Counter Arts
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Counter Arts

Bitcoin Equilibrium Price

Legalize drugs and ban Bitcoin?

Source: Space.com

So, is bitcoin an “open Ponzi Scheme” as Nassim Taleb claims, or is it digital gold who’s price will go to the moon?

It’s possible that both are true! There may be no fundamental value to bitcoin, or even if there is, there is certainly a great degree of the greater fool theory at work.

In other words, people buy bitcoin now because they believe there will be more people buying bitcoin in the future. At the same time, there is an element of built in scarcity to bitcoin that arguably creates intrinsic value.

It’s also an innovative technology in the decentralized blockchain realm. However, not all technology is a net positive for civilization. Social media is a great example. Is the world really an objectively happier place due to Facebook?

This is also true of crypto and bitcoin. The concrete ethical question we face when thinking about whether we should want crypto to exist at all is the following:

Okay, so you say crypto allows anonymous secure digital transactions which helps individuals undermine oppressive governments, but doesn’t it also make it easier for child sex traffickers to transact anonymously?

How many child sex slaves is worth increased democracy in 3rd world countries?

At the end of the day, I think bitcoin is filling a niche created by the war on drugs. If all drugs were legal, there would be almost no need for crypto. Well, except for the really bad illegal things, like hitmen and child sex slaves.

Anyways, that is the ethical side of the equation. From the empirical/predictive perspective, the question of the long term value of crypto and bitcoin is an interesting one.

Even if governments should legalize drugs and ban bitcoin, that of course does not mean they will have the spine to do so. So, for now, it looks like bitcoin is going to the moon. But bitcoin already has a 1+ trillion dollar market cap, which is around 10% of the market cap of Gold.

Bitcoin is either 1. an open Ponzi scheme, 2. digital gold, 3. something more (currency, etc.). Unless bitcoin is something more than digital gold, it only has 10x room to grow. And it is not a great currency since it is so volatile.

My point is that the something more part is for currently illegal things. Some things that are illegal currently shouldn’t be. Like selling drugs. But some things should stay illegal, like child sex trafficking, hitmen, corruption, etc.

In 10 years or so, 97% of all bitcoins will be mined. So strictly from a scarce supply, bitcoin would be expected to grow. But it simply is not going to grow exponentially forever. Eventually, it will become less speculative, and will grow a few percent per year.

Eventually, the market will price this in and bitcoin prices will stabilize. Maybe then it could become a currency. But in the meantime, bitcoin’s price is currently fundamentally a gamble on whether or not governments will or can ban bitcoin.

If we just ended the war on drugs, and diverted resources to actual crime, we would live in a happier, healthier, and more ethical society. I don’t necessarily believe we need bitcoin in that world.

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