What Could Kill Bitcoin?

What Could Kill Bitcoin?

By Robert MurphyLibertyChat.com Contributor –

As an economist, I have been fascinated by Bitcoin; you can read my introductory analysis here. Thus far my biggest focus has been on the possible incompatibility between Austrian monetary theory and Bitcoin. I lay out the issues in this talk, and I explain why I don’t think there’s a conflict in this earlier LibertyChat article.

In the present post, however, I want to talk about something more fundamental: For the Bitcoin critics who say it will eventually collapse, what is going to be the trigger? Before discussing this further, let’s review some of the earlier “calls” that Bitcoin had peaked. Below I draw on the compilation put together by the Satoshi Nakamoto Institute (named after the inventor of Bitcoin):

Niels van der Linden – April 22, 2011 ($0.77)

Amateur economist, VforVoluntary.com

Don’t Buy Bitcoins (YouTube)

Peter Schiff – June 20, 2011 ($17.50)

CEO, Euro Pacific Capital, Inc.

Peter Schiff Radio Show with Bitcoin (YouTube)

What [bitcoins] lack is their own fundamental intrinsic value. You can’t do anything with a bitcoin, other than trade it for something you want. So, intrinsically, the bitcoin itself has no value. It only has value as a medium of exchange so long as people are willing to accept it.

Tim Worstall – June 20, 2011 ($17.26)

Journalist

So, That’s the End of Bitcoin Then (Forbes)

It’s difficult to see what the currency has going for it.

Wayback Machine

Adrian Covert – August 09, 2011 ($8.02)

Journalist

The Bitcoin Is Dying (Gizmodo Australia)

The lulz were abundant. But frankly, it’s time for you to go. Farewell.

Wayback Machine

Michael Calore – December 24, 2012 ($13.27)

Journalist

Wired, Tired, Expired for 2012: From Stellar to Suck (Wired)

Then came the malware, the black market, the legal ambiguities and The Man. Today, you can’t even use it to buy Facebook stock

Wayback Machine

Patrik Korda – March 05, 2013 ($34.00)

Amateur trader

Bitcoin Bubble 2.0 (Seeking Alpha)

Thus, we have an answer before us: bitcoins are fiduciary media, or more specifically token money. From a monetary standpoint, as devised and formulated by Ludwig von Mises, they are on a par with the stuff you find at Chuck E. Cheese’s.

Wayback Machine

Heidi Moore – April 03, 2013 ($115.09)

Finance and Economics Editor, The Guardian US

Confused about Bitcoin? It’s ‘the Harlem Shake of currency’ (The Guardian US)

Of course, in a rational world, none of that will be written, except perhaps as satire. Bitcoin’s crash is less of a currency crisis than an opportune moment for internet wisecracks.

Wayback Machine

Robert McMillan – May 10, 2013 ($115.48)

Journalist

Watch Wired Get Rich Quick With Our Sleek Bitcoin Miner (Wired)

But in the end, the answer was obvious. The world’s most popular digital currency really is nothing more than an abstraction. So we’re destroying the private key used by our Bitcon wallet.

Wayback Machine

David S. Evans – October 16, 2013 ($137.54)

Chairman of the Global Economics Group

Bitcoin is a Remarkable Innovation, Here’s Why It Will Fail(Pymnts.com)

I think there are two realistic directions the bitcoin ecosystem could go in. First, it could just implode and disappear if governments decide that virtual currencies cause too much harm and are too hard to regulate. Long-term investments in bitcoin would then go up in smoke. Second, it could continue as a virtual currency that is only used on the dark web with exchanges that are run by people willing to break the laws. The value of bitcoin would decline to whatever the illegal sector could support; regular investors wouldn’t be able to get their value from bitcoin unless they cashed it in with someone who wanted to do bad things.

Wayback Machine

Emin Gün Sirer – November 03, 2013 ($214.13)

Professor, Cornell University

“You heard it here first: Now is a good time to sell your bitcoins.”

Joseph Weisenthal – November 06, 2013 ($264.61)

Executive Editor, Business Insider

Bitcoin Is A Joke (Business Insider)

Bitcoin? Nada. There’s nothing keeping it being a thing. If people lose faith in it, it’s over. Bitcoin is fiat currency in the most literal sense of the word.

Wayback Machine

 

Incidentally, I cut off the above list at the point when someone made a prediction when Bitcoin was trading at about half of its next low:

Bitcoin price

In other words, the compilation you’ll find at the link above has further disparaging quotes about Bitcoin, but these later critics could plausibly say they have thus far either been proven right, or at least are not that wildly off the mark.

But in total contrast to the latter critics, the people who were saying Bitcoin was now dead in reference to some pullback when it was trading for less than $20, clearly didn’t have a handle on the situation.

My question for the Bitcoin skeptics is this: If you think the whole thing is a giant hoax and that it’s in a massive bubble—which is bound to eventually zoom to $0—what event could possibly be more calamitous than “one of the biggest heists in history” when Mt. Gox blew up?

As the price chart above shows, the Mt. Gox scandal definitely smashed down the price, but then it stabilized and is now trending back upwards. Isn’t that a bit odd for people who think the whole thing was a giant Ponzi scheme that just needed a cold bucket of reality to make it come crashing down?

Let me be clear that I’m not asking the above questions sarcastically. Further, I am not telling people that Bitcoin will be a “good investment” over the next 12 months. No, I am simply wondering what could possibly get people to abandon Bitcoin, if the well-publicized thefts in recent months haven’t done so?

I would like the Bitcoin critics to be specific in their answers. For example, if the response is, “Government crackdown,” then explain what they are going to do that is, say, worse than what they do to cocaine dealers? And why would the crackdown on Bitcoin (since a sizable segment of the population currently uses it) be more successful than the crackdown on cocaine?

In closing, let me agree with the critics that a worldwide effort by governments to stamp out Bitcoin could prevent it from becoming a genuine money; large-scale merchants would be afraid to accept it openly and so forth. But unless Bitcoin is replaced by an even better crypto-currency, I don’t see what would make the demand for it go to zero.

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More articles from Robert Murphy:

Persuasion is more powerful thank violence

“Still No Crash: Were Austrian Economists Wrong about the Dollar?”

Comments

comments

8 thoughts on “What Could Kill Bitcoin?

  • July 16, 2014 at 11:23 am
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    Wrong question. If Bitcoin were already established and used worldwide at the level that the US dollar is used now and then in the future Bitcoin were to collapse to the level of usage that it is actually at now, we would likely considered it to be “killed.”

    So asking, “how can Bitcoin be established?” might be a more appropriate question. Also, I mean that in a economical way not in a tactical way.

  • July 13, 2014 at 2:45 am
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    Bitcoin has not been a bubble. Yet. Reading Kindleberger’s excellent (albeit non-austrian) biography of bubbles throughout the history of man, bubbles are caused by leveraged investments. By and large I am doubtful that bitcoin investment to date has been built upon leveraged trading (any more so than the dollar is itself debt), and accordingly, you will see that the bitcoin price charts do not exhibit the primary characteristic of bubbles – a retraction 2x faster than the price increase in the leadup to the peak, a retracement to a value below the pre-increase price.

    However, this will change if one thing happens; that is the formation of a Bitcoin ETF; which will create a simpler pathway for leveraged investments to indirectly work their way into the Bitcoin economy.

    Assuming leveraged investments, after the bitcoin bubble pops (I estimate a valuation in the range of 5-10k USD at the peak), it’s going to retrace to below the current $600 range, and that may cause enough loss in confidence to breach the condition alluded to above. “Any good that is useful and scarce will have a price on the market”.

    I also agree with “The value in bitcoin is its ability as a service, and as a connection platform.” But of course this value is fairly fickle, and extremely subjective, and if people feel like it’s no longer a reliable store of value, it will implode.

    Summary: Bitcoin likely has a “true bubble” cycle coming up. After this “true bubble cycle”, it is further likely that the price will implode and kill bitcoin.

    Note: I have correctly called bitcoin price peaks/troughs in the past.

    https://news.ycombinator.com/item?id=6865876

  • July 12, 2014 at 9:56 pm
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    whats interesting is how much people value gold. (maybe its because i was born in the 90’s). its pretty, but so is my tablet computer. pretty things are not enough to make it valuable, as its too subjective a measure. Bitcoin on the other hand, has a lot of intrinsic value. to say it doesn’t is like saying the internet has no value. The value in bitcoin is its ability as a service, and as a connection platform. to me, this is much better intrinsic value than gold.

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  • July 11, 2014 at 2:25 pm
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    Erik Voorhees said it all for me “Any good that is useful and scarce will have a price on the market”. So providing the Blockchain can’t be compromised and BTC remains a finite resource, and providing Bitcoin remains a better payment system than the competition, I don’t see anything likely to kill Bitcoin, other than a better Bitcoin as a result of a Bitcoin fork.

    Many things could degrade Bitcoin, but providing the fundamentals remain intact, nothing will kill it.

  • July 11, 2014 at 1:11 pm
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    “My question for the Bitcoin skeptics is this: If you think the whole thing is a giant hoax and that it’s in a massive bubble—which is bound to eventually zoom to $0—what event could possibly be more calamitous than “one of the biggest heists in history” when Mt. Gox blew up?”

    I find Bitcoin interesting but it is not a type of currency I’d use. I don’t believe Bitcoin to be a hoax or bubble; just fiat currency.

    Hayek called for a de-nationalization of money and Rothbard demonstrated how a system of fiat currencies, with each currency produced by me or you or anyone else, would all (ultimately be worthless).

    Today, new crypto currencies are coming on the market. Lite coins, Doge, even a singer- Tatiana something or other- has a Tatiana coin. When is the digital Rothbard coimg out?

    I can see money to be made for programmers who can create new crypto currencies. They can make a fortune creating new currencies for each if us! That is, until we all have our own competing currencies and no one will accept them any longer.

    In the end, it’s just a fiat currency. No thank you.

    • July 13, 2014 at 12:23 pm
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      Bitcoin simply doesn’t fit into the Misesian category of fiat currency. It has a limited supply, isn’t controlled by a central authority, and is traded for its own sake voluntarily by individuals on the market. It also has other uses. It most closely fits into the “commodity money” category. If you want to prefix “synthetic” to that, go ahead, but the criticisms of fiat money do not apply to Bitcoin.

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