It's unusual for me to disagree with such a high % of Arnold's content. I'll start with the agreements: 1. The dollar is a mess and losing value gradually - I hope to avoid the suddenly part. 2. 99.99% of the 'crypto' industry is a scam like he describes above. Trumpcoin is a perfect example. Insider sales to a greater fool.
I disagree strongly on Bitcoin, however. Comparing dollars to bitcoin is central to this piece. Let's continue that. Over the last 15 years, holding bitcoin has increased your purchasing power, while holding dollars has dramatically decreased your purchasing power. This has nothing to do with various evangelists like Michael Saylor. He is the loudest holder of bitcoin, but not the most significant. (I recently wrote a piece concerned about his machinations as well - I just don't have as strong a negative reaction to the person himself as Arnold does.). Bitcoin's performance as a store of value has been driven by its fundamental properties that make it a better monetary technology. Scarce, durable, divisible, recognizable, and portable.
A money independent of nation state control with a hard cap on supply (>93% already circulating, <1% annual inflation rate and dropping programmatically every 4 years), no central person or organization controlling or censoring transactions in it, allowing individuals to send value natively over the internet across borders for fractions of a cent,... whole books have been written and the adoption/price curves are showing the progress clearly. The concept of money itself is a shared illusion (question 1: do you believe in the concept of money?) - once you agree to its utility, "which is the best money?" is question 2. People constantly focus on question 1 for bitcoin "there's nothing there", then switch to question 2 for their preferred choice - gold, U.S. Dollars, etc...
If you had to put half of your net worth in dollars in a savings account and half of it in bitcoin then not touch either for 10 years, which one would you be most worried about? If you even pause here, that's some level of probabilistic bet on Bitcoin. I'd love to have some kind of friendly bet with Arnold on this if he's game.
I would be worried about the transaction costs and the mind-share required for due diligence. The transaction rate for putting bitcoin into a cold wallet is 7.5%. I would assume the same transaction rate would apply to removing it. I now have half my life savings on a some type of physical media for the next ten years. Which one? I don't know there are apparently five different types. Maybe metal plates. In any-case I would put it in a safety deposit box and insure it. The cost to ensure it could be 1% to 5% per year of its current value. Ten years of insurance is pretty pricey. My current understanding is that most bitcoins on exchanges I am an unsecured creditor of the exchange. If it goes bankrupt I would be the last in line. There have been 15 exchange bankruptcies in about the last ten years. I do not know how many exchanges exist in the last ten years. I know that there is nonzero chance of exchange bankruptcy and I would assume that risk is declining. On the other hand as long as my half my life savings was less than 250,000USD I would be protected by the deposit insurance. I think CDs are free to deposit and have an annual return of 3 to 4% and they are protected by the US-FDIC. In either case I would at the end of ten years be returned USDs because I am more confident that everything I would want to buy would still be priced in USDs and it would be less worrisome to transact it. I could do this tomorrow no problem. Bitcoin I would a minute or two to figure it out.
The unit, "1 Bitcoin", is scarce but, as an infinitely divisible mathematical construct there is no shortage, ever, of Bitcoin units. That infinite divisibility is like a mint printing a "trillion dollar bill".
So your saying we need a time machine and we could be rich. In the second week of February 1637 no one would enforce the contract for the wind trade of tulip bulbs when buyers refused to pay. In 1635, 40 bulbs were sold for 100,000 florins and at that time a tun (2050lbs) of butter cost 100 florins. Today, I do not know if it is the first week of February 1637 or sometime in 1635. And back then no one knew either but the contracts were for florins (guilders) which had a nice run from 1434 until 2002. In 1626, 60 guilders would have gotten you the island of Manhattan. I think that is 600 dollars at today's silver price (2.5 guilders was 25.4g of silver). So you present Arnold with a false dichotomy. Myself, anytime in the last 400ish (NY state isn't being run so great lately) years, I would put half my net worth into Manhattan over florins, bit coins, silver, or USDs. Land they don't mint more of it.
I like this framing of a Time Machine. Time matters. Bitcoin is a get rich slow scheme, not a get quick rich scheme. Not such a fan of the comparison to the Tulip Mania. The tulip mania lasted 1-2 years. Spectacular run-up, then permanent crash. We are in year 15 of Bitcoin. It has had several spectacular run ups (each a little less spectacular. Last year was "only" 110%. It has also had multiple material drawdowns - some as large as 80%. This volatility makes sense in a new asset class, but the price has gone higher over time with no 5 year period showing a loss. The fact that this has recovered 3 times from >50% draw downs to reclaim higher highs takes tulips off the table.
For real estate, I see the value there as well. I own multiple pieces of real estate myself. However, I am not adding any allocations there over bitcoin. The carrying costs of real estate are material and eat away at any gains consistently over time. the long term yield is pretty low when you factor in taxes and maintenance. The cost of carrying bitcoin is very low. It's important to do right, but very inexpensive - measured in dozens of basis points. Unfortunately the monetary debasement we have seen in the U.S. has driven a large portion of the population to use homes as a store of value. This is not without its own risks. (See: uninsured residents of Pacific Pallisades.). Part of the bitcoin hypothesis is that a better money that actually does store value over time will drain some of this "monetary premium" from other assets like housing or equity markets that also look very "bubbly". I never recommend people buy bitcoin - just that they study it. I'd start with Lyn Alden's Broken Money.
The problem with the bitcoin hypothesis is that it is just the goldbug hypothesis (with some high tech distraction added) which has been reliably wrong for decades. That no advocate — and last I checked this includes Lyn Alden — seems to want to grapple with that empirical problem for their hypothesis shows how unserious it is.
Oh contraire - in Bitcoin circles this is discussed extensively. The problem is agreed upon by both Gold Bugs and Bitcoiners - fiat currency leads to all kinds of fiscal calamities and all have failed over time. Where we diverge is the solution. (Many gold bugs have shifted to Bitcoin, so it isn't an all or nothing. See The Big Print by Lawrence Leppard)
The Bitcoin position is that gold failed as a money due to several critical flaws - the most important of which is portability. Due to the physical nature of gold, it is cumbersome and slow for transaction settlement - this leads to layers of abstraction on top of gold that allow rehypothecation and drive towards centralized custody. The centrally custodied gold can then be seized, as it was in the U.S. in 1933. This technical flaw in gold does not enable distributed self custody or near-instant final settlement across vast geographical distances. Lyn Alden's book explicitly dives into this by highlighting the age of modern telecommunications really drove a stake into the heart of gold. Financial counterparties were trading much faster over transatlantic cables, telegraphs, etc.... than the physical settlement could keep up with.
Bitcoin solves both of these. Individuals can self custody this asset in a variety of ways that make mass seizures of this asset impossible. Bitcoin can also be transacted with for final settlement globally in minutes - for anyone with an internet connection.
What's interesting is that while I am more of a Bitcoin believer, look at the gold buying of foreign central banks over the last decade. This is the strongest argument in the gold bug's quiver. Since 2014 foreign central banks have not increased their holdings of U.S. Treasuries, but they have increased their holdings of gold dramatically.
I regret to say that my assessment that they are not grappling with the problem stands in spite of your response. Fiat currencies "all have failed over time" only if the definition of over time approaches infinity. The fiscal calamities claim doesn't stick given there was no lack of fiscal calamity under the gold standard, and the inevitable fiscal calamity of apparently no longer having a robust credit system to support present standards of living is completely ignored.
Hard money simplifications take the place of an understanding of how economies actually work in practice and without any interest in it. I had high hopes for crypto in terms of developing new financial paradigms and they have been dashed for decades now, due to a naive insistence that we will willingly forsake what prosperity we have for an impoverished and digitized medieval economy.
Meanwhile, that the government can seize your gold is a monomaniacal problem for goldbugs for sure, but the rest of us understand that we can be personally seized and placed in jail and therefore this places far lower on our list of concerns. Goldbugs should also be more weary than they are in describing the motivations of central bank purchases given they cannot accurately describe either the function or monetary beliefs of any given Central Bank.
You might be right. I would be a fool to have as high a probability assigned to the identification of the solution (bitcoin) as I do to the identification of the problem (persistent currency debasement).
One last hat tip to the gold bugs. The average price of car priced in dollars since 1970 to 2024 went up over 10x. The average price of car priced in ounces of gold went down. Same for houses, etc... Hard money is a real concept.
I wish Arnold would bet more often on his beliefs, too. Tho I sort of lost my bet on 2023 inflation being 3% or less, I haven’t yet seen a post here claiming what the rate is.
(Calling Arnold, you must claim an inflation number in order to win an inflation number bet, sorry if I missed it)
I think 10 years is too long, even 1 year is pretty long for a friendly bet.
10 years is a long time. There is no getting away from the volatility of this asset as it gains broader adoption, so I wouldn't be comfortable with a wager of <5 years, (depending on it's structure).
Agree on commodities especially if you trend follow as many ETFs now do. Disagree on the dollar. I think having a navy makes it more “backed up” than either gold or bitcoin. The dollar is backed up by the US ability to extract taxes or go take things from other countries/make them take dollars. Feels more real than people thinking gold is shiny. Of course that subjects it to political preferences which will always mean it’s mildly declining in value over time.
Having a strong military is indeed a powerful chip to play. It denotes the ability to project physical force. We are currently paying more in interest on our debt than we are spending on the military. The power of our military drops dramatically if foreign (or even domestic) suppliers refuse to sell us high-tech weaponry for increasingly worthless pieces of paper. The last estimates I saw said that we would run out of high-tech ammunition after 2 weeks of a hot war. Having a debased currency is a national security issue. I'd encourage you to browse through Soft War by Jason Lowery of the U.S. Space Force. He has a very interesting take on the national security implications here.
“Fundamentally, that dollar is worthless, . . . . But meanwhile, the dollar has ‘use value’ . . . .” So use value is not “fundamental.” So what? It seems that “non-fundamental value” is still genuine value.
Bitcoin has an ultimately limited supply, unlike fiat currency. When demagogic competition to enlarge entitlements so as to create dependent voters exceeds the capacity to impose taxes without wrecking the economy, governments turn to unbacked fiat currency and debt finance which ultimately means inflation. I was recently in Argentina, a country with a long history of irresponsible spending (until recently with the election of President Milei), debt finance, and resulting high inflation to get rid of the burden of the accumulated debt. People there told me that as soon as they receive any payment, they convert on the unofficial market out of their fiat currency into dollars (slower depreciation of purchasing power) or more recently Bitcoin, (highly volatile, but tending higher). They said that while Bitcoin was volatile, the Argentine peso only ever went down so the choice was easy.
Fascinating post, Arnold. Uncle Sam's money is backed by something real; the IRS and the ful weight and force of the federal government's willingness and ability to put you and me in jail if we don't hand over something like 20% of the income we get paid in Uncle Sam's dollars. That;'s very real.
As I'm confident you will agree, no "thing" has value in and of itself. All "things" that have value do so because people confer the status to the "thing" in their minds. No mind, no value.
Like every other "thing" traded in markets, the exchange value of Bitcoin is determined by supply and demand. I'm confident you agree with that proposition. So far as I know, most people who own Bitcoin do not exchange it for other "things" called goods and services, like we do USD, although some amount of such exchange probably occurs. Most Bitcoin owned evidently functions as a store of value and a speculative asset --- which is also true of any number of artifacts, such as drawings by Picasso, cut diamonds, and --- well, you get the point.
In what way does Bitcoin differ from drawings by Picasso? Your proposition that Bitcoin is like a chain letter, while fascinating, has not yet secured the status in my mind as truth, although I'm giving it every chance to do so; please help. Chain letters fail because most people don't play along. Evidently, such is not the case with Bitcoin. What will cause people to stop playing along with Bitcoin?
Crypto is like a chain letter -- except that the letters can be securely teleported to anyone, anywhere in the world...
Thus, they have become a central currency for people in grey markets / countries that try to limit currency flows, and have attained a value as a coordination point.
Also, buying Bitcoin right now is sending (1/12th of) the money to Michael Saylor. But when Michael Saylor buys bitcoin, who is he sending money to?... (early adopters / libertarians)
The problem with the statement that the "true price" of Bitcoin is zero is that there is no such thing as the true price. There is only the price the market settles on. Arnold knows this so I'm puzzled why he would say it. Unlike Trump tokens, Bitcoin has use value as a currency.
The use value of USD is much greater than 0, therefore it has real value, despite being merely printed paper, like Monopoly money. Use value is a huge part of any “real” value calculation, and the primary influence of any market value. For any money, the use value is actually the Expected Use value in the future. Which is never a fact, today, as many dystopian novels note.
Bitcoin already has significant use value, as a clear way to transfer $10k, or maybe $1,000,000 thru electronic means rather than banks (all of which are close to govt). Not just criminals, tho a large % are (I guess 75% of value, 20% speculators, 5% big ticket real use). So the value is certainly more than 0. However, like tulip bulbs have a real, small value after the craze price, it’s maybe less than 1% of the peak bubble market price.
No claim of true value, not even Arnold’s, is fully accurate, but any claim of 0 is both falsifiable and falsified, by a market price > 0. Prices change value in time, so even a current “true” price, might not be the price tomorrow.
Prices are strange and wonderful. (Reminding me of a Valentines card: Ours is a strange and wonderful relationship. You’re wonderful, and I’m strange.) not to be confused with quarks.
It also matters what you price things in. All of the comments here assume denominating in U.S. Dollars. If you price an average U.S. house in ounces of gold in 1970 and compare it the price of an average U.S. price in ounces of gold in 2024 - the price went down. Same thing in a shorter and more dramatic way for Bitcoin. The unit of account matters and the dollar is a terrible Wittgenstein's Ruler.
The investment value of any asset with no income stream is always what the next guy in line is willing to pay for it. I don't get what distinction you are trying to make.
My understanding would be that most people buy art for the intrinsic value of owning something they like to look at. If people are buying a low dollar share of a Trump NFT I question the purpose of snarking "look at those fools buying TRUMP" as much somebody making the equally trivial observation that buying a painting of Elvis on velvet is a bad art investment.
I more or less agree with your question and have no clue where the line is under government regulation and the law and there is a prominent example of NFTs being crypto chain letters.
I believe there is digital art that may be unique with unique artists that has aesthetic value. And I won't sneer at anyone for whatever they wish to appreciate and hang in their home. Maybe a Trump NFT is such a thing for some, if that is what this is. With the digital Apes they got celebrities to buy them for millions of dollars and they have now plummeted in value. And they did have an SEC investigation. So does the SEC investigate other non-NFT art markets? When is an NFT a security that is it crypto and when is it art?
Globally, 1 quadrillion of assets: Houses $350T, Bonds $350T, Stock $150T and Commercial Real Estate $150T. Some other items Gold $18T, Crypto $4T, Currency (M0) $12T. Why do we waste any CPU cycles on Crypto when it is less than 0.2%???
One reason could be because it is so (relatively) small. While Bitcoin's $2 trillion market cap is currently larger than large individual companies like Meta, Berkshire Hathaway, Saudi Aramco, etc... As an asset class (bitcoin by itself, not 'crypto' which is garbage) if bitcoin succeeds to even match gold as a store of value in the global asset marketplace, there is still a 10x move on the horizon. People think they have missed it because they didn't buy at $5 or $100, but they just missed the riskiest period. $100k price is much higher, but is more attractive from a risk-adjusted perspective. The first 15 years had higher risk and lower prices. I never advocate buying it, but I do recommend studying it. Lyn Alden's Broken Money is a good start.
Thankfully, I never regret having failed to listen to my hedge fund friends who suggest that I buy it when the price was $300. I found plenty other good opportunities with sensible risk adjusted returns.
Glad to hear it. Bitcoin can be a "need to know" technology. The use case is more obvious/valuable to those living in countries with weaker currencies and who do not have access to hedge funds or secure property rights.
I'm glad you brought up the dollar. While crypto may have more similarities to a chain letter than the dollar, I would argue it is much closer to being like the dollar than a chain letter.
The dollar is indeed akin to a gift to the US govt but it is a gift with no multiplier effect like a chain letter. They don't get 10, 100, or 1,000 back for every one they print. Equally important, the dollars tend to earn interest for the holder, especially holders in the US, and if not the holder then they deposit most somewhere and that holder earns interest. Some of that gets the interest from the US govt through US bonds and Fed deposits so the government isn't gaining much from deflation either. People holding US cash outside the US as a store of value (as opposed to holders of US bonds) are indeed making a gift to the US
Crypto is a bit different in that the share prices have increased dramatically rather than decreasing slowly. In that way it is a little more like a chain letter but not much. The amount of new money coming in is rather small compared to the increase in valuation. Most of the gains are paper gains which may never be realized. This is very much unlike a chain letter where ALL the new money goes directly to the earliest players. With crypto, it goes to those who leave first, albeit in proportion to how early they started.
My personal opinion is that Arnold ought to write something about how patterns of specialization and trade interface with storage of value and mediums of exchange. Some of the commentators are correct, the monopoly on force is what explicitly backs the dollar. A breakdown in trust in the dollar then requires something else to enable trade.
Magic 8 Ball - Is this post a home run against the "current reigning world champion" and "mediocre elite" Donald TrumpCoin? With massive collateral damage to Bitcoin, MuskCoin, and the U.S. dollar? Or was it just foul ball? Answer: To be determined.
The U.S. dollar is backed by $36 trillion in debt (and growing). Being backed by something means you can convert the currency into that thing. When the dollar was backed by gold, you could convert it into gold. If the dollar is backed by taxes that are paid in dollars, what is this backing you speak of? Those taxes are first promised to debt holders and we are currently paying more than $1 trillion per year in just interest on that debt. Dollar holders are junior creditors to a bankrupt entity. There is no backing.
Money is just debt with very short maturity. These days reserves pay interest. So yes, what matters is the total amount of liabilities (debt). One way to think about the value of money you need it in order to pay your taxes. For more background look up the Fiscal Theory of the Price Level, especially the papers and book by John Cochrane.
Totally agree that local jurisdictions can force the use of particular currencies for use in paying taxes, and even discourage the daily use of outside currencies by imposing capital gains tax on each transaction (currently why I don't use bitcoin more often for purchases). However, "you are forced to use it" is almost an explicit admission that "this is worse money". Bitcoin hasn't achieved scale adoption for medium of exchange on a daily basis, but it clearly has more utility as a store of value. Of the three uses of money, medium of exchange, store of value and unit of account - having captured one of the three in just 15 years is quite impressive.
On money as debt - I don't agree with this definition. I don't consider something truly money unless it can facilitate final settlement in a transaction. If you are using debt to facilitate transactions, there is never final settlement.
That is how the math works. In the chain letter example, one person gets $100K. A thousand people "missed a chance." It is a redistribution of wealth in which mathematically a few people gain at the expense of many who "miss the chance."
Don't feel bad- I seriously considered buying $1000 worth of Bitcoin when it was under $1/coin in 2010. I don't beat myself up for not following through- I know I would have booked the profits long before it reached even $100/coin.
I'm right there with you Yancey. If I had bought at an extremely low price, would have been hard to hold all the way through without carving some off for purchases. Once you get the use case for Bitcoin though, you never think about selling Bitcoin for dollars. That would be like selling U.S. Dollars to get back into Egyptian Pounds because you had made such a profit in Egyptian Pound terms. Bitcoiners generally think of spending their BTC on stuff, not using them to buy dollars.
But if Trump’s econ policies are successful, the USD should strengthen vs bitcoin. Yet also more folk will be rich enough to invest some in bitcoin, or other crypto, raising the price of the asset class.
One of the best things that could happen for America is for us to get our fiscal house in order so Bitcoin would fail for a lack of need. With $36 trillion in debt, I'm not expecting a strong dollar. Debtors love inflation.
It's unusual for me to disagree with such a high % of Arnold's content. I'll start with the agreements: 1. The dollar is a mess and losing value gradually - I hope to avoid the suddenly part. 2. 99.99% of the 'crypto' industry is a scam like he describes above. Trumpcoin is a perfect example. Insider sales to a greater fool.
I disagree strongly on Bitcoin, however. Comparing dollars to bitcoin is central to this piece. Let's continue that. Over the last 15 years, holding bitcoin has increased your purchasing power, while holding dollars has dramatically decreased your purchasing power. This has nothing to do with various evangelists like Michael Saylor. He is the loudest holder of bitcoin, but not the most significant. (I recently wrote a piece concerned about his machinations as well - I just don't have as strong a negative reaction to the person himself as Arnold does.). Bitcoin's performance as a store of value has been driven by its fundamental properties that make it a better monetary technology. Scarce, durable, divisible, recognizable, and portable.
A money independent of nation state control with a hard cap on supply (>93% already circulating, <1% annual inflation rate and dropping programmatically every 4 years), no central person or organization controlling or censoring transactions in it, allowing individuals to send value natively over the internet across borders for fractions of a cent,... whole books have been written and the adoption/price curves are showing the progress clearly. The concept of money itself is a shared illusion (question 1: do you believe in the concept of money?) - once you agree to its utility, "which is the best money?" is question 2. People constantly focus on question 1 for bitcoin "there's nothing there", then switch to question 2 for their preferred choice - gold, U.S. Dollars, etc...
If you had to put half of your net worth in dollars in a savings account and half of it in bitcoin then not touch either for 10 years, which one would you be most worried about? If you even pause here, that's some level of probabilistic bet on Bitcoin. I'd love to have some kind of friendly bet with Arnold on this if he's game.
I would be worried about the transaction costs and the mind-share required for due diligence. The transaction rate for putting bitcoin into a cold wallet is 7.5%. I would assume the same transaction rate would apply to removing it. I now have half my life savings on a some type of physical media for the next ten years. Which one? I don't know there are apparently five different types. Maybe metal plates. In any-case I would put it in a safety deposit box and insure it. The cost to ensure it could be 1% to 5% per year of its current value. Ten years of insurance is pretty pricey. My current understanding is that most bitcoins on exchanges I am an unsecured creditor of the exchange. If it goes bankrupt I would be the last in line. There have been 15 exchange bankruptcies in about the last ten years. I do not know how many exchanges exist in the last ten years. I know that there is nonzero chance of exchange bankruptcy and I would assume that risk is declining. On the other hand as long as my half my life savings was less than 250,000USD I would be protected by the deposit insurance. I think CDs are free to deposit and have an annual return of 3 to 4% and they are protected by the US-FDIC. In either case I would at the end of ten years be returned USDs because I am more confident that everything I would want to buy would still be priced in USDs and it would be less worrisome to transact it. I could do this tomorrow no problem. Bitcoin I would a minute or two to figure it out.
"Scarce, durable, divisible"
The unit, "1 Bitcoin", is scarce but, as an infinitely divisible mathematical construct there is no shortage, ever, of Bitcoin units. That infinite divisibility is like a mint printing a "trillion dollar bill".
So your saying we need a time machine and we could be rich. In the second week of February 1637 no one would enforce the contract for the wind trade of tulip bulbs when buyers refused to pay. In 1635, 40 bulbs were sold for 100,000 florins and at that time a tun (2050lbs) of butter cost 100 florins. Today, I do not know if it is the first week of February 1637 or sometime in 1635. And back then no one knew either but the contracts were for florins (guilders) which had a nice run from 1434 until 2002. In 1626, 60 guilders would have gotten you the island of Manhattan. I think that is 600 dollars at today's silver price (2.5 guilders was 25.4g of silver). So you present Arnold with a false dichotomy. Myself, anytime in the last 400ish (NY state isn't being run so great lately) years, I would put half my net worth into Manhattan over florins, bit coins, silver, or USDs. Land they don't mint more of it.
I like this framing of a Time Machine. Time matters. Bitcoin is a get rich slow scheme, not a get quick rich scheme. Not such a fan of the comparison to the Tulip Mania. The tulip mania lasted 1-2 years. Spectacular run-up, then permanent crash. We are in year 15 of Bitcoin. It has had several spectacular run ups (each a little less spectacular. Last year was "only" 110%. It has also had multiple material drawdowns - some as large as 80%. This volatility makes sense in a new asset class, but the price has gone higher over time with no 5 year period showing a loss. The fact that this has recovered 3 times from >50% draw downs to reclaim higher highs takes tulips off the table.
For real estate, I see the value there as well. I own multiple pieces of real estate myself. However, I am not adding any allocations there over bitcoin. The carrying costs of real estate are material and eat away at any gains consistently over time. the long term yield is pretty low when you factor in taxes and maintenance. The cost of carrying bitcoin is very low. It's important to do right, but very inexpensive - measured in dozens of basis points. Unfortunately the monetary debasement we have seen in the U.S. has driven a large portion of the population to use homes as a store of value. This is not without its own risks. (See: uninsured residents of Pacific Pallisades.). Part of the bitcoin hypothesis is that a better money that actually does store value over time will drain some of this "monetary premium" from other assets like housing or equity markets that also look very "bubbly". I never recommend people buy bitcoin - just that they study it. I'd start with Lyn Alden's Broken Money.
The problem with the bitcoin hypothesis is that it is just the goldbug hypothesis (with some high tech distraction added) which has been reliably wrong for decades. That no advocate — and last I checked this includes Lyn Alden — seems to want to grapple with that empirical problem for their hypothesis shows how unserious it is.
Oh contraire - in Bitcoin circles this is discussed extensively. The problem is agreed upon by both Gold Bugs and Bitcoiners - fiat currency leads to all kinds of fiscal calamities and all have failed over time. Where we diverge is the solution. (Many gold bugs have shifted to Bitcoin, so it isn't an all or nothing. See The Big Print by Lawrence Leppard)
The Bitcoin position is that gold failed as a money due to several critical flaws - the most important of which is portability. Due to the physical nature of gold, it is cumbersome and slow for transaction settlement - this leads to layers of abstraction on top of gold that allow rehypothecation and drive towards centralized custody. The centrally custodied gold can then be seized, as it was in the U.S. in 1933. This technical flaw in gold does not enable distributed self custody or near-instant final settlement across vast geographical distances. Lyn Alden's book explicitly dives into this by highlighting the age of modern telecommunications really drove a stake into the heart of gold. Financial counterparties were trading much faster over transatlantic cables, telegraphs, etc.... than the physical settlement could keep up with.
Bitcoin solves both of these. Individuals can self custody this asset in a variety of ways that make mass seizures of this asset impossible. Bitcoin can also be transacted with for final settlement globally in minutes - for anyone with an internet connection.
What's interesting is that while I am more of a Bitcoin believer, look at the gold buying of foreign central banks over the last decade. This is the strongest argument in the gold bug's quiver. Since 2014 foreign central banks have not increased their holdings of U.S. Treasuries, but they have increased their holdings of gold dramatically.
Bitcoin>Gold>Fiat.
I regret to say that my assessment that they are not grappling with the problem stands in spite of your response. Fiat currencies "all have failed over time" only if the definition of over time approaches infinity. The fiscal calamities claim doesn't stick given there was no lack of fiscal calamity under the gold standard, and the inevitable fiscal calamity of apparently no longer having a robust credit system to support present standards of living is completely ignored.
Hard money simplifications take the place of an understanding of how economies actually work in practice and without any interest in it. I had high hopes for crypto in terms of developing new financial paradigms and they have been dashed for decades now, due to a naive insistence that we will willingly forsake what prosperity we have for an impoverished and digitized medieval economy.
Meanwhile, that the government can seize your gold is a monomaniacal problem for goldbugs for sure, but the rest of us understand that we can be personally seized and placed in jail and therefore this places far lower on our list of concerns. Goldbugs should also be more weary than they are in describing the motivations of central bank purchases given they cannot accurately describe either the function or monetary beliefs of any given Central Bank.
You might be right. I would be a fool to have as high a probability assigned to the identification of the solution (bitcoin) as I do to the identification of the problem (persistent currency debasement).
One last hat tip to the gold bugs. The average price of car priced in dollars since 1970 to 2024 went up over 10x. The average price of car priced in ounces of gold went down. Same for houses, etc... Hard money is a real concept.
I wish Arnold would bet more often on his beliefs, too. Tho I sort of lost my bet on 2023 inflation being 3% or less, I haven’t yet seen a post here claiming what the rate is.
(Calling Arnold, you must claim an inflation number in order to win an inflation number bet, sorry if I missed it)
I think 10 years is too long, even 1 year is pretty long for a friendly bet.
10 years is a long time. There is no getting away from the volatility of this asset as it gains broader adoption, so I wouldn't be comfortable with a wager of <5 years, (depending on it's structure).
Agree on commodities especially if you trend follow as many ETFs now do. Disagree on the dollar. I think having a navy makes it more “backed up” than either gold or bitcoin. The dollar is backed up by the US ability to extract taxes or go take things from other countries/make them take dollars. Feels more real than people thinking gold is shiny. Of course that subjects it to political preferences which will always mean it’s mildly declining in value over time.
Having a strong military is indeed a powerful chip to play. It denotes the ability to project physical force. We are currently paying more in interest on our debt than we are spending on the military. The power of our military drops dramatically if foreign (or even domestic) suppliers refuse to sell us high-tech weaponry for increasingly worthless pieces of paper. The last estimates I saw said that we would run out of high-tech ammunition after 2 weeks of a hot war. Having a debased currency is a national security issue. I'd encourage you to browse through Soft War by Jason Lowery of the U.S. Space Force. He has a very interesting take on the national security implications here.
“Fundamentally, that dollar is worthless, . . . . But meanwhile, the dollar has ‘use value’ . . . .” So use value is not “fundamental.” So what? It seems that “non-fundamental value” is still genuine value.
Bitcoin has an ultimately limited supply, unlike fiat currency. When demagogic competition to enlarge entitlements so as to create dependent voters exceeds the capacity to impose taxes without wrecking the economy, governments turn to unbacked fiat currency and debt finance which ultimately means inflation. I was recently in Argentina, a country with a long history of irresponsible spending (until recently with the election of President Milei), debt finance, and resulting high inflation to get rid of the burden of the accumulated debt. People there told me that as soon as they receive any payment, they convert on the unofficial market out of their fiat currency into dollars (slower depreciation of purchasing power) or more recently Bitcoin, (highly volatile, but tending higher). They said that while Bitcoin was volatile, the Argentine peso only ever went down so the choice was easy.
Fascinating post, Arnold. Uncle Sam's money is backed by something real; the IRS and the ful weight and force of the federal government's willingness and ability to put you and me in jail if we don't hand over something like 20% of the income we get paid in Uncle Sam's dollars. That;'s very real.
As I'm confident you will agree, no "thing" has value in and of itself. All "things" that have value do so because people confer the status to the "thing" in their minds. No mind, no value.
Like every other "thing" traded in markets, the exchange value of Bitcoin is determined by supply and demand. I'm confident you agree with that proposition. So far as I know, most people who own Bitcoin do not exchange it for other "things" called goods and services, like we do USD, although some amount of such exchange probably occurs. Most Bitcoin owned evidently functions as a store of value and a speculative asset --- which is also true of any number of artifacts, such as drawings by Picasso, cut diamonds, and --- well, you get the point.
In what way does Bitcoin differ from drawings by Picasso? Your proposition that Bitcoin is like a chain letter, while fascinating, has not yet secured the status in my mind as truth, although I'm giving it every chance to do so; please help. Chain letters fail because most people don't play along. Evidently, such is not the case with Bitcoin. What will cause people to stop playing along with Bitcoin?
I like to say the US is on the "Plutonium Standard", something even better than the Gold Standard for getting your money accepted.
Crypto is like a chain letter -- except that the letters can be securely teleported to anyone, anywhere in the world...
Thus, they have become a central currency for people in grey markets / countries that try to limit currency flows, and have attained a value as a coordination point.
Also, buying Bitcoin right now is sending (1/12th of) the money to Michael Saylor. But when Michael Saylor buys bitcoin, who is he sending money to?... (early adopters / libertarians)
The problem with the statement that the "true price" of Bitcoin is zero is that there is no such thing as the true price. There is only the price the market settles on. Arnold knows this so I'm puzzled why he would say it. Unlike Trump tokens, Bitcoin has use value as a currency.
The use value of USD is much greater than 0, therefore it has real value, despite being merely printed paper, like Monopoly money. Use value is a huge part of any “real” value calculation, and the primary influence of any market value. For any money, the use value is actually the Expected Use value in the future. Which is never a fact, today, as many dystopian novels note.
Bitcoin already has significant use value, as a clear way to transfer $10k, or maybe $1,000,000 thru electronic means rather than banks (all of which are close to govt). Not just criminals, tho a large % are (I guess 75% of value, 20% speculators, 5% big ticket real use). So the value is certainly more than 0. However, like tulip bulbs have a real, small value after the craze price, it’s maybe less than 1% of the peak bubble market price.
No claim of true value, not even Arnold’s, is fully accurate, but any claim of 0 is both falsifiable and falsified, by a market price > 0. Prices change value in time, so even a current “true” price, might not be the price tomorrow.
Prices are strange and wonderful. (Reminding me of a Valentines card: Ours is a strange and wonderful relationship. You’re wonderful, and I’m strange.) not to be confused with quarks.
It also matters what you price things in. All of the comments here assume denominating in U.S. Dollars. If you price an average U.S. house in ounces of gold in 1970 and compare it the price of an average U.S. price in ounces of gold in 2024 - the price went down. Same thing in a shorter and more dramatic way for Bitcoin. The unit of account matters and the dollar is a terrible Wittgenstein's Ruler.
Is TRUMP a crypto currency or an NFT? I think I've heard people describe it both ways, or are there two different things?
Aren't a lot of NFTs just another chain letter masquerading as an art market? https://www.youtube.com/watch?v=DrbDWq64BNg
The investment value of any asset with no income stream is always what the next guy in line is willing to pay for it. I don't get what distinction you are trying to make.
My understanding would be that most people buy art for the intrinsic value of owning something they like to look at. If people are buying a low dollar share of a Trump NFT I question the purpose of snarking "look at those fools buying TRUMP" as much somebody making the equally trivial observation that buying a painting of Elvis on velvet is a bad art investment.
I more or less agree with your question and have no clue where the line is under government regulation and the law and there is a prominent example of NFTs being crypto chain letters.
I believe there is digital art that may be unique with unique artists that has aesthetic value. And I won't sneer at anyone for whatever they wish to appreciate and hang in their home. Maybe a Trump NFT is such a thing for some, if that is what this is. With the digital Apes they got celebrities to buy them for millions of dollars and they have now plummeted in value. And they did have an SEC investigation. So does the SEC investigate other non-NFT art markets? When is an NFT a security that is it crypto and when is it art?
Globally, 1 quadrillion of assets: Houses $350T, Bonds $350T, Stock $150T and Commercial Real Estate $150T. Some other items Gold $18T, Crypto $4T, Currency (M0) $12T. Why do we waste any CPU cycles on Crypto when it is less than 0.2%???
One reason could be because it is so (relatively) small. While Bitcoin's $2 trillion market cap is currently larger than large individual companies like Meta, Berkshire Hathaway, Saudi Aramco, etc... As an asset class (bitcoin by itself, not 'crypto' which is garbage) if bitcoin succeeds to even match gold as a store of value in the global asset marketplace, there is still a 10x move on the horizon. People think they have missed it because they didn't buy at $5 or $100, but they just missed the riskiest period. $100k price is much higher, but is more attractive from a risk-adjusted perspective. The first 15 years had higher risk and lower prices. I never advocate buying it, but I do recommend studying it. Lyn Alden's Broken Money is a good start.
Thankfully, I never regret having failed to listen to my hedge fund friends who suggest that I buy it when the price was $300. I found plenty other good opportunities with sensible risk adjusted returns.
Glad to hear it. Bitcoin can be a "need to know" technology. The use case is more obvious/valuable to those living in countries with weaker currencies and who do not have access to hedge funds or secure property rights.
I'm glad you brought up the dollar. While crypto may have more similarities to a chain letter than the dollar, I would argue it is much closer to being like the dollar than a chain letter.
The dollar is indeed akin to a gift to the US govt but it is a gift with no multiplier effect like a chain letter. They don't get 10, 100, or 1,000 back for every one they print. Equally important, the dollars tend to earn interest for the holder, especially holders in the US, and if not the holder then they deposit most somewhere and that holder earns interest. Some of that gets the interest from the US govt through US bonds and Fed deposits so the government isn't gaining much from deflation either. People holding US cash outside the US as a store of value (as opposed to holders of US bonds) are indeed making a gift to the US
Crypto is a bit different in that the share prices have increased dramatically rather than decreasing slowly. In that way it is a little more like a chain letter but not much. The amount of new money coming in is rather small compared to the increase in valuation. Most of the gains are paper gains which may never be realized. This is very much unlike a chain letter where ALL the new money goes directly to the earliest players. With crypto, it goes to those who leave first, albeit in proportion to how early they started.
My personal opinion is that Arnold ought to write something about how patterns of specialization and trade interface with storage of value and mediums of exchange. Some of the commentators are correct, the monopoly on force is what explicitly backs the dollar. A breakdown in trust in the dollar then requires something else to enable trade.
Magic 8 Ball - Is this post a home run against the "current reigning world champion" and "mediocre elite" Donald TrumpCoin? With massive collateral damage to Bitcoin, MuskCoin, and the U.S. dollar? Or was it just foul ball? Answer: To be determined.
Agree on Bitcoin, disagree on the USD, which is backed by the discounted value of future primary tax surpluses plus any assets the government owns.
The U.S. dollar is backed by $36 trillion in debt (and growing). Being backed by something means you can convert the currency into that thing. When the dollar was backed by gold, you could convert it into gold. If the dollar is backed by taxes that are paid in dollars, what is this backing you speak of? Those taxes are first promised to debt holders and we are currently paying more than $1 trillion per year in just interest on that debt. Dollar holders are junior creditors to a bankrupt entity. There is no backing.
Money is just debt with very short maturity. These days reserves pay interest. So yes, what matters is the total amount of liabilities (debt). One way to think about the value of money you need it in order to pay your taxes. For more background look up the Fiscal Theory of the Price Level, especially the papers and book by John Cochrane.
Totally agree that local jurisdictions can force the use of particular currencies for use in paying taxes, and even discourage the daily use of outside currencies by imposing capital gains tax on each transaction (currently why I don't use bitcoin more often for purchases). However, "you are forced to use it" is almost an explicit admission that "this is worse money". Bitcoin hasn't achieved scale adoption for medium of exchange on a daily basis, but it clearly has more utility as a store of value. Of the three uses of money, medium of exchange, store of value and unit of account - having captured one of the three in just 15 years is quite impressive.
On money as debt - I don't agree with this definition. I don't consider something truly money unless it can facilitate final settlement in a transaction. If you are using debt to facilitate transactions, there is never final settlement.
I don’t care what you call it. I missed out on Bitcoin, missed a chance to be financially independent. I didn’t buy when it was like $60.
That is how the math works. In the chain letter example, one person gets $100K. A thousand people "missed a chance." It is a redistribution of wealth in which mathematically a few people gain at the expense of many who "miss the chance."
Don't feel bad- I seriously considered buying $1000 worth of Bitcoin when it was under $1/coin in 2010. I don't beat myself up for not following through- I know I would have booked the profits long before it reached even $100/coin.
I'm right there with you Yancey. If I had bought at an extremely low price, would have been hard to hold all the way through without carving some off for purchases. Once you get the use case for Bitcoin though, you never think about selling Bitcoin for dollars. That would be like selling U.S. Dollars to get back into Egyptian Pounds because you had made such a profit in Egyptian Pound terms. Bitcoiners generally think of spending their BTC on stuff, not using them to buy dollars.
Litecoin seems to be the next one to take off.
$93,000 to $110,000 in the last month.
But it keeps going up. Now it’s pretty stagnant, but others are going up.
It’s only a scam if you sold before it went up, or bought right before it crashed.
Stagnant? Up 110% in 2024.
But if Trump’s econ policies are successful, the USD should strengthen vs bitcoin. Yet also more folk will be rich enough to invest some in bitcoin, or other crypto, raising the price of the asset class.
One of the best things that could happen for America is for us to get our fiscal house in order so Bitcoin would fail for a lack of need. With $36 trillion in debt, I'm not expecting a strong dollar. Debtors love inflation.