Bitcoin isn’t money. Money has 3 main functions:
- Store of value: you can set it aside to buy things in the future, not just today. Apples are not a good store of value, they rot.
- Medium of exchange: You can buy many goods and services with money. Apples are not a good medium of exchange. Most people will not sell you a car for a few bushels of apples.
- Unit of account: You can price any good or service with money. Most people don’t bother working out how many apples a day they are paid.
Other values might be: durability, portability, divisibility, uniformity, limited supply, difficulty producing more money, and acceptability.
Bitcoin does not perform the 3 main functions of money. It is not a good store of value. It is not a good medium of exchange. It is not a good unit of account.
Bitcoin as a store of value
If you were paid in Bitcoin in Nov 2021 for a day of work and tried to redeem your bitcoin for goods and services worth a day of work in Nov 2022, you lost 75% of your purchasing power.
Bitcoin as a medium of exchange
Bitcoin is not a medium of exchange. No one is selling anything for Bitcoin. Not even drugs anymore. You cannot buy a house with Bitcoin. You cannot pay your taxes with Bitcoin.
You can convert your Bitcoin to US dollars and then do those things.
Bitcoin as a unit of account
BTC not a good unit of account. No one prices anything in Bitcoin. It’s all priced in fiat. Even the Bitcoin Foundation pays their employees in BTC, but converts it from a standard US dollar annual salary.
Bitcoin as a Ponzi Scheme
A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. The
Bitcoin as an investment
Assets produce positive economic value. They either grow in value from capital appreciation (the rise in the market price of the asset) or from the cash flow the asset produces.
Bitcoin does not cash flow. It pays no rent. There’s no market for lending it out.
It absorbs tremendous amount of electricity to maintain the network.
Every argument is that more people will buy it. “line goes up”
It’s the gold bugs, sound money argument, and Austrian school economists who think the fix is in and the Fed controls the world.
Cryptocurrencies basically have no value and they don’t produce anything. They don’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem. In terms of value: zero.
Warren Buffett, 2020
I think it’s rat poison.
Charlie Munger, 2013
Probably rat poison squared.
Warren Buffett, 2018
I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shuffling out of your extra billions of billions of dollars to somebody who just invented a new financial product out of thin air.
Charlie Munger, 2021
To me, it’s just dementia. It’s like somebody else is trading turds, and you decide you can’t be left out.
Charlie Munger, 2018