IN DEFENCE OF BITCOIN (SORT OF)
So let me see if I have this straight…it is a commodity made available in limited amounts by its creator. It serves as a store of value independent of sovereign currencies and is put into circulation by miners who bring labour and resources to bear to extract it. The amount of both resources and labour that must be deployed to extract it becomes greater as the remaining supply decreases, and it commands a trading value that is extremely volatile but that nonetheless consistently far exceeds any obvious core intrinsic value (i.e., it cannot be consumed for sustenance, used for building shelter, forged into usable tools, etc.).
Bitcoin? Well, maybe, but I was talking about gold. But the fundamental similarities between the two sure seem to put to rest any notion that the current Bitcoin phenomenon is something novel in the annals of global commerce. In fact, the only aspect of the story that differentiates these two “commodities” is the veneer of legitimacy claimed by gold by its historical connection as the value base for sovereign currencies and the current inclination of sovereign nations to continue to maintain a portion of their Treasury reserves in gold. If at any point in this current mania the Treasury of a major nation stepped up to establish a floor demand by deciding to maintain a Treasury balance in Bitcoin, these two alternate value stores would be virtually identical in their relationship to global finance.
In fact, one could easily argue that, notwithstanding that it cannot be melted down and molded into jewellery, Bitcoin represents a superior alternative to sovereign currencies given the ease and verifiability of Bitcoin-based transaction settlement that goes with its status as a virtual currency maintained on a decentralized blockchain ledger. And sure, the anonymity of Bitcoin makes it an ideal medium of exchange for the proceeds of criminal enterprise, but the lure of gold has forever been the inspiration for larceny. Neither of the two nor fiat money itself can claim that it has no close connection to vice.
What we all see and many loathe in the phenomenon of Bitcoin is not anything inherent in Bitcoin per se, but rather the obvious irrationality of a market that places an ever higher value upon anything that has no intrinsic value beyond that which we believe a greater fool will attribute to it. It is only when and if the mania becomes so complete that we cease to see that value of Bitcoin, like that of all currencies, is always and only what we believe the person with whom we wish to transact thinks it is.
Who knows – fifty years from now the modern retelling of the Christmas story might see the traditional frankincense and myrrh accompanied by a gift of Bitcoin borne, un-ironically, by a Wise Man. But for now…
MERRY CHRISTMAS AND HAPPY HOLIDAYS TO ALL!