Alberto Mingardi  

Doherty on libertarians and Bitcoin

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I think it was Baron Nathan Rothschild who used to answer the question "how did you get rich?" with "I always sell too soon". That may not apply to Bitcoin early adopters, who are the subject of a fascinating piece by Brian Doherty. Doherty has long been a most passionate and capable historian of the libertarian movement (read his Radicals for Capitalism) and here he is writing perhaps a new chapter.

blockchain.jpg We will see with time how what has been hailed as Bitcoin's institutionalisation, the fact that now you can trade futures on Bitcoin, will impact the prize. So far, a Doherty writes, the impression is that "you will always regret using Bitcoin". The price has been and is quite volatile but you just have to think about this year's performance (basically, it grew twenty times) to understand the reasons for regret.

Will it go on? Is there a genuine demand for Bitcoin, as millennials--and, indeed, the rest of us--will grow more and more impatient with a financial system that seems difficult if not arcane compared with the heftiness of the Amazons and Ubers of this world? Or is it just a mania? Libertarians and nerds tend to go for the first, members of the financial establishment for the second. This is indeed one of those cases in which all actors seem to follow their script meticulously.

Doherty's piece has reminded me of Michael Lewis's The Big Short. Lewis wanted to tell the story of odd people who, being somehow outsiders to the financial system, understood the housing bubble ahead of anybody else (see Arnold Kling on the point). I think that this gets a bit lost in the movie adaptation, but it struck me when I read the book. "The Big Short" is a plea to diversity, diversity of backgrounds, of methods, of views, which is essential for the process of price discovery to happen. Cryptocurrencies were a product of this diversity, well before the financial sector awoke to them. They were conceived, and used, and promoted by outsiders who knew more math than economics and whose economics, when they had one, seemed to be of the Austrian blend.

In the last few months, I have asked myself a number of times why in the world I didn't buy Bitcoins when they were launched: I should have been enthusiastic about the idea, and I knew people who dealt in that trade. But I didn't. Doherty's piece healed my wounds by telling me I was hardly alone.

The article is instructive and well written. Read the whole thing.


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COMMENTS (2 to date)
Hazel Meade writes:

The reason I never bought bitcoins is largely because ... they're not really that easy to buy. Certainly weren't in the early days. You have to install the software on your computer and download the entire blockchain, which keeps growing. Then you have to locate a site that sells them, register an account validate you banking information and so on. And there's a big question about which sites to use - what happens if one of them goes out of business and you thus lose access to your ability to (quickly) sell the bitcoins? IIRC one of the sites crashed a few years ago (Mt. Gox) and there were issues with bitcoins being stolen by the people who ran it. And you have to be committed to dealing with this in order to purchase something that has very little use-value - you can't really purchase very much with bitcoins. Even if you're a hardcore libertarian, you have to put up with a lot of hassle to purchase something that's a highly speculative investment.

Alan Goldhammer writes:

. I’m reminded of Warren Buffet’s sage advice as set forth in his 2011 letter to shareholders (of which I am one) when he discussed the purchase of gold. Here is one salient quote, “This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.”

I believe this applies to bitcoin as well and I wonder what a “rational” economist would make of Buffet’s argument that it is far better to own productive assets. Buffet pointed out how much all the current gold in the world would purchase in terms of income producing assets and it was spectacular.

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