With recent mainstream support, the crypto craze could become the currency of the future… But does that contradict its underground roots?
My first real introduction to bitcoin was back in 2012.
I’d been following the cryptocurrency for a couple years, reading about it here and there… always intrigued.
And when I learned a New York City nightclub intended to accept bitcoin as payment – making it the first brick-and-mortar institution to ever do this – I knew it was big news.
I called my camera crew and hustled everyone over to the city’s industrial lounge EVR club on a rainy Sunday night so we could be there to witness bitcoin history.
This was the first time bitcoin was being accepted as payment in any kind of physical transaction and exchange.
It was revolutionary and super cool… except, of course, to the Feds… which the owner of the establishment quickly learned.
EVR’s proprietor was a 24-year-old entrepreneur named Charlie Shem.
A thoughtful and enthusiastic bitcoin pioneer, Charlie believed strongly in the Austrian school of economics – a form of economic thought that stresses the importance of the action of individuals.
When I interviewed him in 2012, it was clear to me that he had spent a lot of time thinking about the role of money and its value in our society. Charlie was one of the first to welcome the idea of a currency that was free from central-bank intervention.
He’s also had to take some lumps along the way… Charlie, who created the now-defunct BitInstant exchange platform as a kind of payment service, was tagged by the Feds for aiding and abetting unlicensed money transmission, and got two years in prison.
Despite attempts by governments around the world to regulate it, and its own massive fluctuations in value, bitcoin is still a major player and may grow even bigger in the coming years.
Bitcoin is a real headache for regulators. But interestingly, it’s still here. Despite attempts by governments around the world to regulate it, and its own massive fluctuations in value, bitcoin is still a major player and may grow even bigger in the coming years.
And these days, between the recent volatility of GameStop, AMC, and silver, bitcoin is now almost looking tame. (Almost…)
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As we go to print, the price of bitcoin is hovering near $50,000, with some analysts who are predicting it will become the latest investment bubble to hit Main Street.
Not so fast…
The bitcoin bulls make an important point about the crypto’s fundamentals,
arguing the technology behind bitcoin is so revolutionary that it could someday be the currency of the world.
The bitcoin bulls make an important point about the crypto’s fundamentals, arguing the technology behind bitcoin is so revolutionary that it could someday be the currency of the world.
Indeed, the chief investment officer of multibillion-dollar investment firm Guggenheim said this month in a television interview that his firm’s fundamental research suggests “bitcoin may climb as high as $600,000 per coin.”
Meanwhile, the cryptocurrency is increasingly going mainstream – with BlackRock, the largest asset manager in the world with $9 trillion (or nearly half the size of the entire U.S. economy) under management, also investing in bitcoin. In late January, the firm filed two statements with the Securities and Exchange Commission (“SEC”) stating that “certain funds may engage in futures contracts based on bitcoin.”
The popular insurance firm MassMutual revealed it’s tiptoeing into the space with a $100 million bitcoin investment.
Hedge-fund investor Anthony Scaramucci, perhaps best known for this 11-day stint as President Trump’s press secretary, is getting into the bitcoin space too. His firm SkyBridge Capital recently launched the SkyBridge Bitcoin Fund on February 1 with a $310 million investment. He told me he expects volatility in the space, but that, in the long term, his investment should pay off. In his words, bitcoin is THE cryptocurrency to watch. “It’s the Facebook to MySpace and the Google to Ask Jeeves,” he tells me. (You can listen to his entire interview with me in this American Consequences With Trish Regan podcast.)
And perhaps one of the biggest visionaries in the world today, Elon Musk, founder of Tesla, is also backing the currency. In an interview on the social app Clubhouse, Musk said he should have bought the currency eight years ago. “I’m late to the party,” Musk said, “but I am a supporter of bitcoin.”
Late he is… In 2012, bitcoin was considered volatile because it fluctuated between a low of $100 and a high of $1,200.
Almost a decade later, it’s now trading between $40,000 and $50,000.
But better late than never…
Tesla recently announced that it had spent $1.5 billion of its cash reserves buying bitcoin, and would soon start accepting payment for its electric vehicles in the digital currency.
Supporters claim bitcoin is a secure, sophisticated alternative to cash… that the government can never touch.
The critics, however, say otherwise… They point to the recent mania arguing it may be the digital equivalent of the Dutch tulip bubble made famous in the mid-1600s.
Critics argue the bitcoin craze is just that… a craze. The Financial Times summed up the critics’ concerns well, writing that…
To them, bitcoin is at best the tip of an iceberg of speculation unleashed by low interest rates. At worst they consider it an environmentally destructive, quasi-pyramid scheme with no real utility outside financing illegal activity. Or as one wag once bitingly described bitcoin: “Imagine if keeping your car idling 24/7 produced solved Sudokus you could trade for heroin.”
For skeptics, the endorsement of various celebrities – the actress Lindsay Lohan this week tweeted “bitcoin to the moon” next to a rocket ship emoji – only adds to the perception of bitcoin and other cryptocurrencies as fundamentally vacuous, and dominated by feckless promoters rather than serious financiers.
Well, they have a point on Lindsay Lohan…
That said, there is clearly an opportunity for some kind of digital future when it comes to our currency. But will it be bitcoin?
One could argue that its roots are in an alternative, almost anti-government, Libertarian culture being corrupted by mainstream Hollywood, mainstream tech, mainstream media, and even… mainstream financial institutions.
In some ways, institutional buying was never what bitcoin was intended for… One could argue that its roots are in an alternative, almost anti-government, Libertarian culture being corrupted by mainstream Hollywood, mainstream tech, mainstream media, and even… mainstream financial institutions.
Musk, BlackRock, MassMutual, SkyBridge… these guys are the newcomers.
But was their investment really what the cool kids intended?
Bitcoin has had a long and loyal following for almost a decade… a group that really believes in the product. And there’s an inherent quality about many of these individuals that they all seem to share…
None of them have much faith in government institutions. Most have a very independent, libertarian view of the world and our economy. And they gravitate to bitcoin precisely because it is out of the realm of government reach.
Bitcoin lacks a central banking authority, which means it’s very much a pureplay “peer to peer” kind of product. This gives it a mysterious, intangible kind of appeal. It’s like cash on the Internet… on steroids.
Bitcoin lacks a central banking authority, which means it’s very much a pure play “peer to peer” kind of product. This gives it a mysterious, intangible kind of appeal. It’s like cash on the Internet… on steroids.
But for how long can bitcoin’s ascent continue, given the regulatory environment in which we live? Bitcoin and other crypto currencies are, after all, a government’s worst nightmare because this is money that cannot be traced.
Mystery Doesn’t Equal Investing Confidence
Bitcoin has a very mysterious backstory… It’s said to have been created anonymously by “Satoshi Nakamoto,” but no such person exists. In 2014, Newsweek magazine thought that it had found Satoshi, printing an article called, “The Face Behind Bitcoin.”
I remember interviewing author Leah McGrath on my Bloomberg TV program at the time… She was convinced she had discovered the man behind bitcoin. He was a 64-year-old Japanese-American “who had done classified work for major corporations and the U.S. military.”
Newsweek was then contacted by the man’s lawyer who said he denied having any role in bitcoin.
Then, in 2016, CNBC broke with the news story “Australian entrepreneur says he invented bitcoin.” Australian entrepreneur Craig Wright claimed he was the true Nakamoto… Although, no one really believed him either.
There has been plenty of speculation that focuses on dozens of candidates but the identity of the creator is still unknown.
That said, it doesn’t really matter who Nakamoto is… It’s what he, or she, or they have done that’s so important. They accomplished a mathematical feat through the creation of a new form of money.
Bitcoin was officially born in 2009 and it utilizes the original blockchain database. Whoever the inventor, he succeeded in solving the “double-spending” problem for digital currency by using a peer-to-peer network. Double-spending is like counterfeiting… It’s a problem in which the same single digital token can be spent more than once. A cryptocurrency is a digital file that theoretically can be duplicated or falsified… unless one can rule out the double-spend issue. And this is exactly what was achieved with bitcoin.
Or so we hope.
Bitcoin recently plunged as word circulated of this potential “double-spend” issue. The day it happened, the term double-spend became one of the most searched on Google. Investors were frantically trying to figure out what it meant. It turned out to be a false alarm, but nonetheless, it raised the issue of whether or not the technology can be hacked. (And this also highlighted the reality that few fully understand the currency they’ve invested in.)
The hacking threat is a tough hurdle for an investor to get over. How do you have faith in a product that was created by someone, or some people, that we do not even know?
How do we know that the product isn’t vulnerable to hacking by the person who created it?
How do we know how much bitcoin is really even out there?
In fact, a little like (but obviously not like) gold, bitcoin is also “mined.” But these aren’t mines in the ground – but rather mines on the Internet.
Bitcoin can be mined, and therefore, accumulated by computers that complete challenging mathematical equations. Bitcoin’s supply is said to be limited and the more bitcoin that’s in circulation, the more challenging the mathematical equations become… thereby further limiting the supply of the currency.
While this may sound almost absurd… bitcoin believers point out something very interesting and perhaps quite true – why should we trust our central bank any more than these sophisticated algorithms?
Bitcoin Is the Ultimate Work-Around
Meanwhile, many investors point not to the currency itself but the technology behind bitcoin. It’s impressive, massive, and a real game changer.
It scares the heck out of government.
Think about it… The ability to transact easily, efficiently, and quickly with a new money online that doesn’t need to go through a credit-card payment system? The trades settle immediately, and it’s done via a peer-to peer system… something that is becoming increasingly relevant in the age of “cancel culture.”
Consider what recently happened to Parler. The popular social media app was just about to give Twitter a run for its money, when suddenly, and with barely any warning at all, it was taken off of Apple and Google… And then, Amazon put the nail in its coffin by pulling the plug on its server with barely any warning.
If Big Tech can do that to a company… if Big Tech can silence a sitting United States presidents’ social media accounts… then what could Big Tech do to the bank accounts of anyone it deems problematic?
Bitcoin may offer a work-around scenario in that an individual is almost anonymous (not completely because the Feds can still employ technology to trace transactions if they wanted to really do the due diligence) and bitcoin doesn’t risk the threat of a server pulling the plug given that it is all peer-to-peer technology.
I mean, look – if we had a total Blackout in a World War III scenario as I outlined in my American Consequences story last year, well then yes, it’s a whole other story… But the risk of a bank or a government or just an Internet provider wanting to shut down an individual is partly diminished through bitcoin’s peer-to-peer technology.
After all, there’s a reason that in challenged political economies like Venezuela, bitcoin has become increasingly popular.
And this is exactly why governments from here to China want to shut bitcoin down.
In China, authorities are trying to get ahead of the curve by creating their own digital currency – the digital yuan. They’ve even offered these digital yuan packets to communities in test projects. This enables people to have a certain ease of transaction while the government can still follow their tracks. A similar option is being discussed by the Federal Reserve here in the U.S.
So can regulators shut down bitcoin? And if so, how vulnerable would that make investors?
Another concern that bitcoin holders must consider is, can this really be considered a store of value when there’s no one there (i.e., a central bank) to help even out the fluctuations in the currency?
The reason the dollar works so well is because it tends to hold its value. Granted, that’s been rather debatable lately, especially as we consider the massive amount of money printing our government is engaging in, but nonetheless, an individual can transact efficiently in dollars.
But how does one transact in bitcoin when it’s clear that an individual may lose or gain massive amounts of money whenever they try to actually use the currency?
Imagine if you were to buy a car with bitcoin, and you paid $50,000 worth of bitcoin to the auto dealer. But then the following month, the value of bitcoin doubled from $35,000 a coin to $70,000 a coin… You just lost a lot of money on that car purchase by paying in bitcoin!
A currency needs to be steady in order to be used.
Ultimately, this may prove to be quite challenging for bitcoin. How can it really gain acceptance and be trusted if it’s susceptible to such violent swings?
Then again, maybe it doesn’t need to be accepted and widely used?
Perhaps bitcoin evolves so that it becomes more of what it is right now – a promise of the future. Like gold, which market bears argue has no intrinsic value, bitcoin will represent something… it will stand for something…
Trish Regan, Publisher for American Consequences, is one of America’s brightest and most recognized conservative economic thought leaders. An award-winning journalist, Trish is the host of American Consequences Podcast with Trish Regan, a weekly radio show dedicated to economic and political truth, as well as a columnist for several publications.