Frequently, Bitcoin enthusiasts complain that the uninitiated masses make false claims about Bitcoin. This is unequivocally valid. The author has rarely seen such a dismissive and lazy attitude towards something so consequential. For the most part, this post will ignore many of the outlandish claims that are just blatantly uninformed (“What if Satoshi Nakamoto decides to print more Bitcoin?”), and address misconceptions that come from both sides of the fence, including Bitcoin users.
1) Bitcoin will fail because it doesn’t have intrinsic value.
Who says this?: Hard money advocates.
Why is it false?: From a philosophical perspective I get surprised from time to time from where the dissidence originates. Lately, there has been a slew of pro-hard money libertarians who have rejected Bitcoin for one reason: that it is inferior to gold and silver because it does not have intrinsic value. What always struck me about this comment was that they would tack on “intrinsic value” to the long list of other values such as divisibility, fungibility, recognizability, scarcity (etc. you know that drill). However, it has been clear to me that the laundry list of features is the intrinsic value. I can think of a modern day analogy in which somebody says that cell phones are good because you can call your friends, receive important messages, check the weather, and they are useful.
2) Bitcoin will fail if people don’t use it to purchase goods and services.
Who says this?: Bitcoin advocates, normal people.
Why is it false?: This is incorrect by counter-example. Gold is an $8 trillion market and nobody uses it to buy anything. Merchant adoption may be sufficient to increase the utility of Bitcoin, but it is not necessary.
3) Bitcoin is in a bubble NOW.
Who says this?: Most people.
Why it may be false?: If you say that eventually it’s going to rain, you’ll be right. It doesn’t make you a meteorologist. A bubble caller doesn’t need to call the top, nor the bottom. But at the very least, a bubble caller has the onus to say that “at this level, Bitcoin’s price is a result of irrational exuberance.” Then, after the correction, if the price is lower than what you claimed it would be, you were correct. Sorry, but if Bitcoin goes from $250 straight to $1,000 then back down to $500, you didn’t call the bubble.
4) Bitcoin manipulation is rampant.
Who says this?: Some Bitcoin advocates.
Why is it false?: On the Bitcoin subreddit, there is a lot of talk of market “manipulation” for financial gain. I spent about half a day corresponding with those who make this claim, to try and understand the mechanics of this manipulation. According to them, at its essence, the playbook is to wait until there is a large spread between bid and ask prices, and then begin selling oneself small amounts of Bitcoin, progressively in the direction you would like to scare the market. If you want to cause a short panic, you start selling down; if you want to cause a rally, you buy up.
This tactic is extremely risky for two reasons. The first is that a large bid/ask spread is typically the result of recent, large-scale market activity, such as a 2,000 Bitcoin sell or a $500,000 buy. In the aftermath of either of these events will follow sharp short-term volatility, which will indiscriminately consume attempted manipulations whether up or down. The second is that manipulators must assume that there are people who are actively trading without looking at the market depth charts. This is a tenuous claim at best, and downright foolish at worst. Even the redditors who complain about the manipulation do so while looking at the depth charts. If it’s obvious to them that somebody is trying to influence the market up or down, then it’s obvious to other people as well. Despite the perception of Bitcoiner financial ignorance, most of them really aren’t that unsophisticated.
5) Bitcoin is a Ponzi scheme
Who says this?: People who have recently been introduced to Bitcoin.
Why is it false?: I wouldn’t include this misperception if I didn’t continue to hear it on a daily basis. In a Ponzi scheme, people are enticed to invest and promised incredible returns on their investments. Old investors are paid with new investor money. The scheme involves an enormous amount of deliberate deception, and is unsustainable without exception. Bitcoin promises no such returns. There aren’t even any people who could make such a claim since there is no Bitcoin company in the first place. On the contrary, most people are firmly warned against investing more than they can bear to lose by the Bitcoin community at large. Any Bitcoiner who benefits from rising prices is no different, ethically, than an early investor in Google or Apple.
6) Bitcoin will fail because it’s digital.
Who says this?: Regular people.
Why is it false?: Look around you! For the first time ever in the history of humanity we have unbacked fiat currencies in essentially every single country on earth. Do you use a debit or credit card? Do you use a bank? Do you think that the bank keeps your money in paper dollar stacks in the vault behind the wall? Of course not. Your money at the bank is just a digital entry on a bank’s ledger. Well over 90% of all US dollars are digital. You already use and, potentially, trust keeping your hard-won earnings in a digital format. Besides, Bitcoin can be held in physical format too. There are qualitatively no differences between Bitcoins and US dollars from a digital perspective.
So what do you think? Were you nodding along the whole time or do you have a different opinion? I encourage you to add your comments if there is a point you would like to emphasize or debate.