In Praise of Bitcoin
Many of us who prefer to look at things from a fundamental perspective have been natural skeptics of Bitcoin or Cyrptocurrencies in general. We look for cashflows or utility value that can help guide a fundamental basis to value an asset and therefore struggle to come to grips with crypto. Here’s a piece from one such skeptic about how there is another way to look at Bitcoin and see its ‘value’. Ben Hunt, formerly a professor of political science and currently an investor, combines both of his backgrounds in his insightful and outspoken newsletter. He begins by saying why Bitcoin is like art.
“Because Bitcoin is good art. Or better yet, because Bitcoin is elegant and beautiful fashion, sitting at the intersection of art and commerce.
…The creation of good art is – in my opinion – what we are put on this earth to do. It is our highest calling. It is my highest praise. There is lasting value in good art, because it is a very scarce thing and it never gets used up. There are no cash flows to art. There are no fundamentals to art. There is no “use case” to art. There is only story. There is only narrative. There is only common knowledge – what everyone knows that everyone knows – about the value of art, common knowledge that emerges from our social interaction with story and narrative.”
He then moves on to the bigger point about Bitcoin as an ‘identity’. Fans of Bitcoin, besides the profit motive, also see it as a fight against the system – Wall Street and the Government.
“Most importantly, because owning Bitcoin has been an authentic expression of identity, an extremely positive identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy.”
However he shows how they are losing this battle to the very Wall Street which has actually found ways to make more money of the cypto mania, and the Government which through legislation is fast closing in on killing the anonymity that Bitcoin provides and in turn take advantage of it.
“…the Nudging State and the Nudging Oligarchy strike back. They always do when it comes to money. Not with imperial stormtroopers or legislative sanction, but with golden handcuffs and administrative surveillance.
It’s not that the State and the status quo institutionalization of capital – call it Wall Street, for short – have any desire to ban Bitcoin. Why would they do that? No, far better to accommodate and swallow Bitcoin, like they have every other financial “innovation” for the past 1,000 years. Far better to neuter the censorship-resistant and anonymity-preserving aspects of Bitcoin, and turn it into another gaming table in the Wall Street casino.”
He shows how Wall Street sees this as the new gold, that can be abstracted to create more ways of making money for itself:
“What is the GLD ETF? It’s gold! TM. What is a unit in an ETF basket of gold miner stocks? It’s gold! TM. They and their many kin are securitizations of gold ownership that promise the price appreciation of gold without the hassle of gold ownership. They are casino chips that represent the price of gold.
I’m old enough to remember when people bought and sold gold coins in private transactions. I guess we’d call that peer-to-peer today. I’m old enough to remember when well-meaning people would have earnest conversations about gold as a reserve currency, just like well-meaning people today have those earnest conversations about Bitcoin. I’m old enough to remember how quickly those conversations died out after State Street launched GLD in 2004 and took in a billion dollars in a few days. Turns out people didn’t really want the grumpy grandpa identity of owning physical gold in some Mad Max world as much as they wanted gold! TM in their financial portfolios as an abstracted insurance policy against central bank error.
It’s exactly the same with Bitcoin! TM today. The ONLY difference to Wall Street between gold and Bitcoin is that gold! TM is tired and Bitcoin! TM is wired.
The king is dead. Long live the king!
This is the artistic genius of Wall Street – the creation of new product to trade and new assets to manage, all through the alchemy of securitization and leverage. This is Flow.”
How is Bitcoin losing the fight against the government? Doesn’t the technology behind Bitcoin designed to keep it away from government control? Ben says whilst it is theoretically correct, the motive of any government to control money (and through that power) means that they will use the power of authority and law to wrest control of it. He highlights proposed legislations in the US, specifically changes to the Banking Secrecy Act and Report of Foreign Bank and Financial Accounts, which is meant to do exactly that.
“Whatever rules were in place yesterday regarding transfers of dollars or rubles or pesos through US-touching money transmitters or by US entities … well, now those exact same rules are going to apply to Bitcoin. As soon as your virtual currency holdings land in any financial institution that cooperates with or does business in or is regulated by the United States … BAM! your Bitcoin is painted DayGlo orange and becomes the Treasury-preferred form of Bitcoin! TM.”
He ends with an attempt at offering a three step solution for Bitcoin to retain its ‘identity’.