The biggest fallacy involved with bitcoin is that, with time, it will still grow into a transactional currency. By transactional currency, I mean a currency used for the widespread exchange of goods and services. In the early Silk Road days of actual sketchy dark pool internet marketplace activity, bitcoin was used for transactions because its supply was still growing relative to its demand. It had a brief, somewhat stable value. As supply fell with each halving and demand grew with its rising popularity and price, bitcoin transitioned to a speculative asset. The speculative asset trend will never reverse. It will only become more entrenched as long as the Bitcoin system can sustain itself.
There’s a simple reason. A currency can’t have a fixed supply. It has to expand with growth relative to a monetary standard of reference to maintain stable value. Never in the thousands years monetary history of the developed world has there been a fixed supply currency. It’s ridiculous to even consider. The concept is as basic as supply and demand taught in high school economics that a child had already intuitively learned.
Bitcoin is a fixed supply currency. There are only 21 million bitcoin that will ever be mined, and probably only around 18 million will ever actually exist due to early loss when bitcoin had no value. Of those 18 million, most are held by governments, Wall Street bitcoin treasuries, whales, and Satoshi’s unaccounted for stash. A fraction of the 18 million are actually in circulation.
A normal retort is, yeah, but there are 2.1 quadrillion satoshis and businesses like Steak ‘n Shake and others accept bitcoin. Good for Steak ‘n Shake. It’s a smart move for a corporation to vicariously speculate in bitcoin as long as number go up. But corporate acceptance of bitcoin will only last as long as number go up. In another bear market like the November 2022 FTX collapse when bitcoin’s price fell from $66,000 to $16,000, no corporate entity will continue to accept bitcoin.
That there are 2.1 quadrillion satoshis doesn’t result in an expanded supply of bitcoin that negates Bitcoin’s 21 million limit. The supply of satoshis doesn’t affect the value of bitcoin anymore than the supply of pennies affect the value of the dollar. Each satoshi has the same relative value as a bitcoin, the same as a penny to a dollar. Which means if bitcoin goes up 1,000 percent, so would each satoshi go up 1,000 percent. Michael Saylor is the pied piper of bitcoin, and he predicts a near term $1,000,000 price of bitcoin. If as Saylor proclaims bitcoin is going to $1,000,000, you would be stupid to spend 8,333 satoshis (based on 1 BTC at $120,000) for a $10 Steak ‘n Shake meal when those same 8,333 satoshis, according to Saylor, are going to increase in value to $83 with bitcoin at $1,000,000. Which is why everyone who buys into the Saylor spiel HODLs and would never spend 8,333 satoshis at Steak ‘n Shake or anywhere else. It’s also why bitcoin transaction fees are collapsing. If you can grasp this simple monetary concept, you can understand why bitcoin will never act as a transactional currency.
If you don’t buy into Saylor’s spiel, why would you have bitcoin? Certainly not to buy a meal at Steak ‘n Shake when you can pay with dollars without the hassle of dealing with mostly criminal unregulated offshore exchanges.
As long as the ever changing rational for bitcoin’s utility lasts, speculators may profit from it. But you should at least have some idea of what you’re speculating in.
The threat to the Bitcoin system is Satoshi’s fixed supply design. Transaction fees were meant to replace mining rewards. That requires a functional currency for transactions. That’s not only not happening, the transaction fees are collapsing. Without transaction fees, the price of bitcoin has to keep going up in perpetuity with every halving to sustain the system. That means that the price of bitcoin will need to approach infinity in 2150 when the mining reward hits zero. That result is reductio ad absurdum, but it points out that the Bitcoin system does not have long-term viability with its current fixed supply protocol.
Satoshi meant for Bitcoin to act as a transactional currency, but he’s a monetary Rothbardian Austrian who didn’t understand money. Hence, Satoshi designed a fixed supply currency and the current state of Bitcoin is the result.
Great post Mike
“mostly criminal unregulated offshore exchanges”?
Interesting characterization of coinbase, strike, fold, robinhood, etc, etc.
When you speak lies to sensationalize your message it converts any value you are trying to convey into the negative.
When you say things like, “it’s smart to speculate as long as number go up,” you reveal that you still value your wealth in fiat currency. And not only that, you think everyone else does too. That’s proof that you still don’t understand Bitcoin, and you don’t understand The Matrix that you’re trapped in. You see fiat currency as “stable” instead of recognizing that it’s actually volatile, like _everything_. Pennies are 1/100th of a dollar, AND it’s a no-brainer when you have a money printer to go in the inflationary direction by debasement. Satoshis are one ONE-HUNDRED-MILLIONTH of a Bitcoin, so yeah, there’s plenty of room for price deflation. That’s why the supply cap works.
My entire website is dedicated to the proposition that the dollar fiat currency system is unsustainable and will eventually crash. As have every other fiat currencies throughout history.
I really didn’t need to read past paragraph 2 of this nonsensical diatribe to realize that its thesis immediately falls apart when bitcoin is defined as a “currency” — a gross mischaracterization, to say the least.
If one insists on pidgeon-holing bitcoin with a label, then it would first and foremost be a commodity, just as gold is a commodity. (Note: there was a time when gold ALSO acted as a currency, but those days are long gone. Simply Google Nixon+Gold+1971).
Can people use bitcoin as a currency? Of course, but the author seems to assume that this is bitcoin’s raison d’être and this is simply not true. Moreover, to argue that the expansion of currency is actually a good thing is to ignore the untold effects of currency debasement, not the least of which would essentially be theft of that currency’s value from the citizenry.
The foregoing is only a mere glimpse of why this article falls flat and reveals a stark level of ignorance by the author.
The title of Satoshi’s White Paper is Bitcoin: A Peer-to-Peer Electronic Cash System. Digital currency and its immutable blockchain ledger were Bitcoin’s raison d’etre. But things change. Fixed supply bitcoin can’t work as a transactional digital currency, so now it’s digital energy, digital gold, digital commodity, digital property, digital whatever.
“That there are 2.1 quadrillion satoshis doesn’t result in an expanded supply of bitcoin that negates Bitcoin’s 21 million limit.”
Yo, wait until you learn about milli-sats.
Matthew Kratter made a video response to this article on his Bitcoin University YouTube channel. It’s a must-see if you want a reasonable response.
I watched the video at Mr. Kratter’s channel. If the content of his other videos is anything like the video you reference, Mr. Kratter is doing an intellectual rug pull on his “university” students.
https://manonthemargin.com/reply-to-bitcoin-university/
I’m confused. In your “about” section you claim to be a Classical economist in favor of production instead of consumption. Yet in this article you say that Bitcoin is flawed because it makes people save, not spend.
Bitcoin incentivizes real saving, which naturally funds long-term production.
Bitcoin is a currency. A currency can only do three things–go down in value, go up in value, or remain stable in value. Bitcoin’s fixed supply is deflationary. Bitcoin can never achieve stable value which is why it doesn’t act as a transactional currency.
All growth comes from risk-taking. Economic policy should incentivize producers not consumers. That requires low taxes, beneficial regulation, and stable money.
Ah, I see — you’re analyzing Bitcoin as if it must conform to the rules of the very system it’s designed to replace.
Let’s take this from first principles:
The natural state of a free market is deflation. People always choose more value for less. Technology accelerates this — it’s exponential value creation. Prices should fall. Bitcoin aligns naturally with this dynamic.
Like gold, Bitcoin isn’t “price stable” when measured in dollars — but that’s the wrong frame. Its monetary integrity is what’s stable:
– Fixed supply
– Incorruptible by design
– Predictable issuance
You say you support producers, stable money, and want to reduce consumerism.
Yet you oppose the one monetary system that:
Can’t be manipulated by the state, incentivizes saving and long-term thinking and aligns with Classical values and economic incentives.
The natural state of money is stable money. Economies are their most efficient during periods of stable money. Great Britian and the U.S. became empires under centuries long gold standards. The U.S. has had two brief deflations. One after the Civil War and the other under Greenspan from 1997-2001. Both were so painful they only lasted a few years. No economy could survive with bitcoin as its currency under its fixed supply deflation.
I didn’t say I want to reduce consumerism. The ability to consume is unlimited. There’s no need for economic policy to incentivize it–the focus of Keynesianism. Economic policy should incentivize producers because all goods are ultimately paid for with other goods, i.e. supply creates its own demand, and all growth comes from risk-taking.