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.

Outlines

00:00

🤔 Skepticism of Bitcoin's Future Value

The speaker, Scott, introduces his stance on Bitcoin, expressing skepticism about its long-term value and rejecting the Bitcoin maximalist view. He outlines his intention to dissect the Bitcoin thesis and present reasons for believing that Bitcoin has fatal flaws that could potentially devalue it to zero. Scott acknowledges the passion of Bitcoin enthusiasts but counters with his professional understanding and rejection of it as an investment.

05:00

💰 Bitcoin as a Digital Currency and Its Maximalist Appeal

Scott delves into Bitcoin's characteristics as a digital currency, highlighting its market capitalization and the fervor of Bitcoin maximalists. He discusses the concept of hard money, the belief in Bitcoin's resistance to inflation, and the historical context of gold as a store of value. Scott also explains the Bitcoin maximalist perspective on the scarcity of Bitcoin, drawing parallels with gold, and the ideological underpinnings of decentralization and the Austrian School of Economics.

10:02

🏦 Critique of Bitcoin's Practicality and Technical Issues

The speaker criticizes Bitcoin's practicality for everyday transactions due to its high transaction costs and scalability issues. He points out the challenges of maintaining the blockchain's security post-mining and the potential consequences of deflationary currency on economic behavior. Scott also addresses the volatility of Bitcoin and its limited acceptance, suggesting that these factors make it unsuitable for most financial purposes.

15:04

🌍 Environmental and Global Acceptance Concerns

Scott raises environmental concerns regarding Bitcoin mining's energy consumption and questions the global acceptance of Bitcoin as a currency. He argues that the volatility and regulatory challenges associated with Bitcoin make it an impractical choice for payments and taxes. Furthermore, he highlights the impracticality of Bitcoin for short-term savings goals due to its price fluctuations.

20:05

🔄 The Illusion of Trustless Transactions and Decentralization

The speaker disputes the notion of a trustless marketplace facilitated by Bitcoin, emphasizing that trust is still a fundamental component in transactions. He also challenges the idea that Bitcoin can prevent economic booms and busts or resolve issues with fractional reserve banking. Scott suggests that the lessons from past financial systems are being repeated in the cryptocurrency markets.

25:07

📉 Analysis of Bitcoin's Performance and El Salvador's Experiment

Scott scrutinizes Bitcoin's performance, highlighting its infinite Sharpe ratio due to its growth from zero, and the lack of endorsement from its all-time high valuation. He references El Salvador's adoption of Bitcoin as legal tender, pointing out the low usage and the challenges faced, which do not support the maximalist's vision of global adoption.

30:08

🔒 Bitcoin's Transparency as a Double-Edged Sword

Contrary to popular belief, Scott explains that Bitcoin's transparency and immutability make it an ineffective tool for criminals, as it allows for easy tracking by government agencies. He also reiterates his belief in the long-term value of Bitcoin being zero and advises potential investors to consider Bitcoin as a speculative part of their cash holdings, acknowledging the risks involved.

📻 Closing Remarks and Invitation for Debate

In his closing, Scott thanks the audience for their time and reiterates his personal stance on Bitcoin, distinguishing it from the views of Bigger Pockets or its other hosts. He expresses openness to rebuttals and debates, emphasizing that his views are based on extensive research and understanding of the subject.

Keywords

💡Bitcoin

Bitcoin is a decentralized digital currency that operates on a peer-to-peer network without the need for intermediaries like banks. It is the central subject of the video, with the speaker discussing its potential as a store of value and its limitations. The speaker mentions Bitcoin's market capitalization, its value at the time of recording, and the concept of Bitcoin maximalists who believe in its superiority over fiat currencies.

💡Bitcoin maximalist

A Bitcoin maximalist is an individual who strongly believes in the potential of Bitcoin to become the dominant form of currency, often to the exclusion of other cryptocurrencies or investment options. In the script, the speaker describes their interactions with Bitcoin maximalists and challenges the maximalist perspective on Bitcoin's future role in society.

💡Inflation

Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. The speaker discusses how Bitcoin maximalists view inflation as a significant societal problem and how they believe Bitcoin, as a deflationary currency, could be a solution.

💡Hard money

Hard money is a type of currency that has intrinsic value and is not subject to inflation, such as gold or, according to Bitcoin maximalists, Bitcoin. The speaker explains that Bitcoin is considered 'digital gold' by its proponents because of its scarcity and the belief that it can preserve and increase in value over time.

💡Scarcity

Scarcity, in the context of the video, refers to the limited supply of Bitcoin, capped at 21 million units. The speaker uses the concept of scarcity to discuss why Bitcoin is seen as valuable and how it contrasts with fiat currencies that can be printed in unlimited quantities.

💡Stock-to-flow ratio

The stock-to-flow ratio is a measure used to evaluate the scarcity of commodities, including Bitcoin. It compares the existing quantity of an asset (stock) to the amount of new supply (flow) that will be brought in over a certain period. The speaker mentions this ratio to emphasize Bitcoin's limited supply and its potential impact on value.

💡Decentralization

Decentralization is a core concept in the video, referring to the distribution of authority and power away from a central location or entity. The speaker discusses the appeal of decentralization in Bitcoin and blockchain technology, suggesting that it could lead to more equitable financial systems and resist government control.

💡Blockchain

Blockchain is the distributed ledger technology that underpins Bitcoin, allowing for secure and transparent transactions without the need for a central authority. The speaker explores the strengths and limitations of blockchain technology, particularly in relation to its use for Bitcoin transactions and its potential applications beyond currency.

💡Proof of work

Proof of work is the consensus mechanism used by Bitcoin to secure transactions and maintain the integrity of the blockchain. The speaker explains how this process requires significant computational power and is rewarded with new Bitcoins, contributing to the security and energy consumption concerns associated with Bitcoin mining.

💡Scalability challenge

The scalability challenge refers to the limitations in the ability of a system, such as Bitcoin's blockchain, to handle a growing amount of transactions. The speaker points out that the high cost and limited capacity of Bitcoin transactions make it impractical for everyday use, contrasting with the vision of Bitcoin as a widely used currency.

💡Environmental concern

The environmental concern highlighted in the video relates to the significant energy consumption required for Bitcoin mining. The speaker argues that this aspect of Bitcoin could deter widespread adoption due to the potential negative impact on the environment and the sustainability of such practices.

Highlights

Bitcoin maximalists believe in the thesis that Bitcoin is a form of 'hard money' similar to gold, resistant to inflation.

Scott, the host, rejects Bitcoin as an investment, despite understanding and respecting its underlying principles.

Bitcoin's market capitalization is highlighted, with each Bitcoin valued at around $65,000 at the time of recording.

The speaker emphasizes the importance of gold as a historical precedent for understanding Bitcoin's value proposition.

Bitcoin maximalists argue that Bitcoin is superior to gold due to its digital nature and divisibility.

Decentralization and the avoidance of government control are core to the Bitcoin ideology.

The speaker doubts the long-term viability of Bitcoin due to its potential technical flaws and scalability issues.

Bitcoin transactions are criticized for being expensive and impractical for everyday use.

Volatility of Bitcoin is presented as a significant barrier to its use as a stable store of value.

Environmental concerns related to Bitcoin mining and its energy consumption are discussed.

The speaker challenges the notion that Bitcoin is a haven for criminals due to the transparency of blockchain transactions.

El Salvador's adoption of Bitcoin as legal tender is critiqued as not being widely accepted or successful.

The argument is made that Bitcoin's current valuation does not endorse its future potential but rather indicates risk.

The speaker suggests treating Bitcoin as part of a cash position with the acknowledgment of its potential to go to zero.

The podcast concludes with an invitation for rebuttal and debate on the topic of Bitcoin.

Transcripts

in this episode of the Bigger Pockets

money podcast I Scott one of our hosts

am going to describe exactly what

Bitcoin is what the thesis behind

Bitcoin is that is driving the

zealousness that you may have seen from

Bitcoin maximalists I'm going to break

that down and inform you about why I

reject it piece by piece and I'm going

to go through an exhaustive list of

items about why Bitcoin has a fatal

flaws that I think will potentially take

his long-term value to zero stay tuned

and let's get into it Bitcoin has a huge

market capitalization it's got like $1.3

trillion doll in market capitalization

each Bitcoin individual Bitcoin is now

worth about $65,000 at the time we're

recording this video and Bitcoin people

Bitcoin maximalists as I'll refer to

them through the rest of this uh

recording here um really have a passion

for it and that passion in many cases

leads to a total lack of Tolerance

empathy and almost an aloof um

overconfidence when discussing the

subject among other people I noticed in

a recent Facebook uh thread that when I

said hey I actually uh don't invest in

Bitcoin because I understand it um a lot

of Bitcoin people were like uh politely

but kind of kind of aloofly incredulous

like oh really you did your homework and

understand Bitcoin I I don't think so I

don't think you fully understand it if

you're not investing in it and I'm like

guys I understand it and I reject it I'm

not like some uh ignorant guy who hasn't

done my homework but this I considered

it part of my profession and my career

to understand these concepts of personal

finance and today I'm going to lay down

my view on why I don't like Bitcoin and

just to couch that again like am I like

against it philosophically no we've had

Dr saine amus on the Bigger Pockets

money podcast episode 371 he is the

author of the Bitcoin standard

fascinating I love learning about

Bitcoin it's an awesome experiment it's

an awesome thesis in what money ought to

be um I think there's a lot of things to

really empathize with and admire about

the people who invest in Bitcoin and the

experiment that is Bitcoin uh and the

blockchain and their special symbiosis

so I really looking forward to getting

into it and um obviously you can tell

I'm very passionate about the subject

bit Bitcoin is a digital currency it is

intended to be a form of what Bitcoin

maximalists or people who subscribe to

the Austrian School of Economics um call

hard money um so the the rationale at

the highest level is uh a Bitcoin

maximalist will believe that inflation

is a prime evil in today's society

inflation eats away at the um uh the the

earnings or the the the wealth created

by lay people who are not investors for

example right if you just hoard dollars

you know they're going to be worth at

probably at least 2% less every year and

many Bitcoin maximalists will argue

it'll be worth much less per year and

that inflation um rates are are vastly

understated um Bitcoin maximalists will

talk about how hard money has benefited

societies for Millennia they'll point to

the fact that societies that have used

gold for example um which they believe

is a form of hard money um have

benefited greatly from the fact that the

people were able to preserve their

wealth and that um eras where gold was

money um were really kind of Golden Ages

for Human Society so what makes gold a

hard money and I think that gold really

understanding gold is absolutely

critical to understanding the Bitcoin

thesis by the way gold is hard money in

the sense that you can't create a lot of

it um people have tried to create gold

for Millennia through the practice of

alchemy which has failed over and over

and over and over and over again gold is

an element so it cannot be created or

destroyed gold never rusts or decays so

it can be it can infinitely preserve

value gold is very easy to melt and

smelt into small components or bring

together and make into um um um you know

coins or bars or other things there it's

it's because it's so rare and small It's

relatively easy to transport and store

so in a lot of ways gold is this ideal

form of money and civilizations over the

Millennia have agreed with this thesis

that's why gold has been such an

important form of money for so long uh

throughout history and other forms of

money have kind of come and gone over

those time periods so what Bitcoin

maximalism is is Bitcoin maximalists

believe that Bitcoin is is almost like

digital gold it's a it's the it's a a

version of gold but better for the 21st

century and beyond Bitcoin is a scarce

resource only 21 M Bitcoins can ever be

mined uh in a long-term future state so

that creates an inherent scarcity like

gold Bitcoin also has a very limited

stockto flow ratio right so there's

certain amount of Bitcoins that are in

existence today and only a small

percentage of them about one or two% per

year will be mined over the next 100 you

know 140 years um according to coin

optimists until the last one is mind so

that's going to create a low flow of

these coins um and make it very hard for

there to be an increase in Supply and

Bitcoin maximos will contrast this

scarce resource with uh fiat currency

like the US dollar and say hey the

Federal Reserve can print money at a

whim right and if the federal deficit

goes up the temptation to print money

and inflate the way out of government

problems is going to be very high and

the dollar is going to go down and down

and down and down and down and people

will turn to bitcoin and that this will

happen one Society after another um

these governments are going to out print

uh or print their their currencies uh

print too much money and their currency

their value of their currencies will

inflate and people will turn naturally

to a much better alternative like a gold

although Bitcoin maximist believe that

Bitcoin is the answer here um another

component to bitcoin that um Bitcoin

Maxim must think is really critical is

these folks are often grounded in this

very libertarian school of thought so

Austrian School of Economics

libertarianism these folks believe that

decentralization is better and again I

empathize with some of these things like

there's lots to like here like I think

that I I you know I'm sure many of my

friends are Bitcoin Ma I know many of my

friends are Bitcoin ma maximalists um I

would love to have discussions about

these types of things and probably would

agree on many of these issues but the

central tenant of decentralization is so

critical to the Bitcoin thesis and its

special symbiosis with the blockchain

like there's a finite supply of Bitcoins

that can ever be mined like gold Bitcoin

is going to be very expensive and

difficult to mine very limited stock to

flow ratio Bitcoin like gold Bitcoin can

be broken out into tiny increments 100

million Satoshi make up one Bitcoin so

you can divide Bitcoin by up to 100

million um making it a very powerful um

uh theoretical option for everyday

transactions for example now unlike gold

and better than gold a Bitcoin Maximus

will argue um Bitcoin has the added

advantages of being able to be

transacted digitally and they it that

digital transaction takes place on a

remarkably immutable secure and

transparent Ledger called the blockchain

which a Bitcoin maximalist by the way

believes is a special purpose-built

technology exclusively for Bitcoin

Bitcoin maximalists actually are not big

fans of blockchain technology which

people may have heard who are unfamiliar

with this as like this Saving Grace for

all these other applic

Bitcoin Max must believe that blockchain

technology is only um valuable for the

application of Bitcoin and don't worry

I'll get into the blockchain later on

this and we'll ND out uh plenty more as

we get going here on that so this leads

us to our core thesis right um Bitcoin

maximalism believes that governments and

societies that use fiat currency today

will one by one succumb to the

temptation to inflate their way out of

their problems and will and the people

of those societies will turn to a better

form of money these governments and

societies be forced one by one to adopt

Bitcoin as hard money and in the not so

distant future Bitcoin will be money for

most or all people in the world so a

Bitcoin maximalist literally believes

the long-term value of Bitcoin is

essentially that of all of the world's

outstanding currency it will replace all

dollars all you want all Euros all Yen

every other currency you can imagine and

that means to that leads to a long-term

market cap of tens of trillions of

today's dollars uh maybe hundreds of

trillions of dollars in future value

right um uh future inflated uh dollar

there and what's more these Bitcoin

maximist believe that this is good for

society that the common person is going

to experience experience like

unimaginable wealth and benefits from

this trans this transition that

innovation's going to flourish the

econom is going to stabilize and that

without inflation to worry about the

common people are going to consume less

leading to happier more productive and

more sustainable living they think that

governments will be forced to enter into

sustainable fiscal policy policy as a

result of this change spending less than

they take in and that those that can't

are going to dissolve and reform so like

that's the thesis right Bitcoin Maxim

Must Believe invest in Bitcoin watch the

man collapse make a nearly infinite

return and do good for society and

what's more it's like that's awesome

right it's a great thesis it's a great

it's admirable it's cool right it's

libertarian and I completely respect the

intention I admire the detail and

thought and intricacy of Satoshi

Nakamoto the inventor of Bitcoin and

it's just fun to learn about and talk

about this experiment in the path to

perfect money long term so I just want

to couch that there's no evil there's no

like bad intent there's no lack of

intelligence Bitcoin maximalists are

zealous but they're not like evil

they're not manipulating other people

they truly believe in this thesis first

at the end of the day Bitcoin is

intended to be a store of value a

digital currency money I'm an investor I

don't invest in currency I keep the very

minimum amount of currency that I need

to secure my short-term liquidity needs

and to sleep well at night and then I

invest the rest in cash flowing assets

like real estate stocks businesses um

and other p uh debt or other private um

opportunities even in a world with truly

perfect hard money that was deflationary

I would put my Capital to work trying to

create real inflation adjusted wealth

not by it stored in Bitcoin and allow it

to collect digital dust

second I believe in the United States

its people economy and Military I do not

believe that it or its currency are

going to collapse or decline in a

relative sense in my lifetime I believe

that I'm going to earn spend and pay

taxes with dollars not Bitcoins for the

duration of my entire life and not only

that but I believe that this will be

true for everyone I know for all my kids

for all of their future descendants for

many generations I have and will

continue to happily bet against anybody

who wants to take the opposite stance

and believe that believes that the us is

going to fall and I'll do that by

passively investing in low fee index

funds if I do that I believe I'm going

to passively absorb the wealth of almost

everyone who invests in Bitcoin or

otherwise predicts doomsday and the

decline of Western civilization in the

United States third if I believed that

the United States government and US

dollar was going to collapse or decline

materially on the world stage I'd invest

in a bunker guns and ammo canned corn

and other resources like that not

Bitcoin fourth if I did believe that the

government of the United States would

col and the US dollar would collapse

without ending my way of life as I know

it I'd bet on another government

controlled currency or future

cryptocurrency replacing the dollar

fifth I believe that Bitcoin maximalists

missed the fact that Bitcoin as a

potential theoretical future currency

has fatal flaws that make it an

extremely unlikely candidate in the

extremely unlikely event that the world

does adopt a future Reserve currency

Bitcoin has huge technical problems and

I think that a future iteration of

Bitcoin namely a future cryptocurrency

um that does not exist yet will likely

resolve those issues okay let's use like

I I Bitcoin maximalist challenged me on

this thesis the other day and they said

like look at the British Empire it has

completely faded it used to span the

whole world and I'm like this is a

terrible example of this is like this is

like perfectly fitting into my my

rationale here the Great British pound

has been used since 760 ad so that is

almost what 1,300 years of continuous

use of a government currency over that

that time period some of it that some

during some of that it was backed by

gold during some other times it wasn't

but like that currency has survived and

so is that government if you are a UK

resident you have lived your life and uh

using Great British pounds uh for the

entire time you will probably um

whenever you pass away you will your

estate will still be using Great British

pounds and your children their

children's children will probably

continue to be using those I believe

that's the same general state of of

United States the United States also if

we really want to get into it I think we

have a lot of advantages we have a ton

of problems but every every problem and

Advantage is relative on the world scale

we have a tremendous amount of abundant

natural resources here compared to other

large um countries around the world our

population segment is really stable we

have plenty of young people compared to

places like China Japan Western Europe

those areas we have immigration people

want to move to the United States from

all around the world so whenever we

decide how we're going to handle

immigration we can we can we will have a

flow of people who want to be here and

make their lives here um so those are

not trivial uh advantages and like yes

we have problems we can't agree on

anything our government spends more than

it brings in um but we have um again

this very stable um this very stable

resource base and population base we

also have the world's strongest military

so it's like where what what other

country would you rather bet on long

term it hasn't been profitable to bet

against the United States for the last

50 years and I don't think it's going to

be profitable to bet against the United

States in the next 50 years and look

people are going to disagree with that

that's totally fine but don't call me

and the people who invest in stocks US

Stocks us real estate ignorant because

we don't believe that the United States

is going to collapse I'm just happy to

bet against you I'm happy to bet against

somebody who thinks that the world is

going to collapse or Western

Civilization is going to collapse and I

believe I'm going to passively absorb

your wealth over that time period so

Bitcoin is not just a potential store of

value it would actually be deflationary

in a long-term sense perhaps

significantly so so if like if the

vision of a Bitcoin maximalist was

realized remember that Bitcoin Supply is

ultimately finite according to bitcoin

optimists who believe that it will be

adopted as a world Reserve currency the

last Bitcoin will be mined in

2140 so once they're all mined the only

thing that can happen is for the supply

to decrease and like

people will guard their precious

resources in in this future hypothetical

state where Bitcoin has taken over and

the last one has been mined um very

jealously but still people will die

people will lose their keys that store

the information about how to access and

transmit Bitcoin and so the the the

supply will actually shrink over a long

period of time and that is going to

compound this deflationary problem of no

more mining no more bit no more Bitcoins

being mined um here I'm not aware of any

Democratic or capitalistic civilization

that has endured with a deflationary

currency over a long period of time

because if you truly do have a

deflationary currency it says that the

best thing you can do is to hoard that

currency and not to invest in assets and

other things because the the currency is

what's going up in value that creates

huge problems here o over a long period

of time I also want to call out that the

incentive to mine Bitcoin the um um uh

this act of securing the blockchain that

is so critical um and goes so hand inand

with the the Bitcoin thesis where is the

incentive to continue expending this

computing power on an individualized

basis once the last Bitcoin is mined so

there's an endgame problem here for

Bitcoin um that you know there's the

various theories on how to solve um but

I'm skeptical of at a certain point and

I think that we're going to see that

problem emerge uh as Bitcoin mining um

as as haling events happen for Bitcoin

mining okay second Bitcoin transactions

are super expensive and impractical for

day-to-day use so this is called the

Bitcoin scalability challenge um and

basically the problem is that because

the blockchain requires so much

computing power to secure transacting

Bitcoin is fairly expensive it actually

costs about $1 to3 do to make a

transaction on the blockchain um here

and so the world does not possess and

will not possess for the foreseeable

future enough computing power for the B

the blockchain to process anywhere near

enough transactions to allow Bitcoin to

be used as day-to-day currency so if

Bitcoin was widely adopted the price to

transac Bitcoin would

Skyrocket now the community has proposed

and implemented various solutions to

this problem Each of which has pros and

cons but true decentralization and mass

Payment Processing are still a long way

off for Bitcoin um for Bitcoin users if

it ever comes despite these increasingly

clever clever mechanisms and then I also

want to call out there's another problem

here where like why why was the world

able to move off of a gold standard in

the first place right well what happened

here is the US government bought and and

World governments basically bought a lot

of gold and then used that gold to back

their currencies and then move their

currencies to Fiat

right that same scenario there's nothing

that would exist to prevent governments

from purchasing Bitcoin from their

people in the event that and then moving

it back to a fiat currency at some

future State Bitcoin has no has well has

no solution for that particular problem

okay next up Bitcoin is Not Practical

for most purposes going forward so

Bitcoin is super volatile right now and

is going to remain very volatile even

according to bitcoin optimists for the

foreseeable future that means that

unless you're really bold you're not

going to put your down payment for your

next house and buy Bitcoin to save up

for that you're not going to buy Bitcoin

to save up for your kids college fund

you're not going to pay save up Bitcoin

to buy Bitcoin to save up for your next

vacation because of that volatility you

can't save for a near-term or objective

that you know you need that liquidity

for um in the next couple of years um

again unless you're very bold very few

people are going to do that SEC second

another one here is that Bitcoin is not

widely accepted for payments or goods or

services like I'm not going to accept my

salary in Bitcoin um and I cannot easily

use Bitcoin to purchase goods or

services or pay my taxes to the US

government of again I'm a US citizen um

the people who do uh choose to accept

Bitcoin as a form of payment often have

problems with this right so like if you

receive payment in Bitcoin uh in 2024

for example that's worth a million

dollars and by the time you go to pay

taxes in 2025 that Bitcoin is worth

$500,000 you have a real problem on your

hands um from a liquidity perspective so

a lot of people have come into this

problem in years past another problem

with Bitcoin Bitcoin is a huge

environmental concern Bitcoin mining

consumes an incredible amount of energy

um and a large portion of the world's

population is not going to to be aligned

with adopting a currency with such large

environmental consequences so while a

small fragment of Libertarians who again

we can empathize with and admire in some

cases um May love this concept of

decentralized currency many more people

are unlikely are are likely to be like

no we're not going to expend a

ridiculous amount of computing power um

to stabilize our currency um we're we're

comfortable with some centralization for

this again a lot of these issues are

solvable in future state cryptocurrency

iterations so a bet on bitcoin is also a

bet against some future invention

solving many of the issues that I just

discussed so yes you can make some

software updates and other variations to

the blockchain to mitigate some of these

issues but there's always going to be an

easier Perpetual flow of better

theoretical alternatives to Bitcoin in

my opinion I'll keep going here I also

think that there's just no such thing as

a truly trustless Marketplace so even

when I transmit Bitcoin to someone on

the Block chain I'm trusting them to

deliver whatever good or service if I

want to buy a pizza on the blockchain

I'm trusting somebody else to deliver me

that pizza after I transmit Bitcoin

somebody has to enforce that contract

that's a centralized government um that

has physical power so this like true

decentralization Vision I think is

unlikely to be ever realized in there

Bitcoin also does not prevent contrary

to what Bitcoin maximalist will say the

booms and bust of modern economies or

resolve the problems of fractional

Reserve banking please look up

fractional Reserve banking I would love

to explain it but that would take us

down a big rabbit hole um here you can

perform fractional Reserve banking on

any currency so cryptocurrency investors

learned this the hard way with the fall

of major cryptocurrency exchanges like

FTX um and these are lessons that the US

financial markets experienced in the

early 20th century that these new

attempts at World Reserve currencies are

finding out and discovering all over

again um the lessons learned from these

other centuries are just are just being

repeated in the crypto currency markets

so I think that the vision of true

decentralization and trustless

transactions is unlikely to be realized

or necessary at any future point and

that while governments have collapsed

and will continue to collapse the new

governments that emerge from those

collapses are not necessarily going to

turn to bitcoin so next I want to talk

about the blockchain right this is like

uh Bitcoin maximalists acce in the whole

again blockchain is an accounting record

of Bitcoin transactions from the

beginning of time anybody can go at any

time and look at the blockchain and see

who currently holds Bitcoin and the

entire history of transactions when

someone tries to send Bitcoin the rest

of the network collectively verifies the

transaction instead of having a person

like a central bank or like the FED an

accountant or bureaucrat um we have a uh

the Bitcoin uh Network verifies this

transaction through a technical process

called proof of work so essentially the

network competes to solve a very

difficult technical problem that

requires a lot of computing power to

prove but once proven can be verified

easily by the rest of the network and

they compete to solve this technical

problem because the network rewards them

with Bitcoin that process is called

Bitcoin mining and this is what makes

the Bitcoin Network so secure is so many

people from so many places around the

world are competing to solve these

problems that there's no one person that

is needed to verify that a transaction

is legitimate so to hack the blockchain

somebody would need unimaginable

computing power they need more than 50%

of the computing power currently being

devoted to mining Bitcoin and securing

the blockchain so this is as secure a

ledger as almost anything can imagine in

the real world um it's also the reason

why Bitcoin mining consumes so much

energy output more than 27,000 terawatt

hours which is more than many small

countries last year a true Bitcoin

maximalist again does not believe that

the Bitcoin is good technology for any

other application because if like for

example medical record in the medical

record space unless somebody has Dev a

tremendous amount of computing power to

maintaining a medical record blockchain

it's in theory possible that someone

with a really powerful Computing Network

could hack that blockchain take over

with more than 50% of the computing

power and rewrite history right and that

would be a problem so blockchain

technology is only useful as a secure

decentralized Ledger in one application

according to bitcoin maximalist

maximalism which is money itself Bitcoin

as a single worldwide backed uh uh uh

currency and for the record I agree with

Bitcoin maximalism on this point I think

that true decentralized blockchain

technology is not a useful secure

decentralized application for anything

but a theoretical um future state where

Bitcoin is a world Reserve currency

couple of other items that I want to go

through um sharp ratio Bitcoin

maximalist will talk about how great

Bitcoin sharp ratio is a sharp ratio is

a way of measuring returns relative to

risk so um Bitcoin Max will talk about

how Bitcoin has this like incredible

ratio of returns relative to risk but

this is a kind of a silly argument in my

view because Bitcoin was worth zero when

it was invented and now it's worth

something anything that goes from zero

to one has an essentially infinite sharp

ratio and so that allows anybody to

conveniently look back at any point in

the last over the last 15 years and make

in many cases an argument for an

incredible sharp ratio so don't let

someone use that Gem of an argument and

get away with it as a defense of Bitcoin

another big point from Bitcoin people

the El Salvador experiment in 2021 El

Salvador became the first and still the

only country to make Bitcoin legal

tender so this is apparently a huge

victory for Bitcoin enthusiasts a clear

point where hey my thesis that world

governments are going to collapse and

turn to bitcoin is being validated oops

2 years later less than 1% of Central

Bank remittances in El Salvador were

Bitcoin so it turns out the locals don't

really accept Bitcoin and you're

absolutely going to need Alternative

forms of currency to enjoy a visit to

Els Salvador although in some places

mostly tourists can enjoy the experience

of using Bitcoin to pay for very highly

marked up goods and services so this has

been widely documented including by

Bitcoin enthusiasts it's not exactly a

shining example of how this is going to

work okay another point the current

valuation is not a endorsement of the

future potential of Bitcoin the fact

that a currency that this many problems

is at all-time highs is an indication of

risk not validation of a

thesis okay now all that is my argument

against Bitcoin I want to concede one

point to bitcoin maximalists here to

close things out so contrary to popular

belief Bitcoin is not really a good tool

for criminals remember all the secure

applications of the blockchain and how

clear and immutable alleger that is well

for criminal transactions that actually

makes it remarkably easy for government

agencies to track criminal activity and

catch criminals this has been widely

documented and people who are dealing

drugs or using Bitcoin um uh to transact

on illegal activities are often caught

using the blockchain Fairly easily by

government agencies so don't walk away

from today's call thinking that Bitcoin

is actually going to be a great tool for

criminals only the most technically

sophisticated and very smart um folks

who know how to hide things um on the on

the on on how how to really mask their

activity in the blockchain are going to

be able to get away with it long term so

all that said I think that the long-term

value of Bitcoin is zero I do not

believe that Bitcoin has a 1% or 0.1% or

whatever probability waiting you want to

uh give to it of replacing all of the

world currencies or some of the world

currencies in a longterm sense um as

legal tender as money itself so I don't

hold anything in Bitcoin and again I'm

not saying that the Bitcoin maximalism

thesis is wrong um I guess I kind of am

saying that it's wrong at least for me

from a belief standpoint um but I'm not

saying it's crazy it's not like it's not

grounded in a reasonable school of

thought you have just know that if

you're going to invest in Bitcoin you

have to disagree with what I said you

have to ascribe some probability of the

collapse or decline of Major World

governments and the replacement of their

currency with Bitcoin to some non-zero

probability and just understand that

that's the bet that you're fundamentally

making and that a Bitcoin Maxim most is

fundamentally making and I think that

that leads me to logical place like what

can what should a rational person who's

reacting to this video and saying Scott

I disagree with you I think there is a

probability of investing in Bitcoin what

should you do well my recommendation

would be that you should treat Bitcoin

as part of your cash world right

understand that it's part of your cash

world that could go to zero or it could

go up um to some to some expense but

think about it as part of your cash

position so for example if you had

$120,000 in cash you might consider

putting $40 in US Dollars 40 in gold and

40 in Bitcoin if you subscribe to the

belief that Bitcoin could take over as a

future State World Reserve currency to

some degree and that might help you

achieve some of the goal of preserving

that wealth um in a relative sense and

giving you some liquidity but again I

believe that that is it's much more

likely that this runs the risk of a near

or complete wipeout in the long run and

extreme volatility in the short run so I

do not do that personally all right if

you got this far I really appreciate you

taking the time to listen to my

impassioned speech on bitcoin here I'll

point out that even if I turn out to be

dead wrong and the Bitcoin takeover does

happen with without the collapse of my

way of life as I know it then I will

just transition to taking my dividends

and Rental income in satoshis instead of

dollars the real value of my collected

rent and the dividends that I have in my

um my my portfolio uh will remain

relatively constant even in that event

where Bitcoin does take over regard that

that's the real value of the wealth and

the those companies and my rental

properties are producing regardless of

which currency or which form of money is

flowing through the underlying assets

just a remind everybody again thank you

for listening I welcome a rebuttal and

debate on this topic this is my view

it's not the view of Bigger Pockets it's

not the view of the other people who

host podcasts at Bigger Pockets it's

probably not the view of many in the

community we've had Dr safine amus on

the Bigger Pockets money podcast author

of the Bitcoin standard We Are W we

would welcome another guest in the

future who wants to rebut many of the

points I've made just don't tell me that

I haven't done enough homework please

because I'll get really annoyed about it

I've done plenty of homework on this

subject and I understand it I'm happy

for rational informed debate and

disagreement though so again if you

listen this far thank you so much and uh

look forward to seeing you on the next

episode of the Bigger Pockets money

podcast Bigger Pockets money was created

by Mindy Jensen and Scott trench

produced by haar elos editing by Exodus

media copyrighting by Nate wiro and

lastly a big thank you to the Bigger

Pockets team for making this show

possible

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