It was quite a week in money. Gold popped above $1430. The spectacular pump and dump of Bitcoin on Wednesday was something to behold.
No sooner had I published a post about it then the market seized up while I was taking my normal Wednesday evening sabbatical from the grind of politics and markets.
Coinbase went down. The price plummeted 25% and my blood pressure didn’t even move. I’ve been a gold and crypto guy so long ‘heart-stopping’ volatility is for other people.
That said, Bitcoin’s volatility is real and that’s because it is an asset in the process of becoming fully capitalized. It’s an asset that goes through the most extreme emotional roller coasters because it is also trading in immature and unregulated markets.
That volatility is used by some in the hard money/Austrian economics community to argue against Bitcoin and/or cryptocurrencies as potential money. But that is simply specious argumentation.
Sounding Off on Bitcoin
Bitcoin has all the attributes of a sound money like gold — scarce, hard to produce, property right is guaranteed, immune to counterfeiting — with the exception of it having its transaction history kept digitally.
Gold has no transaction history like Bitcoin. In fact, in that respect, blockchain-based digital assets have a clear history of title transfer. My only regret with Bitcoin is that Satoshi Nakamoto didn’t publish the white paper before Murray Rothbard died.
Because Rothbard would have loved Bitcoin. He would have seen, as I did, nearly immediately, that Bitcoin, while radical, was the answer to the limitations of gold as a reserve asset while still having most all of gold’s advantages.
I wrote this back in June 2010 about these “digits” that are as “good as gold.”
So, yes, digits, which I said I believe to be the future of money, sadly. But, these are digits whose movements are verified by hundreds of incentivized auditors 24/7/365. Hell, the FED won’t submit to a one-time audit by those for whom they supposedly work! Yet we are loath to stop using their product.
I see Bitcoin as a metaphor for the Web itself. It is what happens when people of common tastes are able to find each other over vast distance to find their niche in the division of labor. Synthesizing cryptography, programming and monetary theory into a unique offering could not have happened without the Web; itself that which subverts attempts at control as a natural consequence of its own structure. Any success Bitcoin enjoys exists as a means to an end (improving how humans interact via mutual exchange), not the end itself (adoption in the marketplace).
When I wrote that final point I never thought in a million years Bitcoin would be as successful as it has been. It’s light-years ahead of what I thought it could become....