The Rational Investor’s Case Against Bitcoin

Summary

In this Bigger Pockets Money podcast episode, host Scott Trench dissects Bitcoin's appeal and the fervor of Bitcoin maximalists. He explains Bitcoin's concept and the ideology behind it, then systematically critiques its potential as a long-term store of value, citing its deflationary nature, scalability issues, high transaction costs, and environmental impact. Trench asserts that Bitcoin is unlikely to replace traditional currencies, challenging the maximalist belief in its future dominance and suggesting a cautious approach to investing in it.

Takeaways

• 😀 The speaker, Scott, is going to explain what Bitcoin is and the thesis behind it, particularly from the perspective of Bitcoin maximalists, and then detail why he rejects this thesis.
• 💰 Bitcoin has a significant market capitalization, with each Bitcoin valued at around $65,000 during the recording of the podcast, and has passionate supporters known as Bitcoin maximalists.
• 🔑 Bitcoin maximalists view Bitcoin as a form of 'hard money' that can counteract the inflation they see as a major societal problem, drawing parallels to the historical use of gold.
• 🌐 Bitcoin is presented as a scarce digital resource, with a limited supply of 21 million coins, which aligns with the Austrian School of Economics' principles and the idea of a non-inflationary currency.
• 💡 The speaker admires the innovation behind Bitcoin and blockchain technology but philosophically disagrees with the maximalist view that Bitcoin will replace all world currencies.
• 🏦 Scott does not believe in the collapse of the US dollar or other major world currencies, and he sees Bitcoin's deflationary nature as a potential issue for a stable economy.
• 💼 He argues that Bitcoin has technical problems, such as high transaction costs and scalability issues, making it impractical for day-to-day use and a poor candidate for a global reserve currency.
• 🌿 Bitcoin mining's environmental impact is highlighted as a significant concern due to the immense amount of energy required, which could deter widespread adoption.
• 🔒 The blockchain's transparency, while beneficial for preventing fraud, also makes it easier for authorities to track illegal activities, contradicting the common belief that Bitcoin is an ideal tool for criminals.
• 📉 Scott's core argument is that Bitcoin has a high risk of a near or complete wipeout in the long run, and he recommends treating it as part of a speculative cash position, not a stable store of value.
• 🤝 The speaker invites rebuttals and debates on the topic, emphasizing that his views are personal and not representative of the Bigger Pockets community or its other hosts.

Q & A

What is the main argument presented by the host of the Bigger Pockets Money Podcast against Bitcoin?

The host argues that Bitcoin has fatal flaws that will potentially diminish its long-term value to zero, including issues with scalability, high transaction costs, environmental impact, and the lack of practicality for everyday use.

Why do Bitcoin maximalists believe in the potential of Bitcoin as a store of value?

Bitcoin maximalists believe in the potential of Bitcoin due to its scarcity, similar to gold, its deflationary nature, and the belief that it can serve as a hard money alternative to inflationary fiat currencies.

What is the host's stance on the future of the US dollar and its comparison to Bitcoin?

The host believes that the US dollar will remain strong and stable, and that he will continue to earn, spend, and pay taxes in dollars rather than Bitcoin for the foreseeable future.

What is the 'Bitcoin maximalism' philosophy as described in the podcast?

Bitcoin maximalism is a belief that Bitcoin will replace all other currencies as the world's primary form of money, due to its properties as a scarce, deflationary, and decentralized digital currency.

Why does the host disagree with the idea that Bitcoin could replace the US dollar or other major world currencies?

The host disagrees because he believes that Bitcoin has technical problems, is not practical for everyday transactions, and that major world governments are not likely to collapse or be replaced by a single global reserve currency like Bitcoin.

What are some of the environmental concerns associated with Bitcoin mining mentioned in the script?

Bitcoin mining consumes a significant amount of energy, which raises environmental concerns about its impact on the planet, especially when compared to more energy-efficient forms of currency.

What is the 'stock-to-flow' ratio mentioned in the context of Bitcoin, and why is it important?

The stock-to-flow ratio refers to the amount of Bitcoin currently in existence compared to the amount mined each year. It's important because a low ratio indicates scarcity, which is a key factor in Bitcoin's perceived value as a store of value.

What is the host's view on the scalability challenge of Bitcoin?

The host believes that Bitcoin's scalability challenge is a significant issue, as the high cost and limited capacity of the blockchain network make it impractical for processing the volume of transactions needed for day-to-day currency use.

How does the host address the volatility of Bitcoin?

The host points out that Bitcoin's high volatility makes it unsuitable for saving for short-term or medium-term financial goals, as its value can fluctuate wildly, making it a risky asset for such purposes.

What is the host's perspective on the blockchain technology beyond its use in Bitcoin?

The host agrees with Bitcoin maximalists that blockchain technology is primarily useful for the secure, decentralized ledger of Bitcoin transactions. He does not believe it is a useful secure decentralized application for anything else.

What is the host's final recommendation for those who still believe in Bitcoin's potential despite his arguments?

The host suggests treating Bitcoin as part of one's cash position, with a small allocation, understanding that it could go to zero or increase in value, but acknowledging the risk of a near or complete wipeout in the long run.