’s true that fiat money has no intrinsic value, and it’s true that it’s no longer backed by gold. But it does have a backing, and that is precisely that it’s needed to pay taxes, which is compulsory. In other words, there will always be someone who wants fiat money, and that someone is the government, to collect taxes. In fact, taxes can only be paid in the corresponding currency.
“Bitcoin is here to stay because of its innovative technology”
False. What’s here to stay is blockchain technology, which has proved to have a great many uses and applications across numerous industries. Bitcoin’s future remains uncertain, because to this day it hasn’t shown any use or benefit beyond pure speculation.
See also: It’s official: China bans Bitcoin trading
“The dollar keeps losing value because they never stop printing more. That’s why we need Bitcoin: its supply is limited, so no more can be printed”
The problem with this argument is that Bitcoin has no value on its own unless we “translate” it into dollars, euros, yuan and so on. In fact, the only way for the price of Bitcoin to rise is by putting dollars and euros into it. If no dollars come in, the price of Bitcoin stalls. What we mean is that, even though they try to make us believe Bitcoin is outside the system, anything that affects the traditional financial system affects Bitcoin in the same way, because it feeds on fiat money. Inflation affects cryptocurrencies.
“Like gold, Bitcoin is limited. That’s why it has value”
The difference is that gold has value in itself, because it has industrial uses. Bitcoin, on the other hand, has no value in itself. It only has a price.
“Bitcoin is a financial asset and a store of value”
False. Bitcoin can’t be considered an asset, because it doesn’t meet the requirements to be one. It produces no returns, it isn’t regulated by any company or government body, and it isn’t backed by any legal framework or central bank. Nor can it be considered a store of value, given its high volatility. At most, it could be considered a digital asset, though of doubtful effectiveness, since the only thing it has shown itself to be so far is a speculative asset that people buy in the sole hope that its price will rise over time so they can sell it again for fiat money. Nobody is buying Bitcoin for the use it will have. Those who buy it do so thinking about its possible future rise in value, so they can later exchange it for fiat money.
See also: Investing in Bitcoin? Here’s my view on where cryptocurrencies are heading
“Unlike fiat money, the price of Bitcoin can’t be manipulated”
Terribly false. A single tweet can send the price of Bitcoin soaring or crashing, as has been shown more than once. While shares and international currencies change price based on a macroeconomic narrative (in the case of currencies) and on macroeconomics and balance sheets (in the case of stocks), Bitcoin and the rest of the cryptos move on fairly incoherent arguments and are therefore susceptible to manipulation.
“Bitcoin can’t be hacked”
It’s true that nobody has managed to hack the blockchain so far, although nothing is impossible. However, everything else (exchanges, virtual wallets and so on) can be hacked. Some would say here: “Sure, just like banks and bank accounts.” Correct, except for one small difference. If a bank account or a bank is hacked, our money is insured. If a crypto wallet or an exchange is hacked, nobody insures the money.
“More and more investors and billionaires who used to criticise Bitcoin are now investing in it”
We’ve come up with a name for this: “retrospective FOMO”. In their day, these people concluded that Bitcoin was purely speculative junk. Years later, after Bitcoin’s price rose, they worked out how much money they had missed out on by not investing in cryptocurrencies. After the sharp corrections, these people don’t love Bitcoin’s technology, but the gains they could make. Some of the billionaires who used to say Bitcoin was junk and now say it’s the future changed their tune as they launched crypto-related projects or invested in crypto. And let’s remember that Bitcoin’s price works like a box: for the price to keep rising, more people have to be persuaded to put more money into that box.
See also: Bitcoin hits 260 dollars and shapes up as the perfect bubble
They haven’t changed their view of Bitcoin, but their view of the money they can now make, given the huge number of people willing to pour their money into cryptocurrencies. They’re not in love with change, but with the potential profits.
See also: Gold versus Bitcoin as a safe haven: an impartial comparison
Featured image: Marko Ahtisaari, CC BY 2.0, via Wikimedia Commons.
