What Could Kill Bitcoin?

By Robert Murphy – LibertyChat.com Contributor –

As an economist, I have been fascinated by Bitcoin; you can read my introductory analysis here. Thus far my biggest focus has been on the possible incompatibility between Austrian monetary theory and Bitcoin. I lay out the issues in this talk, and I explain why I don’t think there’s a conflict in this earlier LibertyChat article.

In the present post, however, I want to talk about something more fundamental: For the Bitcoin critics who say it will eventually collapse, what is going to be the trigger? Before discussing this further, let’s review some of the earlier “calls” that Bitcoin had peaked. Below I draw on the compilation put together by the Satoshi Nakamoto Institute (named after the inventor of Bitcoin):

Niels van der Linden – April 22, 2011 ($0.77)

Amateur economist, VforVoluntary.com

Peter Schiff – June 20, 2011 ($17.50)

CEO, Euro Pacific Capital, Inc.

What [bitcoins] lack is their own fundamental intrinsic value. You can’t do anything with a bitcoin, other than trade it for something you want. So, intrinsically, the bitcoin itself has no value. It only has value as a medium of exchange so long as people are willing to accept it.

Tim Worstall – June 20, 2011 ($17.26)

Journalist

It’s difficult to see what the currency has going for it.

Wayback Machine

Adrian Covert – August 09, 2011 ($8.02)

Journalist

The lulz were abundant. But frankly, it’s time for you to go. Farewell.

Wayback Machine

Michael Calore – December 24, 2012 ($13.27)

Journalist

Then came the malware, the black market, the legal ambiguities and The Man. Today, you can’t even use it to buy Facebook stock

Wayback Machine

Patrik Korda – March 05, 2013 ($34.00)

Amateur trader

Thus, we have an answer before us: bitcoins are fiduciary media, or more specifically token money. From a monetary standpoint, as devised and formulated by Ludwig von Mises, they are on a par with the stuff you find at Chuck E. Cheese’s.

Wayback Machine

Heidi Moore – April 03, 2013 ($115.09)

Finance and Economics Editor, The Guardian US

Of course, in a rational world, none of that will be written, except perhaps as satire. Bitcoin’s crash is less of a currency crisis than an opportune moment for internet wisecracks.

Wayback Machine

Robert McMillan – May 10, 2013 ($115.48)

Journalist

But in the end, the answer was obvious. The world’s most popular digital currency really is nothing more than an abstraction. So we’re destroying the private key used by our Bitcon wallet.

Wayback Machine

David S. Evans – October 16, 2013 ($137.54)

Chairman of the Global Economics Group

I think there are two realistic directions the bitcoin ecosystem could go in. First, it could just implode and disappear if governments decide that virtual currencies cause too much harm and are too hard to regulate. Long-term investments in bitcoin would then go up in smoke. Second, it could continue as a virtual currency that is only used on the dark web with exchanges that are run by people willing to break the laws. The value of bitcoin would decline to whatever the illegal sector could support; regular investors wouldn’t be able to get their value from bitcoin unless they cashed it in with someone who wanted to do bad things.

Wayback Machine

Emin Gün Sirer – November 03, 2013 ($214.13)

Professor, Cornell University

“You heard it here first: Now is a good time to sell your bitcoins.”

Joseph Weisenthal – November 06, 2013 ($264.61)

Executive Editor, Business Insider

Bitcoin? Nada. There’s nothing keeping it being a thing. If people lose faith in it, it’s over. Bitcoin is fiat currency in the most literal sense of the word.

Wayback Machine

Incidentally, I cut off the above list at the point when someone made a prediction when Bitcoin was trading at about half of its next low:

In other words, the compilation you’ll find at the link above has further disparaging quotes about Bitcoin, but these later critics could plausibly say they have thus far either been proven right, or at least are not that wildly off the mark.

But in total contrast to the latter critics, the people who were saying Bitcoin was now dead in reference to some pullback when it was trading for less than $20, clearly didn’t have a handle on the situation.

My question for the Bitcoin skeptics is this: If you think the whole thing is a giant hoax and that it’s in a massive bubble—which is bound to eventually zoom to $0—what event could possibly be more calamitous than “one of the biggest heists in history” when Mt. Gox blew up?

As the price chart above shows, the Mt. Gox scandal definitely smashed down the price, but then it stabilized and is now trending back upwards. Isn’t that a bit odd for people who think the whole thing was a giant Ponzi scheme that just needed a cold bucket of reality to make it come crashing down?

Let me be clear that I’m not asking the above questions sarcastically. Further, I am not telling people that Bitcoin will be a “good investment” over the next 12 months. No, I am simply wondering what could possibly get people to abandon Bitcoin, if the well-publicized thefts in recent months haven’t done so?

I would like the Bitcoin critics to be specific in their answers. For example, if the response is, “Government crackdown,” then explain what they are going to do that is, say, worse than what they do to cocaine dealers? And why would the crackdown on Bitcoin (since a sizable segment of the population currently uses it) be more successful than the crackdown on cocaine?

In closing, let me agree with the critics that a worldwide effort by governments to stamp out Bitcoin could prevent it from becoming a genuine money; large-scale merchants would be afraid to accept it openly and so forth. But unless Bitcoin is replaced by an even better crypto-currency, I don’t see what would make the demand for it go to zero.

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More articles from Robert Murphy:

“Persuasion is more powerful thank violence”

“Still No Crash: Were Austrian Economists Wrong about the Dollar?”

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