On Monday, the world’s first cryptocurrency, Bitcoin, reached a new peak of $72,234 per token, surpassing its pandemic peak of nearly $69,000. While Bitcoin may have established itself as a permanent fixture in the financial landscape, its popularity alone does not justify its use as a currency.
The argument that Bitcoin’s popularity legitimizes it as a currency overlooks a critical distinction between collectibles and currencies. While humans have always assigned value to a variety of eclectic goods, such as flip books or soda bottle caps, these items are considered memorabilia rather than mediums of exchange. The fact that they are traded for large sums of money demonstrates a desire to acquire perceived assets, not a validation of their usefulness as a currency.
Furthermore, advocating for crypto tokens as a currency ignores its anti-sovereign stance and the risks it poses to fiscal and monetary systems. Bitcoin has already failed its test as digital money, with poor performance as a medium of exchange and store of value. Its high volatility and speculative swings have resulted in significant losses for investors. In May 2021, the crypto market lost nearly $1 trillion in estimated market value. This instability undermines its utility in everyday transactions and as a means of preserving wealth over time. Any currency or asset class must address these fundamental challenges and demonstrate structural robustness to effectively fulfill its intended purpose.
Bitcoin emerged after the Global Financial Crisis (GFC) as a means to conduct transactions without the need for a trusted third-party, such as a central bank or financial institution. This was well-timed, as the GFC had eroded trust in traditional banking systems and governmental authorities. However, the allure of Bitcoin during a time of widespread disillusionment with the status quo highlights a human tendency to gravitate towards alternatives without critical examination or consideration of potential consequences.
Today, the limitations of Bitcoin are clear. Its fixed supply model, aimed at combating inflation, creates its own economic challenges. Unlike traditional currencies, Bitcoin lacks elasticity in its supply, making it inherently deflationary. This undermines its utility as a medium of exchange, as individuals are incentivized to hoard rather than spend it, leading to economic stagnation. Additionally, Bitcoin’s reliance on energy-intensive mining processes goes against sustainability goals and worsens environmental concerns. Therefore, while it may hold ideological appeal as a challenge to centralized monetary systems, its practical shortcomings render it an impractical solution to economic challenges.
The notion that Bitcoin serves as a remedy to currency debasement overlooks its inherent limitations and risks. While it is understandable that individuals in countries with high levels of currency printing may be concerned about the true value of their money, Bitcoin is not the answer. Its reliance on artificial scarcity through cryptographic algorithms does not address the underlying issues of economic stability and growth. Instead, it introduces new uncertainties and complexities into the financial system. So while Bitcoin may draw attention to the problem of currency debasement, it is not a sustainable economic solution.
The argument that Bitcoin’s periodic halving of new tokens creates scarcity value ignores the complex realities of our modern world. In a society where poverty and exploitation coexist with the monetization of human data through social media platforms, scarcity alone is not enough to justify Bitcoin’s appeal. Additionally, the echo chamber of Bitcoin zeal is often fueled by a romanticized perception of it being anti-government or anti-officialdom. This is rebel-heroism rather than genuine social evolution, and the rebellious sentiment could lead individuals to invest in what amounts to a ‘ticket to nowhere’ simply because others are already in line to buy that ticket, without considering its long-term impact. Thus, while scarcity may drive investor interest, it is not a sufficient rationale for legitimizing Bitcoin’s role as ‘digital gold.’
The analogy of crypto acting like an AI-run currency is an oversimplification. While it may be true that humans often struggle to agree on various issues, including monetary policy, the solution is not to relinquish control to non-human entities. Instead, it’s about fostering informed debate, implementing sound economic principles, and ensuring accountability for decisions.
Cryptocurrencies challenge the traditional state monopoly over currency issuance and management. By operating independently, they limit the ability of authorities to regulate and stabilize monetary systems. As these digital tokens gain global traction, it is imperative for governments to establish regulatory frameworks to combat illicit activities such as money laundering and tax evasion while preserving the integrity of monetary systems. Authorities must prioritize financial stability over the speculative interests of cryptocurrency enthusiasts.
In conclusion, while Bitcoin may have established itself as a permanent fixture in the financial landscape, its popularity and ideological appeal do not justify its use as a currency. Its limitations and risks far outweigh any potential benefits, and governments must prioritize financial stability over the speculative interests of cryptocurrency enthusiasts.
