The Cryptocurrency Bubble and a Defense of Peter Schiff!
The rise of cryptocurrencies has been fascinating to witness. As someone who has not participated in the crypto markets, it is astonishing to see the riches that were made and are still being made. My hesitation in joing the market stems from the same perspective as Peter Schiff and many others, as to the longevity of the market. The battle of Crypto vs. Gold.
Perhaps late to the party, I came across The Dollar Vigilante’s post “Is Peter Schiff Against Bitcoin Because He Is A Globalist Insider Shill?” I’m a fan of both The Dollar Vigilante and Peter, whose work is greatly appreciated. The article paints Peter rather harshly (although duly credits him). To the extent that Peter is a globalist conspirator is questionable. He is an outspoken defender of liberty and the intentions of business transactions are often just that – business. Josh Sigurdson’s journalism was excellent, and it’s quality is in desperate need, but it does not implicate Schiff in a global conspiracy.
Peter’s continued dismissal of cryptocurrencies (CC) is a partially shared position of mine. In different words (my own) I’d like to contend as to why cryptocurrencies do not have the same foundation as gold, silver or commodity money.
Many of the comments on The Dollar Vigilante's article made great comparisons for the varying criteria that a commodity, object, or digital code must satisfy to be money.
Mike Maloney has some great videos that trace the history of money and states some guidelines as to what constitutes money . He lists the following criteria:
- Medium of exchange
- Unit of Account
- Portable
- Durable
- Divisible
- Fungible
- Store of Value
The argument as to why CC will ultimately lose their worth is based on the last criteria; a store of value or as Peter Schiff and others would call it - intrinsic value. Both gold and CC meet this last criteria but for how long?
Gold has been the money of choice for 5000 years because it is a beautiful and malleable metal. It can be shaped into gleaming crowns, statues, jewelry, etc. Gold’s value was determined prior to its adoption as money.
To compare, CC was designed to be money. The intrinsic value of CC is that they are not government currencies. They represent a means of exchange disconnected from government interference. The store of value is that it cannot be diluted (inflated) by government central banks and treasury policy.
The reason CC won’t last, is because they have no intrinsic value that isn’t attached to government. If the U.S. dollar was fixed to tangible commodities meeting the criteria of money, and was immediately redeemable in those commodities, the market need for cryptocurrency would plummet. The 20th century, among other time periods, would prove this to be an unstable situation, but nevertheless CC value is tied to the precarious existence of fiat currencies.
If you are hung up on the U.S. making a transition, consider the year 2140. Humanity has now joined an intergalactic community. Governments, merchants, unions, anarchists all exist within a market place. People trade because they are exchanging goods of greater value to themselves at a point in time. In a community where the spheres of control change, a medium of exchange has to hold usable intrinsic value in all places. Why would I trade mechanical parts for digital code that doesn’t do anything? Star Wars Ep.1 gave us a great conversation between Qui-Gon Jinn and Watto in their exchange for a space ship: Watto - “Republic Credits, they are no good out here, I need something more real.” In an environment where trade could happen anywhere with no restriction, digital currency would mean nothing if it wasn’t redeemable.
CC won’t exist in a large market if there exists a sufficient area of production where trade is done with a medium of exchange that is not inflationary. I know this because 5000 years of human trading has determined that people store value in physical goods. Whether it be gold, silver, copper, sea shells or vegetable seeds.
Do I think either of situations above will take place anytime soon…no. Nevertheless, CC have a fate connected to government fiat currency. I recognize the current ingenuity and potential but I’m equally aware that the future is uncertain and that there is an end.
P.S. I look forward to any comments. Particularly, the argument hinges on intrinsic value. Why would CC have any value if there were no government or non-manipulative currency?