This Is the End


Markets, Risk and Human Interaction

December 25, 2017

Bitcoin Can’t Win Against Fiat Currency

I'm not going to write anything here about the huge drop in bitcoin over the last few days, so what I am writing cannot be ignored should bitcoin get back up to the 20,000 range. And I'm not going to write about the stupid articles that espouse bitcoin. Though to get a sense of the level of thoughtfulness for the arguments for bitcoin, just to pull one recent one at random, check out this from Forbes.

I'm going to point out only one simple but devastating barrier to bitcoin becoming the standard, becoming even a second-tier means of payment:

If bitcoin doesn't find its way back into the shadows of the drug trade and underground economy on its own, it will be banished by the stroke of a pen, actually, of many pens. No sovereign will give up the power of issuing and controlling its currency. The central bank and monetary authority is one the most powerful economic tools of any government. If bitcoin or other extra-governmental currencies start to take hold, they can and will be made illegal to use for payment in one country after the other.

The cryptocurrencies will still find a market in the underground economy, where people want to avoid taxes or need to remain anonymous and untracable because their activity is illegal or subversive (It is true the ledger is public so all transactions can be seen. But the identity of the user behind the address can be kept anonymous.) But it will not be useable for the bulk of transactions, like your mortgage, credit card bill, tax payments. Or purchases on Amazon. It will be good for your recreational drugs, and your under-the-radar part-time t-shirt printing business.

A few other thoughts while I'm at it:

I can't take seriously a currency, crypto or otherwise, keeping in mind that currencies are supposed to be a store of value, when its exchange rate is determined by speculative activity, untethered to anything in the real world. Where the volatility is greater than for any asset in the real world. And where the assessment by is that "it is truly difficult (and exciting) to imagine how it will play out."

To those who think there is credibility for bitcoin and other cryptocurrencies because Goldman now is considering a cryptocurrency trading operation, just remember this from Matt Taibbi:

The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

And right now, bitcoin smells like money.

Note: A fiat currency is the currency issued by a government that is declared its legal tender, accepted for payment of all debts, public and private. The word "fiat" means it is not backed by anything. No gold or silver; the government declares it as currency by fiat.


  1. Or, to put it another way, "At least you can eat tulip bulbs. And mobs can execute the leaders of a central bank."

  2. How do you ban an uncensorable p2p network operated by consenting adults without violating the first amendment?

    1. First, you start arresting people for not paying tax in their profits. (Speaking as one of the few Americans who actually paid.)


  3. this view (first attempt to post it seemed to fail...I think

  4. You shut down exchanges, and there goes your pricing.

  5. Your analysis, in its intellectual vigor, reminds me very much of the late, great Bernard Baruch. He was an avid student of “bubbles”. And so, in advance of the 1929 crash, he withdrew from the market, purchasing gold. Jesse Livermore was also an avid student of bubbles, but he chose to “short” the market during that crash. In other words, he profited from the misery of others. In 1940 Livermore went to the cloakroom of the Sherry Netherland Hotel and blew his brains out. And I have visited that site. Buruch, by contrast, was wise, kind, and generous. When he died in 1965 at the age of 94 he, having been profoundly generous, left an estate which was a tiny fraction of what it had been at its height. But money was not all that Baruch gave away. He was an advisor to Presidents from Woodrow Wilson through Harry Truman. He played a pivotal role in the industrial mobilization and natural resources utilization for both World Wars. He is an enduring icon. You, Mr. Bookstaber, are his kindred spirit. Excelsior!