Background
A relatively unknown (in the mainstream) but well respected research firm at GoldFix and other reputable places released a controversial report recently comparing Gold’s utility to Bitcoin’s. We were lucky enough to see some of it. That report is the topic for discussion in this piece.
Reason 1: It Cannot Be Confiscated
The US Securities and Exchange Commission approval last week for bitcoin spot ETFs marked an important milestone for the cryptocurrency asset-class. Albeit, after bitcoin’s spectacular recent rally, the widely-anticipated ‘news’ was the trigger for some healthy profit-taking, which could run further. Even so, bitcoin is up by 160 percent since the start of last year, unwinding most of the losses through 2022, and making cryptocurrencies by far the best performing asset-class of 2023 (Chart 1).
Yet for anybody who is considering buying bitcoin or a bitcoin ETF, an over-arching worry lingers. Does bitcoin have intrinsic value? Many senior economists, politicians, and investors have answered with an emphatic ‘no’. Bank of England governor Andrew Bailey has warned:
“If you want to buy bitcoin, fine, but understand it has no intrinsic value. It may have extrinsic value, but there is no intrinsic value.”
Donald Trump has said:
“I am not a fan of bitcoin and other cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air.”
The unlikely paring of Andrew Bailey and Donald Trump are warning that if bitcoin has no intrinsic value, then it is really nothing more than an elaborate Ponzi scheme. Its value relies entirely on finding somebody else to sell to at a higher price. Or, as the late Charlie Munger put it:
“Bitcoin reminds me of Oscar Wilde’s definition of fox hunting: ‘The pursuit of the uneatable by the unspeakable.’”
Andrew Bailey, Donald Trump and Charlie Munger are wrong. Bitcoin does have intrinsic value. The important insight is that something’s intrinsic value comes not only from what you can do with it, but also from what you cannot do with it.
What you cannot do with bitcoin is confiscate it.
This is significant because throughout history, the state and institutions have confiscated our wealth. They have done so in three ways:
- Through monetary inflation, which confiscates the real value of our wealth by stealth.
- Through the failure of banks and other financial institutions that have custody of our wealth.
- Through the outright expropriation of our wealth as, for example, was suffered by European Jews in the 1930s
This is not to say that bitcoin cannot be stolen. If someone forces you, at gunpoint, to give them the keychain to your bitcoin wallet, they can steal your bitcoin. But it would be almost impossible for the state or institutions to confiscate everyone’s bitcoin in this way.
The state could ban bitcoin…