What crypto people get wrong

That is the topic of my latest Bloomberg column, here is one excerpt:

If anything, crypto is more likely to hurt the currencies of countries that are doing very poorly, such as Venezuela. Fiat currency won’t just go away, so over the long run crypto could actually boost the value of the dollar by stifling the rise of potential competitors.

A second point, oft neglected in the crypto community, is that crypto prices won’t continue to go up forever at high rates. It doesn’t matter whether money supply deflation is built into a crypto system, or that new and valuable uses will be discovered each year. At some point the market will figure out the value of crypto and incorporate that information into a high level of price for those assets. From then on, expected rates of return will be — dare I say — normal.

Compare the crypto market to the art market, which for a long time didn’t grasp the potential value of an Andy Warhol painting. For years, prices went up a lot. At this point, however, a liquid market remains, and the expected value of an investment in Warhol is not necessarily better or worse than the value of an investment in other well-known works of art.

It is an entirely defensible (albeit contested) view that the market still hasn’t appreciated the full value of crypto. This state of affairs may yet endure for some while, but it will not last for decades.

The irony is that so many of the arguments made by crypto types imply especially low pecuniary rates of return on crypto. To the extent crypto is useful as collateral or for liquidity purposes, people will be more willing to hold crypto at lower pecuniary rates of return, just as they are willing to hold cash, or just as the collateral uses for U.S. Treasury bonds raise their price and lower their expected rates of return.

If we eventually arrive at a world in which equities are expected to rise by say 5% to 7% a year, and Bitcoin by say 1%, then that will be a sign crypto has made it. The more general point is that while crypto has been a highly unusual asset class for its entire history, it won’t act like an unusual asset class forever.

And this:

Satoshi and Vitalik Buterin are not only significant innovators, but also the two most important monetary economists of our time.



Comments for this post are closed