Cryptocurrency: Critics Wrong

[grarpamp]

https://mises.org/power-market/3-common-criticisms-crypto-and-why-theyre-wrong

https://mises.org/library/origin-money-and-its-value
https://en.wikipedia.org/wiki/Theory_of_imputation
https://bitcoinist.com/bitcoin-price-venezuela-doubling-18-days/
https://en.wikipedia.org/wiki/Network_effect

Peter Schiff is a well-known critic of Bitcoin, and while he is an
excellent resource on many economic and political topics, he misses
the mark on cryptocurrency.

To be fair, he is right that Bitcoin and other crypto assets are high
risk and volatile, and he correctly points out that using leverage or
going into debt to buy Bitcoin could end in financial disaster.
However, he makes several errors in his analysis of Bitcoin.

He is wrong about its scarcity and its ability to hedge inflation, but
his largest mistake is his guiding principle: that Bitcoin (unlike
gold) has no fundamental value.

For example, Schiff is quick to point out that gold has uses outside
of being money. It is used in electronics, dentistry, and jewelry to
name a few. Given this, it's easy to see how - as Carl Menger noted -
money could emerge in a free market from a state of barter. In short,
gold had use cases independent of being money, but over time, it was
recognized as a useful medium of exchange to facilitate more complex
and indirect transactions. This led people to value it over and above
its original use cases.

Unlike gold, Bitcoin cannot be used in dentistry; it cannot be
fashioned into jewelry; and it cannot be used in electronics. This
leads to Schiff to claim that Bitcoin is unlike gold in that it has no
fundamental (or objective) value. His mistake is obvious: there is no
such thing as objective value, whether we're talking about gold or
Bitcoin. Value is subjective and determined internally by individuals.
Bitcoin has no objective value, but neither does gold. Yes, gold can
be used to build electronics, but that only has value because
consumers subjectively value electronics (See Menger’s Theory of
Imputation).

Schiff is also mistaken when he claims that Bitcoin provides no
shelter from inflation. Yet, millions of people across the world have
already used it to partly escape their failing currencies. In 2018,
for example, the price of Bitcoin in Venezeulan bolívars was doubling
every 18 days. It's important to keep in mind that any product can
serve as a hedge against a devaluing currency—not just precious metals
or cryptocurrencies. In the past, whiskey and cigarettes have been
used for this purpose, as have many other consumer products. When a
currency is failing, the demand for the currency declines and
consumers rush to put their currency into physical products or other
currencies.

On the other hand, Schiff may be correct that a dollar crash could
lead to a decline in Bitcoin prices (at least in the short term), but
such an event would be so disruptive to many assets. The most recent
example of these effects occurred on March 6, 2020. As the U.S. stock
market crash deepened, both gold and Bitcoin sold off sharply. When
the margin calls hit, everything got sold. The simple truth is that
anything that's not a dollar or a promise to pay dollars (i.e., bonds)
represents a hedge against dollar inflation. This does not make them
immune (in the short term) from a collapse of the global reserve
currency.

Schiff’s last major mistake concerns Bitcoin’s scarcity. The ultimate
supply of Bitcoin is fixed at 21 million units. Schiff discounts this
limited supply by pointing out that thousands of crypto coins and
tokens have been created since Bitcoin. These copies, he claims, prove
that Bitcoin is not scarce. Would Schiff extend this logic to
reproductions of the Mona Lisa? There is only one original, and it
will remain scarce no matter how many copies are made. His stance also
ignores the significant network effects that Bitcoin enjoys. Like
other networks, the value increases as the number of participants
grows. Numerous forks of Bitcoin have learned this lesson the hard way
as their tokens have steadily lost value against the original.

Finally, the existence of multiple cryptocurrencies is no more
problematic than the existence of multiple precious metals. The total
demand is simply divided between silver, gold, palladium, and others.
It is likely that we are in a boom stage of crypto like the dotcom
bubble. New coins are being created almost daily and most will not
survive. It is up to the marketplace to determine if the price of
Bitcoin will go up or down. The same is true for gold.