The Gray Lady Vs. Bitcoin
Just what is money? The question was dormant for decades. Every college student was told money “is whatever government says it is.” Then, in the wake of the 2008 crash, the who or they known as Satoshi published a white paper and Bitcoin was born, opening the floodgates to a Hayekian competitive currencypalooza. Let the best government, bank, or crypto developer win.
This has Binyamin Appelbaum, lead writer on economics and business for The New York Times editorial board, worried to the point of penning a piece “Bitcoin Cosplay Is Getting Real.” Given that Satoshi’s work appeared a dozen years ago Appelbaum’s worry is a bit late, the crypto revolution has left the barn.
Most everyone reading this don’t give a hoot what Mr. Appelbaum writes or believes, and the Times is only relevant to those crypto enthusiasts who require material for the bottom of their bird cages.
However, currency luddites abound and still carry weight. After explaining that Bitcoin was,”designed to safeguard wealth against the depredations of inflation, public authorities and financial intermediaries,” Appelbaum stunningly writes, “Unfortunately, it doesn’t work. Some products become popular because they’re useful. Bitcoin is popular despite being mostly useless.”
The very day after the lead economics writer for the Times declared Bitcoin useless, Reuters reported, “Billionaire investors Steven Cohen and Ray Dalio have joined the cryptocurrency craze by putting cash to work and saying at a conference this week that bitcoin and other digital currencies are an interesting way to diversify their holdings.”
Then Appelbaum really gets over his skis. “It’s not really a virtual currency at all,” he writes. “It’s virtual gold, a vehicle for speculative investment made possible by some interesting technical innovations. It’s the absurd apotheosis of our financialized economy, an asset unmoored from any productive purpose. In the beginning were bonds and then synthetic bonds and then Bitcoin.”
So now not only is Bitcoin (and presumably all cryptocurrencies) useless, but downright dangerous ala synthetic collateralized debt obligations (CDOs).
In Appelbaum’s mind, gold is not money as it was for thousands of years, and in many places and circumstances still is, but merely useful only for speculation.
“The popularity of Bitcoin and its hundreds of imitators is also a product of understandable confusion and uncertainties,” the Times economics man contends. Attention HODLRS, your enthusiasm and knowledge is just plain old confusion.
“The supply of Bitcoin is capped by design, which is meant to prevent inflation. That doesn’t mean the value of Bitcoin is stable.” Who cares, as Hayek wrote, “Stabilization is chaos.” Appelbaum claims a fall in the bitcoin price would be equivalent to hyperinflation. But, that would require the creation of countless numbers of bitcoin, which Appelbuam himself says isn’t possible and is dangerous. The U.S. money supply has increased exponentially and Appelbaum is not only unconcerned, but considers the Federal Reserve the overseers of monetary probity.
By the way, the financial juggernaut, El Salvador, inspired Appelbaum’s piece. The tiny central American country, “is requiring businesses to accept Bitcoin, has promised to make it possible to rapidly convert it into real money.” Real money? Does he mean what El Salvador uses now as legal tender, the U.S., we-can’t-create-enough-of-it dollar?
Gold comes in for another beating when Appelbaum mentions, “The rigidity of Bitcoin’s design also makes it dangerously impractical as a replacement for national currencies. It is part of a long tradition of trying to prevent politicians from making bad economic policy decisions by preventing them from making any decisions. The gold standard is an older example of this disastrous concept.”
Disastrous concept?
“The rate of inflation was lowest, on average, under the gold standard,” Allan H. Meltzer and Saranna Robinson concluded in an National Bureau of Economic Research paper entitled “Stability Under the Gold Standard in Practice.”
Appelbaum complains that Bitcoin can be lost. I understand, I’ve lost a couple myself. It doesn’t mean they are gone forever. Gold coins can be lost, as can paper money, which can and is burned by the Treasury from time to time when deemed too worn.
It turns out the lead business writer was just warming up to crazy, “people using Bitcoin are basically a bunch of cosplay libertarians participating in a game of make-believe on the playgrounds of the nanny state.”
Institutional Investor reported last month, hard evidence confirmed that large investors were buying bitcoin in sizable blocks costing more than $30 million each and were indeed institutional investors. Cryptocurrency platform Coinbase, in “Its first-quarter report revealed that of the $335 billion in trades the company did in Q1 2021, $215 billion came from institutional investors.”
“Large investors are treating bitcoin like digital gold,” says Philip Gradwell, Chief Economist at Chainalysis. “We’re now seeing high inflation rates, and they’re buying and holding bitcoin as a hedge against inflation and an opportunity to diversify.”
Managers of large amounts of other people’s money can’t afford to play “libertarian” or “make-believe.” The nanny-state’s financial playground is being changed and institutional investors have woken up to that change. The The New York Times clearly has not.
