Some Speculative Beliefs About Bitcoin, 2008 Crisis and Facts

• Published on February 25, 2021 on Linkedin

                La Joconde (Mona Lisa), Wikipedia. No daily use, never been, never will, still valued millions maybe

                billions of dollars.

I’ll remind you about some facts, which economists are very well aware but people with no or limited exposure to basic economics literature are not. As of 2021, the community is discussing much more complex issues on Blockchain such as technology, legal infrastructure, tax, AML etc. Unfortunately, even the most experienced and prestigious Bitcoin maximalists insist on the rhetoric of revolutionary digital currency which will end the financial crisis and even capitalism, so I believe we have to be aligned on these if we are serious about the future of BTC. If we are not on the same page, then maybe there is no need to go to further and more complex discussions on Blockchain.

Belief: - Existing monetary system caused the Global Financial Crisis in 2008.

It was the overpriced housing market that caused the GFC. The houses worth 100 unit are sold at 500 units. The people and corporates who financed these transactions and their creditors went bankrupt. It wouldn’t matter if a 100k USD house was sold at 500k USD or a 5 BTC house was sold at 25 BTC.

Belief: - If we had Blockchain Technology instead of fiat money system, we would not have any crisis then.

Low interest rates contributed to housing bubble. With BTC, you don’t have an interest rate at all. All else factors equal, with BTC the bubble would inflate sooner and bigger.

Belief: - If we had BTC/Blockchain then, we could come out of the crisis sooner. Limited supply of Bitcoin prevents inflation.

The crisis was never inflationist, the opposite, it was deflationist. If the central banks hadn’t the tools to increase their balance sheet size (if the money amount was limited), the world would be much worse than 1929.

Belief: - Excess liquidity created to overcome the crisis will cause hyperinflation. Bitcoin is the best hedge against hyperinflation.

This is consistent with economics literature. Still, TIPS (Inflation Indexed Bonds) are another good hedge against hyperinflation, and much less speculative. We must understand in such a scenario, governments will intervene with fiscal tools, not only monetary tools. (Wealth Tax and similar). It is best for everyone that they follow a balanced path to contain any inflation, unemployement and debt issues.

Belief: - Physical money, banknotes are so primitive, the future is in digital money.

Actually only a small percentage of fiat money is in banknotes, all the money in the banks, in the credit/debit cards etc. are already digital.

Belief: - If the volatility in BTC prices is contained, BTC is a good investment tool.

BTC is not and has never been an investment tool. It is a tool for speculation. It is not a bad thing, gold is also a speculation tool. To buy an asset with the expectation of capital gain is speculation. If you expect dividends on a stock, interest on a bond, rental income on a real estate, then this is investment. Of course you can have both investment and speculation in an asset. With Bitcoin, the only return is if the price goes up. If there is no volatility, then there is no return.

Belief: Cryptocurrencies in general, or Bitcoin in special, will be the end of capitalism.

The problem with capitalism is not the monetary system. It is the function of sharing and redistribution of wealth among capital owners, labour force and other figures in the economy. Bitcoin has no claims about sharing and redistribution of wealth.