Bitcoin

Bitcoin is Inevitable

Published

10 months ago

30 November 2023

If you have been an investor for a while, you understand that markets, like nature, move in cycles of expansion and contraction.

Capital ebbs and flows from asset class to asset class and industry to industry, like the tide rolling out and back into the shore of one island versus another.

But the natural flow of production and economies has been severely disrupted by an outside force for the past century.

Where there should naturally be steady upward growth with minor retraces along the way, there is now a mighty swell of economic expansion and a devastating tidal wave of economic recession.

The outside force?

You got it.

The Federal Reserve.

Charged with maintaining confidence in the US dollar, The Fed has tools they utilize to manipulate cost of capital and, hence, demand in the markets.

By raising and lowering interest rates and expanding and contracting the money supply, they have distorted the value of assets and the currency. This distortion has forced everyone to become an investor and everyone to play their game in order to keep the value of the savings they have created with their own productivity.

Call it evil, call it Modern Monetary Theory.

But whatever you call it, you have to play.

Because, time and time again, cycle after cycle, nothing changes.

One cycle ends, and the next one begins:

Fed floods system with money → Fed removes money from system and raises cost of borrowing, too rapidly → with the danger of total market collapse, The Fed reverts right back to Step 1 → The cycle begins again

The money becomes worth less, creating the illusion that your assets are worth more, and if you have left your money in the bank, it melts away.

Hour after hour, day after day, year after year.

A relentless devaluation of your hard work.

Stolen right from under you.

Until now.

Until Bitcoin.

Bitcoin Price Analysis

One thing that has been on everyone’s minds for months now is the possibility (read: extremely high probability) that a Spot ETF will be approved for trading soon.

In fact, just over a week ago, a rumor quickly spread that the Blackrock ETF had been approved. Bitcoin’s price immediately reacted that day, spiking from $27,200 to over $30,000 in just a few hours.

Then, over the course of the next week, as the reality of an eventual approval took hold, and investors recognized this, the price continued to gravitate upwards.

The Follow Through.

And just last night, as we write this, news of Blackrock securing a ticker symbol (IBTC) and a spot on the Depository Trust and Clearing Corporation (DTCC), the BTC price rocketed from $29,700 straight through $30,000 this time, and touched $35,000.

A roughly 18% one-day move.

While this may surprise a great many people who are new to the digital asset space, it was absolutely no surprise to us and other Bitcoiners.

A few things of note here:

First, Bitcoin is yet a young asset, and it is growing in adoption rapidly. For this, and other reasons, BTC is a volatile asset. It moves in large swings at times. And while some investors became complacent, and others ever dared to short BTC, in the last number of months, we are reminded of this. This volatility is ultimately a good thing, though, as we will revisit later.
Secondly, it is just a matter of time before the SEC must concede that their position on refusing to approve a Spot ETF is thinly defended, at best. Sooner or later, they will have no choice but to concede to the will of the markets and allow for the asset to be bought and sold on the major stock exchanges.
Finally, we are informed of the tremendous pent-up demand for this type of security from the investing public. There are over $700 trillion of investible assets in the world, and a significant portion of this is seeking not just new assets to profit from, but also safe and reliable assets to hide in.

Let’s talk about that.

As you may have heard us (Joe and James) talk about recently, there are major storms brewing in the macro landscape.

These storms are born from a combination of tremendous leverage in the system (think: debt, everything from credit cards to student to mortgage to government Treasury Debt) and a screaming rise of interest rates (think: Fed funds and US Treasuries) over the last 18 months.

This monumental level of debt is like a giant tinderbox, filled with gunpowder, soaked in gasoline, set on a bed of dried brush, in the desert.

The rate raises are like little matches, lit and laid, here and there and there, and there.

Creating little fires everywhere you look.

A big fire was extinguished last spring: Silicon Valley Bank.

The fix? Instant liquidity for the bank to avoid total collapse. I.e., stealth QE.

But there are more fires brewing, some big, some small, and the markets know this. We can tell when we look at certain indicators. One of these indicators is called the Yield Curve.

And the yield curve has been signaling trouble for over a year now.

The Yield Curve Signals Trouble Up Ahead

The yield curve is basically a chart plotting all the current nominal (not including inflation) rates of each government-issued bond. Maturity is the term for a bond, and yield is the annual interest rate that a bond will pay the buyer.

A normal yield curve (this one from 2018) chart will typically look like this:

As you can see, in a normal economic environment, the shorter the maturity of the bond, the lower the yield. This makes perfect sense in that, the shorter the time committed to lending money to someone, the less interest you would charge them for that agreed lockup period (term).

When shorter-term bonds, like the 3 mo or 2yr, start to reflect a higher yield than longer-term bonds, 10 yr or even 30 yr, then we know there is expected trouble on the horizon. Basically, the market is telling you that investors are expecting rates to be lower in the future because of an economic slowdown or recession.

Like this:

When measuring inversions, we look at the yield of the 10-year US Treasury (the benchmark security for US Treasuries) versus the yield of the 2yr US Treasury.

The benchmark yield curve spread.

And this is how this spread has looked over the years. Note where it has been in the last year and where it is today.

What we see is that the curve inverted back in July of 2022, and it has been severely inverted since this past June, having touched over 1.08% negative spread, or inversion.

However, you can also see that the spread is un-inverting now.

Rapidly.

An un-inversion is the result of front-end rates dropping back down below long-end rates, as the market signals it expects front-end rates, including the Fed’s own policy rate, to decrease.

Remember, the Fed is reactionary. They will only lower rates when they are faced with certain recession or we are already in one.

This is why the un-inversion is the ultimate signal of imminent trouble.

Because recessions occur within mere months of un-inversion

Every. Single. Time.

But we are here to tell you that this time is, in fact, different.

And by different, we mean worse.

Let us explain.

The Treasury Debt Problem

You likely know by now that the US Government has what we call a spending problem.

And because Congress spends far more than the country generates in revenue (i.e., tax collections), we have a large and growing deficit.

Simply put, this deficit forces the US Treasury to borrow more and more and more every year.

In fact, the Treasury needs to borrow so much, that it has issued $2 trillion of bonds in the last three months alone.

And because of that, the US federal debt now stands at $33.6 trillion.

Back to interest rates.

The Treasury must pay interest on all that debt. And because interest rates have been rising, so has the interest cost on all that debt.

How much?

Would you believe almost $1 trillion per year now?

That’s more than the US spends on its military.

If the Fed’s main policy rate, Fed Funds, stays at 5% through 2025, the interest expense on the US government’s debt will be an eye-watering $2 trillion per year, which is 45% of all federal tax revenue.

And how will they pay all this interest if we are already running a deficit?

You got it.

More debt.

And this debt leads to more interest expense which leads to more debt, and on, and on, and on…

Bottom line: Rates must come down, for the sake of the US government.

But we know how this cycle ends. The same way it always does.

The Fed Is The Perpetual Lender Of Last Resort

We have seen it time and time and time again. The Fed raises rates until it becomes untenable for financial markets.

The Fed refuses to back away until conditions are sufficiently tight.

In the process, they overtighten.

And this is why every cycle ends in a huge reduction in rates to levels lower than where they started.

The cycle simplified:

The Fed overtightens until the market signals that it is untenable → the Fed reacts too late, as always → financial calamity strikes → then the Fed overreacts to the other extreme with a tsunami of monetary easing

Look closely at the chart above, though.

Especially at the year 2008. This is where a new phenomenon takes hold. A new policy. One that will haunt the fiat lords forever.

Zero Interest Rate Policy, otherwise known as ZIRP.

With global-reaching financial calamity at the doorstep, the central banks here panicked, lowering rates to zero.

In fact, in some places like Europe and Japan, the rates went negative.

That’s right. You were being paid to borrow. To take on debt. to leverage.

But this wasn’t enough, fast enough. Central banks could no longer transmit monetary policy effectively with policy rates alone. So they did more.

The Fed dumped trillions of dollars worth of liquidity into the markets in the form of M2 expansion (money printing).

How?

Inspired by Japan which started doing it in the 90s, the Fed got creative, using its balance sheet to make large-scale purchases of financial assets from banks.

They called it Quantitative Easing or QE.

And by 2020, with the stage set and a new tragedy unfolding, the Fed ramped up this mechanism to full tilt, flooding the markets with $5 trillion more of liquidity.

Now markets have been conditioned. They know the Fed will save banks with fresh cash at any sign of trouble.

The Fed’s large-scale purchases of US Treasuries and agency MBS (mortgage-backed securities) have the effect of lowering yields, thus lowering interest rates.

And relying on this is what caught Silicon Valley Bank (and others) offsides this past spring.

After all, risk management goes out the window when you know an unelected shadowy entity born on Jekyll Island (aka, The Fed) will not allow a prolonged economic contraction to happen.

They can’t.

The Treasury cannot withstand it.

And so, banks have severely slacked on their jobs, giving risky loans to anyone with an idea and a pulse. And then they relied on the Fed’s rate manipulation to do their own risk management for them.

This errant trust of the Fed and its interest rate manipulation and perpetual balance sheet expansion, has created the most widespread & rampant misallocation of capital the world has ever seen.

The banks bought US Treasuries for their own reserves against loans they made, and this past year, when the Fed skyrocketed rates up 5%, many banks were blindsided.

The ZIRP tide went out, and they were caught without a swimsuit.

This action by the Fed and mismanagement by banks has created a $1.675-trillion hole across the banks balance sheets due to US Treasuries losing value as the rates were pushed higher.

The Fed’s answer?

A new facility with a new acronym called the BTFP, which is essentially stealth QE. It eliminated the natural fire-sale risk that goes along with devaluing USTs, the world’s most widely used collateral.

And use the facility, they did. to the tune of over $100B.

So now, the BTFP completely backstops the banking system, eliminating the risk of an unwind due to the Fed’s rate hikes.

The effect of this is risk-taking rises**, because banks know the Fed won’t let the financial system collapse or a prolonged recession to happen.**

But who pays for all this?

Aren’t we already running a deficit?

Aren’t we already $33.5 trillion on debt?

You got it.

With new and creative ways to patch the cracks in the system and kick the consequence can further down the road at every turn of this preposterous cycle—it’s always you, the US dollar holder, that pays the price in the form of a perpetual degradation of your purchasing power**.**

Print money → expand M2 → dump liquidity into markets → cause high and perpetual inflation → purchasing power of every dollar falls

For decades and decades, there was little you could do but play the game.

Save money. Buy stocks. Buy gold.

All of them are manipulated.

Your hope was to not miss a cycle and lose it all.

That was the best you could do.

Until now.

Enter Bitcoin.

A Risk-Off Asset Trading Like The Nasdaq

You may already know or have heard this, but Bitcoin’s properties are risk-off.

Why?

Because Bitcoin is the hardest money ever created. It has numerous attributes that no other money has had, such as:

Scarcity:

Bitcoin has a fixed supply cap of 21 million coins, making it a scarce resource. This scarcity is built into the code through a process called mining, which releases new bitcoins at a decreasing rate over time until the cap is reached.

Durability:

Bitcoin exists on a decentralized network, making it highly durable. As long as the network exists, the bitcoin on it will remain intact and unspoiled.

Divisibility:

Bitcoin can be divided into smaller units, down to 100 millionths of a bitcoin (known as a Satoshi), making it highly divisible. This divisibility facilitates its use in a wide range of transactions.

Transportability:

Bitcoin can be sent and received anywhere in the world, and may cross borders without the need for middlemen, making it highly transportable.

Verifiability:

Bitcoin transactions can be verified on the blockchain, which is a public ledger. Anyone can verify the transaction history of a particular bitcoin address, making it transparent and verifiable.

Censorship Resistance:

Bitcoin transactions cannot easily be censored or blocked, making it a censorship-resistant form of money.

Fungibility:

Each bitcoin is interchangeable with any other bitcoin, making it fungible. While there are concerns regarding “tainted” bitcoins (bitcoins associated with illegal activities), the core protocol treats every bitcoin the same.

Decentralization:

Bitcoin operates on a truly decentralized network with no central authority, reducing the risks associated with centralization such as censorship, inflation, and corruption.

Predictability:

The issuance of new bitcoins and the total supply cap are governed by predictable rules, not the whims of a central authority.

Unforgeability:

It’s practically impossible to counterfeit or forge bitcoins due to the cryptographic security and the decentralized verification process.

These properties contribute to Bitcoin’s characterization as hard money, often drawing comparisons to gold in discussions of its potential as a store of value over time.

Yet gold cannot claim a number of attributes on this list. Gold is not very portable, you can only carry so much with you before it becomes noticeable.

Gold is also not easily divisible. The comparison here to Bitcoin is important, as Bitcoin being divisible up to over 100 million parts per Bitcoin (and more), allows for the ultimate supply cap to remain without issue.

Gold is not easily verifiable in that you may have to run tests to prove it is real and not counterfeit. With Bitcoin, you simply look at a series of numbers to verify, easy as that.

And finally, gold is extremely easy to confiscate, especially at a border. It is not censorship-resistant.

All that said, Bitcoin has yet to mature into that true Store of Value (SoV) that it someday will (in our strong conviction).

And so it still trades like a high-beta risk asset or security.

Sometimes even like a meme stock.

Despite its absolute scarcity, the market trades bitcoin like an infinitely issuable stock.

We see this simple disconnect as the single biggest informational arbitrage of our generation, and perhaps ever.

The opportunity is obvious to us.

Cycle after cycle, the Fed resolves its overtightening with overeasing.

If money creation is the endgame of every cycle, strategic and long-term investors alike want to allocate to an asset that stands to appreciate the most in the face of this money expansion and has the least risk of being diluted with increased share issuance.

Due to this, we fully expect Bitcoin to appreciate in an outsized manner due to its relatively low $0.5 trillion market cap, and absolutely fixed supply.

Bitcoin’s denominator (supply—or number of Bitcoin ever to be issued) is absolutely fixed and whose numerator (the fiat it is priced in) is diluting at an accelerating rate into infinity, or until Congress returns to monetary austerity, the Treasury solves the debt crisis, and the Fed either dissolves or ends its manipulative ways.

Ha.

Knowing this is a virtually zero probability, serious investors want an asset that ebbs and flows with money supply to keep the monetary leaders in check as they dilute their purchasing power—and Bitcoin is that asset.

As the global money supply continuously expands, so too does the price of bitcoin, with extremely high sensitivity due to its nascent existence and tiny market cap of liquidity.

In short, we believe the world’s most porous sponge for global liquidity is Bitcoin.

At this point, the safe haven asset choices for investors are gold and US Treasuries, but one of them has been replaced by a superior commodity money, and the other is experiencing the sharpest period of drawdown in its history as a result of its central bank’s own incompetence.

We believe that one day in the near future, perhaps a few trillion dollars of market cap and liquidity away, Bitcoin will begin to serve as a safe haven asset like these two.

While correlations don’t yet suggest that it’s becoming one, as it is has still been tightly rising and falling to the beat of high-beta risk assets like the stock market, it one day will.

After all, with Spot ETFs coming, more and more investors doing their homework, reading about, and front-run studying Bitcoin, its monetary properties won’t be widely misunderstood forever.

The information arbitrage will be gone.

Institutions will catch up to individuals.

The once-in-a-lifetime retail ability to front-run institutions opportunity will be over.

Because when bitcoin starts trading as its monetary properties suggest it should, buckle up.

And this, my friends, is why we feel we are standing before the most compelling risk-reward opportunity we have ever seen in our careers.

Bitcoin, we believe, is inevitable.

Bitcoin

Bitcoin Liquidations hit $300M as BTC Price Falls to $62K

Published

2 months ago

2 August 2024

Archie

Bitcoin’s price plunged to $62,000 leading to the liquidation of leveraged crypto positions worth around $300 million and $77m worth of Bitcoin longs, overall.

Market analysts remain optimistic that the current pullback is only a short term dip within an overall uptrend that may eventually result in a parabolic run, similar to late 2020. There are a number of scenarios that could play out from here:

Potential Scenarios

1. Sell in May and Go Away: bitcoin has been choppy since April/May, playing to the adage that nothing much happens during the northern summer months. While it is still trading within this price range, it’s unlikely that any price movement (up or down) will be meaningful until the range is broken.

2. ETFs have run out of steam: It was a huge run since January, with essentially 2 major moves in price, but since breaking a new all-time high, Bitcoin just hasn’t seen much new demand.

Potential Recovery Scenarios

There are a few possible recovery scenarios for Bitcoin:

Quick Rebound: V-shaped recovery is always a possibility, but if this transpires, expect it to continue trading within a range.
Gradual Recovery: A slower, more steady increase in price over time would be more promising as it will allow time to digest such a huge move since January, and build sustainable momentum for a big finish to the year.
Extended Downturn: Prices may continue to fall before stabilizing, but this would prbably requite a major downturn on macro factors affecting global markets. Probably the least likely scenario at this point.

Leveraged Trading in Market Volatility

Leverage is like stepping on the accelerator while driving: you might get there faster, but with increased risk if something goes ever slightly wrong. It’s easier to correct course driving at 60kms per hour than it is at 100kms per hour. Leverage has the same effect on trading.

The main risk of leveraged trading is that it can lead to significant losses if the market moves against the trader’s position. While you might be directionally correct with your trade, if you can’t absorb the volatility and meet any short term margin calls, your trade will be wound up and you won’t see out your conviction in the overall market move.

Federal Rate Cuts – Could They Boost Bitcoin?

The long run of interest rate rises have done what they intended: cooling the economy, reducing demand, easing inflationary pressures. J. Powell is probably feeling vindicated and many are now calling for cuts to avert a recession as the indicators build up of an imminent economic slump.

While the consensus was multiple rate cuts in 2024, we have yet to see a single rate cut, and the FED is indicating they are far from decided on an imminent reduction in the cost of borrowing.

The Fed’s position has will have far-reaching effects beyond just the crypto market. It will affect asset prices across all markets, and that will feed into the economic engine of the global economy – the US consumer. Nobody thought Bitcoin could break new all-time highs while interest rates remained at 5% yet here we are. So who knows? The economy is a complicated beast with infinite variables and moods. We just don’t know what will happen next.

Bitcoin

Goldman Sachs CEO David Solomon says bitcoin could be ‘a store of value case’

Published

2 months ago

31 July 2024

Archie

David Solomon, the CEO of Goldman Sachs, recently shared his thoughts on Bitcoin during an interview at the Summer Olympics in Paris. He mentioned that Bitcoin could potentially serve as a store of value, similar to gold. This statement has sparked discussions across the financial world, given Solomon’s influential position and Goldman Sachs’ significant role in the financial markets.

David Solomon believes Bitcoin could act as a store of value like gold.
He shared these views during an interview at the Summer Olympics in Paris.
Solomon has historically viewed Bitcoin as a speculative investment.
Goldman Sachs has a growing interest in blockchain and digital assets.
The financial industry is closely watching Solomon’s statements on Bitcoin.

Solomon’s Historical Views on Bitcoin

David Solomon, the chief executive of Goldman Sachs, has always been cautious about Bitcoin. He often describes it as a “speculative investment.” Solomon has never been one to predict the price of Bitcoin or any other crypto assets. Instead, he focuses on the underlying technology, which he finds “super interesting.” He believes that as the financial system becomes more digital, this technology can help reduce friction.

Recent Statements at the Olympics

During an interview with CNBC at the Summer Olympics in Paris, Solomon shared his latest thoughts on Bitcoin. When asked if Bitcoin could serve as a store of value similar to gold, Solomon said, “there very well could be a store of value case.” This statement marks a shift from his earlier views, showing a more open-minded approach to Bitcoin’s potential.

Comparison with Traditional Assets

Solomon’s recent comments suggest he is beginning to see Bitcoin in a new light. While he still views it as speculative, he acknowledges that it could have a role similar to traditional assets like gold. This perspective aligns with the growing trend of viewing Bitcoin as a digital alternative to gold, especially in terms of storing value.

Bitcoin as a Store of Value

A store of value is something that keeps its value over time without depreciating. Gold has been a classic example of this concept for centuries. People trust it because it doesn’t lose value easily.

Bitcoin and gold are often compared. Both are limited in supply, which helps them keep their value. However, Bitcoin is digital, while gold is physical. This makes Bitcoin easier to transfer but also more volatile.

Feature	Bitcoin	Gold
Physical Form	No	Yes
Supply Limit	Yes	Yes
Transferable	Easily	Less
Volatility	High	Low

When David Solomon said Bitcoin could be a store of value, the market reacted quickly. Some people saw it as a sign that Bitcoin is becoming more accepted. Others were skeptical, thinking it might just be another speculative investment.

The debate over Bitcoin’s role in the financial world continues, with strong opinions on both sides.

Goldman Sachs and Cryptocurrency

Goldman Sachs’ Crypto Strategy

Goldman Sachs has been making significant strides in the crypto space. 2024 is shaping up to be a big year for the bank’s push into digital assets. Earlier this year, Goldman Sachs completed a series of tests on the Canton Network, an interoperable network designed for institutional assets. This move highlights the bank’s commitment to exploring and expanding its crypto offerings.

Past Investments in Blockchain

Goldman Sachs has been actively investing in the digital asset space. Mathew McDermott, the global head of digital assets, mentioned that the company is looking at various investment opportunities, including bankruptcy claims. The bank has also seen growing interest from hedge fund clients in crypto-related products, indicating a broader acceptance and curiosity in the market.

Future Plans for Digital Assets

Looking ahead, Goldman Sachs intends to expand its crypto offerings, including ambitious initiatives in the red-hot sector of tokenization. The bank’s focus on tokenization projects shows its dedication to staying at the forefront of digital asset innovation.

The bank confirmed it had seen growing interest from hedge fund clients in crypto-related products.

Goldman Sachs’ future plans include launching three tokenization projects, which could revolutionize how assets are managed and traded.

Industry Reactions to Solomon’s Comments

Expert Opinions

Experts in the financial world have mixed feelings about David Solomon’s recent comments on Bitcoin. Some believe that his acknowledgment of Bitcoin as a potential store of value is a significant shift. Others, however, remain skeptical, pointing out that Solomon has previously called Bitcoin a speculative investment.

Market Analysts’ Views

Market analysts are closely watching the impact of Solomon’s statements. Some analysts argue that his comments could lead to increased institutional interest in Bitcoin. On the other hand, some analysts caution that the volatility of Bitcoin still makes it a risky asset for traditional investors.

Public Perception

The general public’s reaction to Solomon’s comments has been varied. While some see it as a positive sign that a major financial institution is considering Bitcoin as a store of value, others remain cautious. The debate continues on social media platforms, with opinions ranging from enthusiastic support to outright skepticism.

The underlying technology behind crypto is “super interesting,” highlighting how progress can be made to take the friction out of the financial system as the system becomes increasingly digitized.

The Future of Bitcoin in Financial Markets

Potential Use Cases

Bitcoin’s future in financial markets is filled with potential. It could be used for everyday transactions, cross-border payments, and even as a store of value. Some believe it might replace traditional assets like gold. The possibilities are vast and varied.

Regulatory Challenges

The collapse of FTX has pushed Congress to consider new laws for digital finance. Current laws cover securities and commodities, but there’s a need for clearer rules for crypto. This is a big question: how will crypto be regulated in the future?

Technological Innovations

Bitcoin and blockchain technology are evolving. Central banks are exploring digital currencies and their impact on global payment systems. This technology could change how we think about money and finance.

The real question is how to regulate effectively in the new world. Today we have laws that deal with securities and commodities, but there is a need for further clarity and likely also new regulations.

In March 2024, BTC set a new all-time intraday trading high by breaking through the $69,000 level and even topping out at $73,000 before declining in price.

Interviews and Public Statements

CNBC Interview Highlights

David Solomon, the CEO of Goldman Sachs, recently shared his thoughts on bitcoin during an interview with CNBC. He mentioned that bitcoin could potentially be a store of value, similar to gold. This statement has sparked a lot of interest and debate in the financial community. Solomon’s comments come at a time when many are questioning the future of traditional assets and looking for alternatives.

Solomon’s Previous Public Statements

In the past, Solomon has been cautious about cryptocurrencies. However, his recent statements suggest a shift in his perspective. He has acknowledged the growing interest in digital assets and the potential they hold. This change in stance is significant, given Goldman Sachs’ influence in the financial world.

Media Coverage and Analysis

The media has been quick to pick up on Solomon’s comments. Various news outlets have analyzed his statements, with some experts agreeing with his views while others remain skeptical. The coverage has highlighted the ongoing debate about the role of cryptocurrencies in the financial system. Solomon’s remarks have certainly added fuel to the fire, prompting further discussion and analysis.

Technological Implications of Bitcoin

Blockchain Technology

Blockchain technology is the backbone of Bitcoin. It allows for secure, transparent, and tamper-proof transactions. This technology is super interesting because it can remove friction from the financial system. Central banks are exploring digital currencies and their impact on global payment systems.

Decentralized Finance (DeFi)

DeFi uses blockchain to offer financial services without traditional intermediaries. This can disrupt the financial ecosystem by providing more accessible and efficient services. DeFi is poised to change how we think about finance.

Impact on Traditional Financial Systems

Bitcoin and blockchain technology have the potential to disrupt traditional financial systems. They offer new ways to store value and conduct transactions. As the system becomes more digitized, the friction in financial transactions can be reduced, making the system more efficient.

Conclusion

David Solomon’s comments on Bitcoin highlight a growing interest in its potential as a store of value. While he remains cautious, acknowledging its speculative nature, he also sees promise in the underlying technology. As the financial world continues to evolve, Bitcoin and other cryptocurrencies might find their place as valuable assets. Only time will tell if Bitcoin will truly become the digital gold of the future.

Who is David Solomon?

David Solomon is the CEO of Goldman Sachs, a leading global investment bank.

What did David Solomon say about Bitcoin?

He mentioned that Bitcoin could potentially serve as a store of value.

What is a store of value?

A store of value is something that can be saved and exchanged in the future without losing its value.

How does Bitcoin compare to gold?

Both Bitcoin and gold can be used as stores of value, but Bitcoin is digital while gold is a physical asset.

What is Goldman Sachs’ stance on cryptocurrencies?

Goldman Sachs is exploring the potential of cryptocurrencies and blockchain technology.

What are some challenges Bitcoin faces?

Bitcoin faces regulatory challenges and technological hurdles as it continues to develop.

Bitcoin

Paul Krugman says “Bitcoin remains economically useless”.

Published

2 months ago

31 July 2024

Archie

Paul Krugman, a Nobel Prize-winning economist, has consistently criticized Bitcoin. In a recent article for the New York Times, he argued that even after 15 years, Bitcoin is still economically useless. He believes its primary uses are for illegal activities like money laundering and extortion. Krugman has been vocal about his views, often calling Bitcoin inefficient and a Ponzi scheme.

Paul Krugman believes Bitcoin is economically useless even after 15 years.
He argues that Bitcoin is mainly used for illegal activities like money laundering and extortion.
Krugman has labeled Bitcoin as inefficient and compared it to a Ponzi scheme.
He is skeptical about Bitcoin’s value and its role in the economy.
Krugman has criticized political figures for supporting Bitcoin, calling it a bailout for a harmful industry.

Paul Krugman’s Longstanding Criticism of Bitcoin

Historical Context of Krugman’s Views

Paul Krugman, a Nobel Prize-winning economist, has been a vocal critic of Bitcoin for many years. His skepticism dates back to at least 2018 when he wrote an op-ed while on vacation in Europe. During that time, he argued that Bitcoin set the monetary system back by 300 years, comparing it to the era when gold was the primary form of exchange. Krugman has consistently maintained that Bitcoin and other cryptocurrencies are economically useless.

Key Arguments Against Bitcoin

Krugman has several key arguments against Bitcoin:

Economic Uselessness: He believes that Bitcoin serves no real economic purpose and is only valuable due to hype and speculation.
Criminal Activity: Krugman argues that the crypto industry enables criminals and complicates transactions.
Vulnerability: He claims that cryptocurrencies prey on vulnerable people and operate like a pyramid scheme.
Environmental Concerns: The energy consumption of Bitcoin mining is another point of criticism.

Krugman has repeatedly trashed Bitcoin, calling it wasteful and niche, and he remains steadfast in his views.

Public Reactions to Krugman’s Criticism

Public reactions to Krugman’s criticism have been mixed. While some economists and skeptics laud his viewpoints, many cryptocurrency fans and investors strongly disagree. The debate continues, with prominent thinkers on both sides of the argument. Krugman’s stance has even drawn attention in political circles, with figures like Donald Trump and JD Vance’s pro-cryptocurrency stance facing criticism from economists like Krugman.

Bitcoin’s Alleged Economic Uselessness

Krugman’s Definition of Economic Usefulness

Paul Krugman has long argued that Bitcoin, even after 15 years, remains economically useless. He believes its primary uses are for illegal activities like money laundering and extortion.

Comparison with Traditional Currencies

Krugman often compares Bitcoin to traditional currencies, pointing out that while traditional money has clear economic functions, Bitcoin does not. Traditional currencies are used for everyday transactions, savings, and investments, whereas Bitcoin’s practical uses are limited.

Counterarguments from Bitcoin Advocates

Bitcoin supporters argue that it offers benefits like decentralization and financial freedom. They believe it can serve as a hedge against inflation and provide financial services to the unbanked. However, Krugman remains skeptical, questioning its real-world applications and long-term viability.

Bitcoin and Illegal Activities

Money Laundering Concerns

Bitcoin has often been linked to illicit activities. One of the main concerns is its use in money laundering. Criminals can move large sums of money across borders without detection, making it a preferred method for hiding illegal gains.

Extortion and Ransomware

Another major issue is the use of Bitcoin in extortion and ransomware attacks. Hackers demand Bitcoin as payment to unlock encrypted files, making it difficult for authorities to trace the funds. This has led to a rise in cybercrimes, with many victims left with no choice but to pay the ransom.

Regulatory Challenges

Regulating Bitcoin is a significant challenge for governments worldwide. Its decentralized nature makes it hard to control, and existing laws often fall short. Authorities are continually trying to develop new regulations to curb its use in illegal activities, but the fast-paced evolution of cryptocurrency technology makes this a daunting task.

The decentralized nature of Bitcoin makes it a tough nut to crack for regulators, who are always playing catch-up with the latest developments.

Environmental and Efficiency Issues

Energy Consumption of Bitcoin Mining

Bitcoin mining uses a lot of energy. The process of creating new bitcoins, known as mining, involves solving complex math problems. This requires powerful computers that run non-stop, consuming large amounts of electricity. Some argue that the energy used for Bitcoin mining could power entire countries.

Environmental Impact

The high energy consumption of Bitcoin mining has a significant impact on the environment. Most of the electricity used comes from fossil fuels, which release harmful gases into the air. This contributes to global warming and climate change. Critics say that Bitcoin’s environmental cost is too high for something that is not widely accepted.

Efficiency Compared to Other Financial Systems

Traditional financial systems are more efficient than Bitcoin. They can process transactions faster and with less energy. Bitcoin transactions require a complete history of past transactions, which makes them slower and more costly. In contrast, traditional systems can create money with a simple click, making them more practical for everyday use.

The enthusiasm for cryptocurrencies seems very odd, because it goes exactly in the opposite of the long-run trend. Instead of near-frictionless transactions, we have high costs of doing business, because transferring a bitcoin or other cryptocurrency unit requires providing a complete history of past transactions.

The Speculative Nature of Bitcoin

Bitcoin as a Speculative Asset

Bitcoin is often seen as a speculative asset. Its value depends entirely on self-fulfilling expectations. If people suddenly doubt its worth, Bitcoin could become worthless overnight. This makes it a risky investment.

Market Volatility

Bitcoin’s price can change a lot in a short time. This volatility can lead to big gains or losses. Some people have made huge fortunes by taking on the risk of investing in early-stage cryptocurrencies.

Impact on Investors

The speculative nature of Bitcoin can have a big impact on investors. While some get rich, others can lose everything. This makes Bitcoin a high-risk investment that isn’t suitable for everyone.

Bitcoin’s value can change quickly, making it a risky choice for many investors.

Political and Social Implications

Recent statements by Donald Trump and his vice presidential pick JD Vance supporting cryptocurrency have sparked debate in political and economic circles. While some see this as a strategic move to attract tech-savvy voters, others, like economist Paul Krugman, are criticizing the stance.

Democrats are taking notice of this shift. A group of two dozen Democrats recently wrote a letter to the Democratic National Committee, urging them to take a “forward-looking approach to digital assets and blockchain technology.” They argue that crypto and blockchain technologies could have a significant impact on election outcomes.

Krugman noted that crypto enthusiasts now see Trump as a key political ally. They successfully incorporated anti-regulatory stances into the Republican Party’s 2024 platform, opposing a Federal Reserve Digital Currency and calling for an end to what Democrats called “un-American Crypto oppression.”

Analyzing the crypto skepticism of high-profile economists and the Republican embrace. It’s no secret that in the world of economics, opinions on cryptocurrency are deeply divided.

Future of Bitcoin and Cryptocurrencies

The future of Bitcoin and other cryptocurrencies will likely be shaped by new regulations. Governments around the world are considering how to manage these digital assets. Some countries might adopt friendly policies, while others could impose strict rules. This regulatory landscape will play a crucial role in determining the stability and growth of cryptocurrencies.

Advancements in technology will also impact the future of Bitcoin. Innovations like the Lightning Network aim to make transactions faster and cheaper. These improvements could help Bitcoin become more widely used. However, the technology must continue to evolve to meet the demands of users and stay ahead of potential security threats.

The long-term economic impact of Bitcoin is still uncertain. Some experts believe it could revolutionize the financial system, while others think it might remain a niche asset. Notably, Cathie Wood, CEO of ARK Invest, predicted that Bitcoin could reach an astounding $1.48 million by 2030. The future will depend on how well Bitcoin can address its current challenges and adapt to changing economic conditions.

Paul Krugman’s stance on Bitcoin is clear: he believes it has no real economic value. Despite being around for 15 years, he argues that its primary uses are for illegal activities like money laundering and extortion. Krugman has consistently criticized Bitcoin and other cryptocurrencies, calling them inefficient and likening them to Ponzi schemes. While some people see potential in digital currencies, Krugman remains unconvinced. His views highlight the ongoing debate about the true value and future of Bitcoin in the global economy.

Who is Paul Krugman?

Paul Krugman is a Nobel Prize-winning economist and a columnist for the New York Times. He is known for his critical views on Bitcoin and other cryptocurrencies.

What does Paul Krugman think about Bitcoin?

Paul Krugman believes that Bitcoin is economically useless. He argues that its main uses are for illegal activities like money laundering and extortion.

Why does Krugman say Bitcoin is useless?

Krugman says Bitcoin is useless because it hasn’t achieved any meaningful economic role in the 15 years since it was introduced. He thinks it is mainly used for criminal activities.

How has the public reacted to Krugman’s views on Bitcoin?

Public reactions to Krugman’s views are mixed. Some people agree with him, while others, especially Bitcoin advocates, strongly disagree and provide counterarguments.

What are some of the environmental concerns related to Bitcoin?

Bitcoin mining uses a lot of energy, which has a significant environmental impact. Critics argue that this makes Bitcoin inefficient compared to other financial systems.

What does Krugman think about the future of Bitcoin?

Krugman is skeptical about the future of Bitcoin. He believes it will continue to face regulatory challenges and may not achieve a meaningful economic role.