The price of Bitcoin has undergone yet another wild gyration, rising from $41,030 on September 29, 2021, to $69,000 on November 10, 2021, before falling back to $35,075 on January 23. That is its second-largest decline in absolute value, though it has suffered larger declines in percentage terms, such as between December 15, 2017, and December 14, 2018, when it fell by 83.8%. More broadly, the cryptocurrency market (comprising some 12,278 coins) was estimated to be worth US$3.3 trillion on November 8, 2021, before plummeting to US$1.75 trillion as of January 30.
A private digital asset based on a distributed ledger technology known as “blockchain,” Bitcoin is used as a decentralized digital currency – a peer-to-peer electronic cash system. With no intrinsic value, its market valuation (in terms of US dollars) is nothing more than a bubble.
If you got in early and “held on for dear life” – the price of Bitcoin was $327 on November 20, 2015 – you would be looking at a capital gain of 11,521.5% as of January 30. But although Bitcoin could be worth $200,000 by the end of this month, it also could be worth nothing. There is no anchor.
If, through a random convergence of random factors, Bitcoin achieves a positive valuation at some point in time, subsequent valuations presumably must be driven by the arbitrage condition requiring that risk-adjusted returns on different assets be equal. And because zero is always a possible valuation for Bitcoin, we can expect wild swings in its price.
True, the same applies to the valuation of central-bank-issued fiat money. Though its use in paying taxes and its status as legal tender give it a leg up on cryptocurrencies, economics falls short when it comes to determining the market value of this central-bank liability. Lacking intrinsic value, it is freely convertible only into itself. And though one can postulate a well-behaved demand function for real money balances, this amounts to assuming the problem away.
Nor does it help to assume instead that the real stock of central-bank fiat money yields unspecified productive services or mysterious uses for households. The best economics has come up with is the assumption that efficient barter is impossible, and that fiat money is therefore necessary to execute essential transactions, like consumer purchases.
But even if we could squeeze a meaningful demand for real money balances out of our intrinsically valueless fiat-money universe, determining the price of money (the inverse of the general price level of goods and services) would remain problematic, because, in a world of flexible prices, there will always be multiple equilibria.
For example, assume the nominal money stock (the total supply of currency in the economy) and every other relevant factor is kept constant. Even under these simplified conditions, there is nothing to pin down the initial value of the price level. There is always an equilibrium with a zero price of money (implying an infinite general price level). Moreover, for different initial conditions, there may be rational inflationary bubbles or deflationary bubbles, limit cycles, or chaotic behavior. There also is a unique “fundamental” equilibrium in which the price of money is held to be positive and constant. Finally, random transitions between different equilibria can also be equilibria in themselves. With irrational behavior and inefficient markets, the scope for market turmoil increases.
Neoclassical economics asserts that the “fundamental” equilibrium prevails, whereas Keynesian economics avoids the multiple-equilibria conundrum by insisting that the general price level is not a flexible asset price driven by arbitrage. Instead, it is sticky or rigid. History assigns an initial value to the general price level, which is then updated with a dynamic inflation equation like the Phillips curve (which asserts a stable, inverse relationship between inflation and unemployment). That approach is not great, but I can live with it.
When central-bank-issued fiat currency has value, so, too, do private assets that are confidently expected to be convertible into central-bank money on demand and at a fixed price (like commercial bank deposits). And government deposit insurance boosts that confidence even when most assets held by banks are illiquid.
By contrast, stablecoins – digital currencies that are supposedly convertible into dollars on demand at a fixed price – are effectively deposits without the insurance. When and where they are accepted, they can facilitate digital payments. But they are risky even if the assets held against them have intrinsic value. And if the proceeds from a stablecoin issuance are invested in intrinsically valueless crypto assets, that stablecoin’s stability is bound to be challenged by the markets.
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The current popularity of spectacularly risky, intrinsically worthless cryptocurrencies is hard to fathom, and buyers’ faith in a blockchain’s ability to maintain an unalterable record of transactions may soon be tested by the arrival of quantum computing, creating even more risks. Moreover, the amount of energy consumed by proof-of-work distributed ledgers – like Bitcoin’s blockchain – becomes more massive with every transaction, making the case for proper carbon pricing or, failing that, a tax on cryptocurrency mining.
Finally, the anonymity afforded to cryptocurrency holders raises serious concerns about illegal uses of funds, including tax evasion, money laundering, hiding proceeds from ransomware attacks and other cybercrimes, and financing of terrorism. The issue has become urgent – and regulation may not be enough.
Willem H. Buiter is an adjunct professor of international and public affairs at Columbia University. This content is © Project Syndicate, 2022, and is here with permission.
121 Comments
The denial is strong in this one.
What Willem Buiter fails to understand is both Politicians and Bankers have personal Bitcoin holdings.
He'd be wise to reflect on the implications of that and to educate himself on what money actually is.
'They' failed banning File Torrenting
'They' can't stop the Tor Network [dark web]
..yet this numpty thinks 'they' can ban Bitcoin, as if there were a centralized office. It's one of the national currencies of El Salvador for goodness sake.. and it's becoming very popular in other South American countries.
Willem Buiter is pretty much suggesting 'they' ban forex trading - which would only make Bitcoin more popular.
I feel I'm in a time warp and it's pre 2016..
OP wasnt making any sense but youre not making much either. Crypto can be banned, if banned by enough major players, its value would decline dramatically. Bitcoin et al. have valuations that make assumption about widespread adoption, wide spread bans would substantially derail widespread adoption.
You can outlaw crypto the same as anything else. In order to basically destroy crypto you dont need to literally stop anyone using it, you just need to stop wide spread adoption. Reading comments from people who have crypto so often leaves me wanting to sell my own.
Exactly. Legislate against it, and find that 99.9% of businesses will not accept because businesses are generally law abiding and risk averse.
Those left over that still want to use it as a means of "trade" free from manipulation are more than welcome to, just like I can swap 1 box of beer if someone tows my 4 wheel drive out of the river.
It should be outlawed not because its worthless, but because its hideously inefficient, bitcoin is 400,000 times power per transaction than visa, in an age where we are killing the planet with energy consumption this should be banned. Its inefficiency is a requirement proof of work means you have to prove you did a lot of computer work to do something. Having a global ledger of every transaction that is never compressed is just crazy from an implementation stand point when you scale it up to the number of financial transactions that occur in the world. A few years ago I tried to mine Etherium, it took about a day to just validate the ledger so I could start, utter madness.
Also bitcoin transaction take long time to process from https://coincentral.com/how-long-do-bitcoin-transfers-take/ (it sells cryto products so I doubt it is anti crypto) it takes 10 minutes to process a bitcoin transactions also:
In fact, bitcoin transactions are subject to delays ranging from a few minutes to a few days.
Imagine going to the supermarket and having to wait 10 minutes to have your payment processed, that is insane, its inefficient by design. Sure you can get around it by using an exchange but then you are using a trusted central authority that kind of bypasses the main point of crypto currencies.
I am all for an efficient crypto that would stop the government meddling with the money supply, but I am not for destroy the planet a bit faster for it.
"I am all for an efficient crypto that would stop the government meddling with the money supply, but I am not for destroy the planet a bit faster for it."
There are plenty of more efficient and quicker cryptos. There are plenty of more useful metals than gold. We still mine gold. Banning all crypto because BTC sucks is a shitty argument. We didn't ban all cars because the first Benz was garbage by today's standards.
My earlier comment on Willem's level of acuity was deleted, it was a bit strong, but my main point was to show a link to an interview with a person with, i think, a very clear understanding and view on the reality of the situation, it is a reasonably long interview and the interviewer's accent is reminiscent of a character in an Australian TV soap, but give it time and you may be surprised by her understanding as well.
https://www.youtube.com/watch?v=qqO1RswCuro
Coincidentally the FED now holds $US3.6 Billion in Bitcoin as a result of tracking down the hacked accounts from Bitfinex from some time ago. It will be interesting to see if they HODL and how will they deal with the tax implications arising.?
Yes, most recently I minted Ozzy Osborne’s cryptobat for 0.08 ETH and sold it for 2.4 ETH within 10 minutes - ETH was worth around NZD$4,500 so you do the math.
I then purchased a Crypto Chick for 0.86 ETH and sold it for 2.05 ETH a few days later (floor reached 2.7 but I missed the peak).
Not a bad week.
Like I say, the days of classic cars being a cheap father/son hobby are long-since gone. Over a 20 year time frame, they'd beat Auckland housing in terms of return on investment. A $40K NZD Dino that no one wanted in the 1990s now commands $400K USD. 1990 Mini Cooper Sports are currently pulling in $30K+. The Australian muscle car scene is even further removed from reality.
The best economics has come up with is the assumption that efficient barter is impossible, and that fiat money is therefore necessary to execute essential transactions, like consumer purchases.
I think we all agree that some form of money is necessary to perform transactions. Fiat money is absolutely not necessary for transactions.
This digital asset class has been created as a way for the younger generation to escape the poverty pushed onto them by the boomer home and equities owning generation.
Most of these tokens are indeed intrinsically worthless, I agree. But the market in which they operate fluctuates so much that the opportunities are endless.
Housing and equities were peak capitalism. Crypto has taken this and pumped it on steroids, it is the new frontier and the new peak of capitalism. These old guys are butthurt that so many young people are making a fortune - "they should be slaving away for the man to buy my million dollar shack!" Lock people out of a market and they will create a new, more profitable one.
GFY Willem Buiter.
In general yes. In the bottom of the previous bear markets the price has dropped right back to its cost of production or there abouts, such as 3400 back in 2018.
As the halving constantly reduces the supply increase rate, the cost of each Bitcoin produced will continue to increase.
Mathematical scarcity and unchangeable certainty :)
Yes absolutely. The argument that is has "no intrinsic value" or it's "backed by nothing" is totally incorrect. This is the whole point of "proof of work". BTC doesn't appear out of thin air. There is a cost associated with mining, and that serves to provide the floor. (Hint: far above $0) This increases and decreases depending on your cost of electricity, cost of the machines and the current difficulty of the network (a function of the number of people trying to mine). It's an incredibly elegant, rational, self balancing system.
Bingo. Can't stand the specious 'no intrinsic value' BS. Everything has intrinsic value and the current global financial system is backed by debt and faith. Debt and faith are the intrinsic value of fiat currencies. Crypto currencies are debt and faith also. The only difference between the two are who controls them, how many people are currently using them and how widely are they being used. Peoples perception is shifting, and as they shift the current financial system is being left with more debt and less faith, while cryptocurrencies are gaining more faith. Is it any wonder those strongly tied to the current system are screaming from on high and trying to undermine the new systems 'value' :/
If you think it is useless, then to you it is worth 0.
But to me it is not useless so ergo I am willing to pay some price for it, welcome to the free market and price discovery.
Also please tell the citizens of El Salvador who can now do instant, free remittances straight to their phone that it is useless.
The more of a threat crypto becomes to central bank and government aims, in my view the more likely it is to see restrictions placed upon it.
In some respects, wanting crypto to become mainstream is a form of protest against the current monetary system, but is this protest any different to those marching the streets agains vaccine mandates? Both are in disagreement with the state and it’s aims which the states says are for the ‘collective good’.
The more dysfunctional the monetary system becomes, the better for crypto, yet the more of a threat it becomes to central banks and government control. In the end the characteristics that make it great could also be its demise….how odd.
Yes, Bitcoin is a peaceful, voluntary opt in revolution. We are taking the power out of their hands and there is nothing they can do to stop us.
Ban it? I mean look at how well the war on drugs is going....and that is a physical object that needs moving around, often in large quantities. And then there is all the cash that has to flow in the other direction.
Zero chance.
Interest.co.nz is posting from the 19th century.
Crypto is the rails to the future economy via the blockchain.
I own both gold and BTC but BTC beats the pants off gold as long as I've owned it, and I suspect BTC will be the real store of future value given the huge advantages it has over gold, and institutional buy in, including KPMG (US) to its treasury.
Yes, tax law in countries like NZ counts it out as currency for now, because tax always destroys innovation and anything of value (including free lives) but that's easy to fix (El Salvador) with political will. And BTC will outlive the centrists and authoritarians. Ie, the politicians.
Just a thought.
TCP/IP and HTTP are worth many trillions. But they’re thin protocols that can’t be monetised. Instead, this value has been captured by several trillion dollar companies (Google and Facebook), hundreds of billion dollar ones, and a very long tail of smaller ones. These protocols have many problems, but engineers have found workarounds over several decades in order to bring us the modern internet.
Bitcoin has emerged as the dominant protocol for transferring value on the internet. But in the case of Bitcoin, the protocol itself has been monetised, this doesn’t rely on applications to capture its value. It’s scalability and environmental issues will be fixed by engineering a second layer on top of it.
Another protocol will end up dominating smart contracts, and interact with Bitcoin (probably Etherereum).
Bitcoin isn’t going anywhere, and as a network it has more intrinsic value than your house. That doesn’t mean there isn’t a lot of scammy crap surrounding it.
What is it, 140,000 KwH to mine 1 Bitcoin on average? Just to ensure we have "proof of work" backing the currency? Equivalent of 15,000 litres of 91 fuel, for a token. Or $42k of power at 30 cents kwh.
I guess $42k of power to gain something valued at $66k is a $20k profit in FIAT terms, but since miners are moving away from FIAT then I assume their power company will allow them to pay 63 million Satoshis to settle the bill and then keep the remaining 37 million Satoshis as profit?
Yes, energy will be priced in Bitcoin in the future. Why would anyone accept worthless pieces of paper from the united states that is "Backed by the full faith and credit of the USA" but can be created out of thin air at no cost to the issuer. That only has value by decree, ie a Fiat currency.
Arguing against cryptocurrency on the basis of the carbon footprint is akin to arguing against nuclear power on the basis of the Chernobyl disaster. Both have evolved. Proof of work is old tech, and will soon be completely replaced by Proof of Stake or other consensus mechanisms. There are many issues with the current state of cryptocurrency, but this one is being addressed.
That's one side of the coin (see what I did there?)
It is estimated (!) that bitcoin now uses 50-60% renewable energy, and it also uses otherwise wasted energy and is driving a huge uptake in new technology for renewable energy. Win win for everyone, even the bitcoin haters like the author of this article.
Here is a detailed alternative view (much of the information on the internet is outdated, guesswork, re-written existing articles (many many hacks in the finance and crypto journalism industry) out of context, exaggerated or just wrong.
http://datadrivenlab.org/climate/blockchain-energy-consumption-debunkin…
My main question would be, why did interest.co.nz publish this obviously one sided and out of date opinion piece trashing bitcoin without a counter argument?
It would seem from the comments that interest.co.nz did not guage their subscribers correctly on this one.
Not a BTC maxi, but certainly 80% in. We will see who is correct in about 3 years. I have way more patience than I used to. BTC offers a way out, I'm taking it.
Most new innovations (telescopes, cars, internet, electricity etc) where misunderstood at the time. The original cars had to have a man walking in front warning people it was coming. Now we have self drive electric cars that can do mind bending speeds and drive themselves - go figure. The toothpaste cannot be put back into the tube. Not looking for a 10x, 4x will do!
KPMG Canada has just added Bitcoin and Ethereum to its balance sheet. Just saying.
https://www.bloomberg.com/news/articles/2022-02-07/kpmg-canada-adds-bit…
Anyone who considers themselves interested in economics or finacial systems but doesn’t ‘get’ crypto could make a start with ‘DeFi and the Future of Finance’ by Campbell R. Harvey from Duke Uni. It’s basically the cram notes from a blockchain 101 subject he taught and takes about 4hrs to read from cover to cover.
'The Bitcoin Standard' is also very useful for an understanding of what money is. Gets a bit repetitive but most people really have no idea of what money is from a historical perspective.
Coincidentally, there's a YT series on blockchain based around MIT lectures given by Gary Gensler. Very mixed feelings about him. Not sure if I would recommend it.
This^ Dont start with shitcoins and web 3 bullshit. Go straight to the hardest soundest money in human history to establish a base. Then you can expand into other shit.
I would also recommend " The Bullish Case for Bitcoin" easy 40 min read.
https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdec…
This^ Dont start with shitcoins and web 3 bullshit. Go straight to the hardest soundest money in human history to establish a base. Then you can expand into other shit.
You're talking with an OG. Your comment is like telling Dennis Rodman the basics of playing defense.
Have you read the book? If you’re a hard money head but think DeFi and smart contracts are ‘web 3 bullshit’ then I really don’t know what to say. Except perhaps that 99% of ‘crypto’ opinions expressed online (including this article) use ‘crypto’ and ‘Bitcoin’ as interchangeable concepts.IMHO Bitcoin’s emission curve is both the most radical, and least interesting thing about it.
"But irrelevant. "
As is 1 BTC = 1 BTC. It is code in a computer. It has no more relevance than a Dog Poop.
For Bitcoin to have any purpose it must = something else. At present it = FIAT, and in the future you hope it = more FIAT.
So again. how is 1BTC = 1BTC relevant?
Lol, this is the stupidest take yet.
The cost to produce something doesn't determine its value. Otherwise you are saying if I throw a bunch of ipads in a compacter, crush them, then wrap them in carbon fibre and epoxy its worth heaps because it cost a lot to make.. Nah, it a pile of rubbish worth nothing.. Like your buttcoin.
Everyday you burn your time/energy at work, in exchange for 1s and 0s on a computer database. Essentially a centralised bank ledger, which can be hacked relatively easily. By comparison, the bitcoin blockchain is immutable, decentralised and has the world’s most powerful computer network encrypting and defending a trillion dollars worth of digital energy. The whole network uses less than a years worth of clothes dryer use in the USA, with most of its energy coming from green or stranded energy sources. I don’t see how people don’t see that as a pretty compelling use case.
Crypto is still fighting to hit critical mass. The longer it takes to do so the less likely it will be a success. I don't think countries like El Salvador are exactly a poster child of successful adoption. Don't get me wrong, people like Kim just love it, he just used 50 Million of it to put on a sky rocket display in North Korea, obviously money well spent.
Bitcoin is at where the internet was at in 1990.
The S curve of adoption will play out just like it has with every other technology.
At least 2 other countries will anounce that they are adopting it as legal tender this year.
Dominoes are starting to fall, remove your bias and think about where the future is heading.
The longer it takes to do so the less likely it will be a success
Actually to the contrary, the Lindy Effect is in play, the longer Bitcoin sticks around, the more people will trust it and think it will be around in the future, just like the internet.
Lots of salty crypto fans commenting here.
I've yet to see any of them addressing the points raised in the article.
Also hilarious how predictable the 'do your research' line is. You can be a software developer who has created blockchain applications and still have ignorant greedheads swearing "you just don't understand". The truth is, those who *do* understand are in two categories: crypto skeptics, and those who see there is still time to fleece some more rubes before the whole thing goes tits-up.
Ah well. No need for rancour. In ten years we'll all know one way or the other.
It's losers, there is no such word as loosers. Loose rugby top vs to lose the game.
Crypto is 90% ponzi. How many ICO's are now worthless? You never hear about that, there must be 1000's. Yes, there are a handful of coins that will remain relevant and there is potential for widespread application of crypto. However it will never replace fiat.
It's implied by all the bit heads that keep insisting fiat is going to zero.. If fiat's going to zero what will be used.
There are plenty of people who have an interest in BTC but don't think fiat will disappear. Sounds like you're taking the word of the ultra-orthodox to be everything.
Hey, no my fault that crypto heads all seem to have conflicting ideas about what crypto is all about. One minute its all about money being taken away from the control of central banks, next second they are all hooraying about CBDC announcements.
One minute the best thing about blockchain is every transaction is imutably stored on the blockchain, next second its all about lightning network with its off block chain transactions.
Talk about bipolar.
Much of his argument is valid if you frame the argument in purely in monetary economic terms. It doesn’t follow that it has no value as a protocol IMO.
But it is pretty interesting that a large percentage of developers are completely hostile to it as a technology. If Hacker News etc are anything to go by.
Government fiat and crypto can and will coexist, but Bitcoin will be the world standard (reserve currency) not the USD as is currently the case.
Sorry, but that's just Nostradamus cosplay. You do not know or have a case why BTC will be the reserve currency of the world. Beliefs are not a case or proof.
On the basis that the public don't understand what they're investing we should also ban them accessing the financial system.
On the basis that the fundamentals don't align then we should ban participation in the property market, given that much like bitcoin the only thing propping up the price is new entrants to the market.
The rise of digital currency is not so much a consequence of the lack of options for XYZ, it's the lack of education on those opportunities outside of crypto-currencies.
I'm sub 30 years old and have young friends approach me all the time talking about bitcoin, or etherium, etc., "its gone up 30% overnight!", as soon as you tell them stocks and property often perform this way over time, the concept of a "10 bagger", and that these assets have actual fundamentals, it's like they have been smacked in the face with a wet fish.
We've robbed our young of knowledge about money, not money itself, the sooner we accept this the sooner we can start addressing the problem, banning crypto will only cause these "bubbles" to form else where.
Clearly bitcoin fanboys are able to look through the carbon footprint.
I actually do believe there is a place for a collateralised coin (whether that's gold or whatever) that can be used as a medium of digital exchange. Banks make out like bandits on transaction services - that's a prize and why they are watching.
Yeah, there are things like gold-backed stablecoins. Which is fine. They're still a solution in search of a problem though.
Banks will feel pressure from competition as it becomes continually easier to implement secure payments in whatever currency or token-representing-collateral. Which is good. But they'll ultimately win - and the consumer will benefit. It's already *so much* easier and cheaper to do things like exchange money or make overseas purchases than it was even ten years ago. There's not a lot of lemon left to squeeze there, and little benefit from adding another unnecessary layer of complexity with crypto exchanges and stablecoins with unobservable reserves, et cetera.
I'm not sure if we're agreeing or not. Every time I buy a coffee via a tap I am charged 2% transacton fee and the merchant can be up to 6%. Banks make a lot of money on the velocity of money - swap those tap's for a stable coin and they lose a lot. That's the prize and it's large.
If you outlaw crypto currencies, you then should also outlaw carnival tickets, game tokens, and everything that has existed for decades. It's the same thing in terms of storage of value outside of fiat.
In fact, you should also outlaw fiat, since fiat is the same as cryptocurrency, seen as a storage of wealth but has no intrinsic value if society places no value to it.
There are many regulations around gambling. You can't open your own casino. And if you do, there are many rules to follow, designed to protect the public.
For example, you definitely can't open a casino and run Youtube videos from paid influencers talking about how much money they won at your casino and how everyone else will definitely win lots of money too. Which is how the 'crypto ecosystem' works.
You also can't run a casino and rig poker games so that everyone's hand is visible to the dealer, who is also in the game. Which is how crypto exchanges work.
You also can't run a casino, use chips equivalent to a dollar, but sell the chips at a discount to friends to increase the table stakes. Which is how Tether works.
Casinos are much better for the community than crypto is... which is saying a lot.
Well I could go down the rabbit hole with you, but I won't. What I will say is that I have a crypto corporate account in Japan (where casinos are illegal) where only govt regulated exchanges can operate and where Tether is not accepted as a trading pair. If you have any doubts, check the Japan FSA (Financial Services Agency) homepage. But here is a legal overview https://www.globallegalinsights.com/practice-areas/blockchain-laws-and-…
It is what it is.
I think that pretty much snuffs out your response.
If we really wanted to ban all Ponzi schemes, then probably we should start with the biggest and most damaging of all of them: the NZ housing Ponzi. At the very least we should start seriously limiting (through incisive taxation and an appropriate regulatory framework) the so-called "investment" housing.
I remember max Keizer talking about it around 2011 it was 50 or 60 dollars at the time it’s was like a gimmick back then hard to get hold of as no exchange at that time he was big time gold.the way it is now people will keep trying to hack into it or steal of exchanges one day this will happen at that point it will go to zero. The best minds in this area are working on it from USA to Russia as computer become more powerful it will happen.imagine having 10 million in a exchange the next day gone just like that no comebacks that’s it or a EMP bomb.lots of thing could go wrong to take it back to zero but has not yet.
"Finally, the anonymity afforded to cryptocurrency holders raises serious concerns about illegal uses of funds, including tax evasion, money laundering, hiding proceeds from ransomware attacks and other cybercrimes, and financing of terrorism. The issue has become urgent – and regulation may not be enough."
I don't think cryptocurrency has much value but it's greater than zero.
There are two key sources of value for BTC. The first is what he highlights at the end here... if you're involved in these activities there's value in annonymity.
The second is the fact that no banks are involved in the process. To some there is value in this (particularly those engaged in the above activities..)
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