“Probably worth zero”: another dumb Bitcoin critique
Quick thoughts on James Mackintosh’s WSJ piece, “Bitcoin’s Wild Ride Shows The Truth: It Is Probably Worth Zero” (non-paywalled version):
I’m generally disappointed at the level of Bitcoin critiques (though many Bitcoin fanboys employ even worse reasoning!). They stake out hyperbolic headline positions (“probably worth zero”), overstate their arguments and ignore natural objections.
It’s very hard to put a fair $ value on Bitcoin, partly because this is all new, but above all because the range of plausible outcomes is so wide — from obsolescence to “replacing the dollar” — and thus a small shift in the probabilities can have a drastic effect on the current expected value. This is a point Mackintosh sort of makes in his final paragraphs.
I also agree with him (well, with Dan Davies) that “the money supply multiplied by how often it circulates equals the price level times the number of transactions”. See this old post of mine on how this could apply to BTC (note the price was $625 when I wrote this):
I don’t think it’s realistic to use this math to pin down a fair value, but it does underline why there could be a floor on the price, and the forces that could cause the floor to rise: especially, widespread adoption.
Right now most of BTC’s value derives from the “e-gold” use case: it has more buy-&-hold investors than regular users. I hope eventually it will find more regular use cases and become more of a retail technology, like email (my role model for Bitcoin), rather than simply an investment asset. Though per the logic above, adoption will drive up the price, which is why I think that’s the key feature that will lift one coin (and its price) above the others — mass adoption.
His Gresham’s Law point is silly. Whether you use BTC or $ for spending money is a separate question from which one you keep your savings in.
Same for “badly designed, pathetically small number of transactions”. Bitcoin has only existed for a few years! Technologies get faster, especially software. If Bitcoin doesn’t get cheaper and easier use, other cryptocurrencies will — particularly Ethereum, which is also taking serious steps towards overcoming the “inordinate amount of electricity” complaint.
“Leave aside that the gold is better than bitcoin because gold doesn’t depend on having an electricity supply.” Now, I have a no-sarcasm rule and I intend to stick to it, but… This is not exactly a comprehensive list of gold and BTC’s relative pros and cons.
I’ll say this for Mackintosh though: his critique had a heck of a lot more meat on it than Jamie Dimon’s.