It’s really weird when the ‘Experts’ are so blatantly wrong about Bitcoin.
What do Dr Doom (the guy who predicted the last economic crisis not old metal face from the comics), a one trick pony Nobel Prize winner and the former head of the International Monetary Fund have in common?
They don’t seem to know the simplest of facts about Bitcoin or cryptocurrency.
I just read this article about how these three super famous economists think Bitcoin will fail spectacularly. As will become customary please insert a pithy joke here about the now 322 times Bitcoin has been declared dead on bitcoinobituaries.com. The thing that got me to drop all the research I was doing for a piece about the current state of the Initial Coin Offering market and how one would need to play it, is that its insane that the elites of economic thinking should be allowed to pontificate about something they demonstrably know nothing about. It’s just wierd!!! They aren’t just hilariously wrong in their opinions, but perfectly wrong in their assumptions. They seem to literally not understand the absolute basics about how cryptocurrency works, or about the current state of global governance or regulation around this market.
Stiglitz, our Nobel winner, trots out the well worn trope that Bitcoin’s anonymity will lead to all sorts of “nefarious activity”.
“You cannot have a means of payment that is based on secrecy when you’re trying to create a transparent banking system,” Stiglitz, told the FN. “If you open up a hole like bitcoin, then all the nefarious activity will go through that hole, and no government can allow that.”
There’s just one glaring issue. Bitcoin is a far more transparent model than our current system by orders of magnitude. Bitcoin is an open ledger. Every transaction that has ever occurred is written on the public blockchain and will be searchable forever. While its true that some people have been using Bitcion in an attempt to circumvent taxes and launder money, it’s our belief that every last one of them will get caught. We met a guy while drinking wine and having snow pile up on our heads in a geothermal spring in Iceland who’s job is Blockchain Forensics. (true story) He’s actively helping governments and law enforcement agencies track down every person they want to track down, and Bitcoin makes it easier, not harder. In fact a growing number of startups are cropping up all over the world to show governments how to track the flow of funds on blockchains. Apparently the Danes are leading the way, and of course they’re showing other nations how to do it. Even Inc. has a huge piece on this. These guys read don’t they? Can they haz google? The blockchain is literally an open book.
Yet another example of the relentless march of history happening in the blockchain space, while writing this piece we hear that the Russians who hacked the 2016 elections in the United States didn’t know about Bitcoin basics either. Oops.
And guess what?! Stiglitz won a Nobel Prize for; you’re going to love this:
At least he was right about that. #Irony
This former head of the World Bank really likes beating this dead pony too, back in Nov 2017 he was telling people “Bitcoin is successful only because of its potential for circumvention, lack of oversight,” and “So it seems to me it ought to be outlawed. It doesn’t serve any socially useful function.” Clearly his first assertion is ridiculous as discussed above and therefore his insistence that Bitcoin should be outlawed is at best misguided, but more insidiously he says it doesn't serve any socially useful function. When the 1.5 quadrillion derivatives market that economists like him have allowed to become 5 times larger than the GDP of the world without comment implodes it will be socially useful to have invested in a deflationary store of value like Bitcoin. When more national economies start succumbing to future debt bubbles and their currencies start hyper-inflating into meaninglessness (here’s looking at you Venezuela, Greece and Zimbabwe) we will be happy we hedged. How painfully, brutally, obviously wrong are we going to allow our economic elites to be before we stop listening to them? I could go on. (note to self, write a long article about the 50 other reasons Bitcoin and cryptocurrency are socially useful).
- Joseph Rubin, CEO and Founder of Rubius Inc. (a fintech software startup from Tampa, FL) had this to say: “Bitcoin isn’t based on secrecy. Although it is pseudo-anonymous, all transaction data is publicly available. Authorities only need to reach out to the exchanges (and other transmitters) for the individuals KYC information, in order to trace payments. It would be ridiculous if they went a step further and published peoples names on next to all transactions. That would be like having all your personal bank statements as public knowledge.” I’ll add here, even where there is no exchanges involved and no possible KYC (Know Your Customer) rules applied, blockchain forensics experts can track IP addresses of both senders and receivers of payments, sometimes even being able to track people by deduction even when VPNs or TOR (privacy software or browser) is used to mask one’s IP address. Also note to self: we need a podcast episode on Rubius.io, it looks awesome!
Stiglitz claims that digital currencies will be “regulated into oblivion” in a future clampdown on money laundering, but what we’ve been seeing is that governments aren’t regulating with the intent to destroy, or if they try they have to back-track within months. China took a hard-line stance, kicking out exchanges like Binance and terminating Intial Coin Offerings but within a couple months were allowing ICO projects to move forward on the NEO platform, because they had access to track it all easily. Let me say that again, the most draconian state attached to the internet is now encouraging digital currencies because its easier for them to track money flow. South Korea tried to take a hard-line stance and their own people raised such a raucous that they back tracked as well and are focused on responsible regulation that won’t stifle innovation. In fact it came out this week that all S.K. crypto exchanges now meet the new regs and a mountain of money is likely going to rush into that market. India tried a ban that’s coming apart already. Here in the US we’ve been watching with dumb-founded awe as Washington debates whether Ethereum is a security or not (by their definition it totally is, but its so huge and decentralized now that they have to say it isnt, welcome to the new world). The US government is years behind the curve on understanding this technological revolution, at the same time that Sillicon Valley is on-ramping blockchain based startups every 5 minutes or so. It is my personal belief that it’s too late. Even if the US tried to “drop the hammer” now it wouldn’t work. Malta and all the other little island nations eagerly encouraging blockchain ecosystems will never stop. Sillicon Valley, who only recently started testing their lobbying clout) would grind punitive regulatory legislation to a halt.
Above all, the most fascinating thing about Bitcoin and cryptocurrency writ large is this: Its decentralized.
It cannot be stopped.
It’s everywhere and nowhere. The ledger is backed up in secret bunkers all over the world (tks Xapo). It will be available anywhere humans can bring thumbdrives. It ia already transmittable via satellite, and soon even SMS will be enough. Meaning that pretty soon you actually could turn the entire internet off and Bitcoin would still find a way. So what’s a government to do? Attack something that’s un-killable? Or use it’s open ledger to actually make their jobs easier? It will be easier to tax. It will be easier to track money laundering. The idea that most Crypto-Currency is anonymous is just ridiculous, and governments, when they start launching federally backed digital currencies (an idea I’ll do a deep dive on later) will be doing so with all of this in mind. It really is super weird that a guy who used to run the World Bank doesn't understand the basics of Bitcoin.
- Mark Foster, the crypto analyst from Australia behind the project Cryptonoid adds some context: “There is definitely much misleading information regarding bitcoin and cryptocurrencies by the elites of the old traditional system. However while they make statements like this, (*Bitcoin will fail due to regulation etc etc) moves are being made behind the scenes to make their systems obsolete. For example, Litecoin has previously acquired 9.9% of German bank WEG. This is such a huge! This will allow the Litecoin foundation to implement their technology with the swift system. This will bridge the old swift system with the lightning network. The lightning network is linked with Bitcoin. The lightning network will be adopted over time due to its efficiency. Meanwhile, the ‘economic elite’ will keep misinforming the population while the ‘financial elite’ set the infrastructure for a crypto future by using CBOE to apply for a bitcoin ETF which I strongly believe will be approved by the SEC. Not only is CBOE a established futures exchange, but they’re Bitcoin ETF will be fully insured, unlike other applications.” Note to self, we need a deep dive on the lightning network!!
Who’s next. Nouriel Roubini. Dr Doom. Mr Negative. The Sky is Falling Roubini. First let me address his actual comments about Bitcoin, then I’m going to gleefully brutalize his track record and methodology.
Roubini, famous as ‘Dr. Doom’ because of his prediction of the last global financial crisis, said that Bitcoin is not a currency because BTC is not a means of payment, a stable store of value, or a unit of account. He’s exactly 2/3 wrong. And the thing he’s right about is a feature, not a bug.
Bitcoin is not a means of payment. Bitcoin is potentially the most innovative idea in payments in human history. It requires no trusted third parties like banks or the federal reserve. It doesn't see borders, in fact it’s as easy to send someone Bitcoin across a table as it is to send it to a third world country with a national bank that would steal half of it if tried with fiat currency. Faster. Better. More Open. Available to all. Works independently of third parties. To suggest that it, in fact, isn't even a means of payment is laughable. He sites one Bitcoin event where they didn't take bitcoin as payment. One. Cherry pick much? He’s just WRONG.
Bitcoin is not a unit of account. Bitcoin is an unhackable, fungable, immutable unit of account that has 100 Million individual programmable bits per Bitcoin. It cannot be double spent. It cannot be siezed. And the ledger maintains a decentralized permanent record of all accounts and transactions available to everyone on the planet at any time forever. WRONG again.
Bitcoin is not a stable store of value. 100% ACCURATE. It’s inherently unstable because it’s a truly open market subject to all the forces that can affect the buying or selling decision by an individual participant, and this is a very very good thing! To check our take on the current (mid July 2018) state of the market and learn about some of the underpinnings that give Bitcoin actual intrinsic and fundamentals driven value read my previous article HERE. The reader will also discover why and how Bitcoin is a Deflationary store of value vs fiat currency like the US dollar being Inflationary. For a highly technical description of the difference please review this predicatively accurate graph. #purescience
The multi-year Bitcoin chart looks like a giant heart beat as price plows through whole orders of magnitude every 3 to 4 years. Anyone who likes money should be ecstatic about this! Now, this does create interesting issues when trying to use Bitcoin day to day. There are better days than others if you are debiting from your long term store of HODLed BTC. We were having clients buy crypto mining assets at the top of the last rally for example, other’s were selling BTC into the first famous stable coin USD Tether, and that function is a great look into the future of cryptocurrency. Last year I predicted that there would be many different versions of stable coins coming onto the market in 2018 and it’s happening. Tether is getting alot of competition, including a Silicon Valley backed project Basis that has been funded by major VC funds to the tune of $133 Million. The future will see us both HODLing deflationary coins like Bitcoin, or more profitably by a factor of 5 in 2017 our top ten index Haystack10, and maintaining stable spend accounts in stable coins or tokens. We’re actually working on a project that would allow you to spend directly from your index account based on algorithmic analysis of current chart patterns that would spend directly from those positions in the top ten that were in or closest to traditional sell zones. With the coming decentralized exchanges we see a future where it will be seamless to spend whatever asset you want, and the receiver will be able to receive whichever asset they want during a transaction based on decentralized exchanges that work invisibly in the background. So yes, Bitcoin isn't stable, which is a feature not a bug, and we will figure out how to spend these unstable digital currencies with greater and greater effeciency while they attain more and more buying power!!
Now, how could it be that such a prophet of doom could be so wrong about Bitcoin? Looks like Roubini is wrong basically most of the time and got lucky.
“Roubini predicted a recession in 2004, 2005, 2006, and 2007. He was wrong four years in a row. So, in 2008, his prediction appears to be finally coming true. Well, a stopped clock is correct twice each day.”
“ Roubini’s predictions made late in the financial crisis and documented below couldn’t be looking much worse. More importantly, any investors who followed his advice have taken a bath. Since he stated that stocks were engaging in a sucker’s rally, U.S. and global stock prices have doubled!”
Lastly, Kenneth Rogoff, was the former chief economist at the International Monetary Fund (IMF) and a professor at Harvard University. He said that state bodies would target BTC because of the anonymity that it guarantees.
“Bitcoin could easily be worth just $100 in 10 years,” Rogoff said. “People in power will move to regulate anonymous transactions. That you can be sure of.”
First, I am absolutely convinced that due to Metcalfes Network Effect law and the mining break even cost (and there are a couple other interesting possible functions), Bitcoin and other similar assets actually have an intrinsic value that follows a predictable trend line. While it’s true that this means the price of Bitcoin is in part dependent on the number of active participants, we’ve never seen anything slow down adoption year over year. And should the U.S. or any large government even try to regulate it into oblivion it wouldn’t work. Malta, Estonia, Japan, South Korea, the Bahamas etc etc, these countries will never stop and will just pull ahead of any country that tries to stifle the innovation taking place in the crypto ecosystem. Second, we covered extensively above how Bitcoin isn't anonymous if someone really wants to track you down, here’s lookin’ at you 12 indicted Russian Military GRU linked dudes. I should mention here as well that while working on this piece today it surfaced that a Congressman, one Representative Emanuel Cleaver , hopped on twitter with this gem:
Bitcoin is likely how they got caught!! If it wasn’t it certainly could have been. That said, it is true that governments will move to regulate anonymous transactions somehow, targeting Monero for example which is a truly anonymous blockchain. Something to watch out for in the mean time is the creation of federally backed digital currencies that will exist on our new decentralized ecosystem. These will be the stable coins with which we pay our taxes and generally interact with local governments. More on this from
- Michael Philipou, Co-Founder and Co-CEO of Blockloan, a new decentralized lending platform (Cool!): “Bitcoin has been exceptionally successful in that it has been widely enough adopted to disrupt traditional fiat currency and prove that the future will see only digital currencies being used. Fiat currencies will not survive and arguably Bitcoin has been the catalyst to bring this on. I think Central Banks will respond by issuing their own digital currency, and they have to or they will not be able to compete and get left behind. We are seeing more and more examples of businesses accepting bitcoin as payment & I would expect that this will only increase. All of this said, I don’t think that Bitcoin will be the prevailing currency, but either way, it is exceptionally successful.”
So there you have it. The old guard of the last century’s economic system are completely unprepared for what’s coming and don’t seem to understand the absolute basics about how the technology or ecosystem function. It is really weird to know that we are far better positioned to flourish in the evolving economy than people who teach at Harvard, and ran the World Bank or the IMF. These guys might as well be store managers at Blockbuster.
And we’re all…