For academics, the debate about Bitcoin and its similarities to gold can be very exciting. In fact, P.Paul Krugman, a Nobel Prize winner in economics and a columnist for the New York Times, has recently written about it. Fanatics don’t really like it when someone talks “bad” about Bitcoin. However, I am one of those who thinks that it is always interesting to listen to all sides. You learn a lot. Is Bitcoin a currency? Is Bitcoin like gold? Is Bitcoin replacing gold?
Like all academics, in many ways, Paul Krugman is right in much of what he says. It is true that Bitcoin is not used as a medium of exchange equivalent to the dollar. True, Bitcoin is not exactly like gold. And it is true that it remains to be seen if Bitcoin is replacing gold (which I don’t think so). Now, personally, it’s not in my interest whether Krugman is right or wrong. Because for me being right in an academic debate is not a priority. My priority is to make money with my investments. As far as my pocket is concerned, financial gain is what I seek. Not intellectual coherence.
Many militant bitcoiners have embraced the conservative and libertarian narrative of the gold beetles. So it’s no surprise that a progressive/Keynesian like Paul Krugman would run afoul of that narrative. But that debate is not new. In fact, it’s older than suction cups. What is a coin? Should money be tight? What is the best monetary policy? What should be the role of the state in the economy? Aha, but I’m not a university professor. What do I care! My interest in Bitcoin is financial. The question:Can I make money with it? Yes. The rest is theory. And my interest is practical.
The person who bought BTC for $5K and sold for $48K doesn’t care much if Bitcoin is a currency or not. Of course, on a theoretical level, I sympathize with the arguments of my economist friends. However, when I remember the profits made and everything I owe to Bitcoin, it goes away. Personally, I’d rather have money in my pocket than be “right” on Twitter.
What is Bitcoin actually? Simple. Bitcoin is a code on a computer network. And that code is used as a token that represents a variable rate. Rate: Monetary value. Because that rate fluctuates over time, speculation is possible. In other words, it can be bought today at one price and sold tomorrow at a better price. In the process, you can grow financially thanks to Bitcoin. Is it a coin? Is it like gold? I don’t mind!
Bitcoin is a citizen initiative that has prospered greatly thanks to social networks. It started out as a plaything of libertarians and anarcho-capitalists who, to a large extent, copied and pasted the old gold beetle discourse. Now it is a Bitcoin standard and before it was a gold standard. But the difference is not much. They are the same ideas promoted by a sector of the right with a long history.
What Paul Krugman refutes in his articles is the narrative. He argues that Bitcoin is not a currency. Because crypto libertarians say that it is a currency in the context of their conservative proposals. However, for the average investor, those definitions and those debates are largely irrelevant. The important thing, for an investor, is to buy at a price to sell at a better one. Coin, code, collectible, or asset… Call them what they are. It relevant is its function in a practical sense. Can you make money with it?
It is not uncommon for the new to challenge definitions. Consider the zoologist with the task of classifying the platypus. I wouldn’t be surprised if early descriptions of the animal have been met with much skepticism from academics. In fact, some of us still remember a time when describing a personal computer was challenging. It’s like a typewriter, but with a TV. However, it is not a typewriter. And it’s not a TV either. It is not one or the other.
Bitcoin is a speculative asset. It is a new and emerging market. The important thing is that the asset is in demand. In other words, I may not like football. And you can have all the arguments about it to justify our disapproval of the famous sport at a theoretical level. But if it’s in demand, it’s in demand. Academics do not create markets. People create markets.
Bitcoin and gold do indeed have many similarities. Even though gold is a metal (commodity) and Bitcoin is a code, from an investor’s point of view, both are essentially speculative assets. Here “speculative” should be understood as a synonym for non-productive asset. In that sense, gold, bitcoin, and a picasso are similar. However, the behavior of these markets is very different. Thus, its role in a diversified and balanced portfolio is different. If anything, Bitcoin and gold could be complementary assets. In other words, an investor could have Bitcoin and gold at the same time. Bitcoin would bring growth. And gold would bring (relative) stability.
Many countries have gold in their reserves. And that gold is often used as collateral to obtain financing. So, it could be said that it is in the interest of the participants to maintain some stability in the price of gold. In fact, many central banks buy and sell gold as a mechanism for monetary balance. In practice, These are very different markets, because they are markets with very different configurations.
Is Bitcoin replacing gold? I don’t believe it. Can a code replace a metal? Does it matter? I don’t believe it. Bitcoin is forging its own path. A platypus is a platypus. Or, put another way, the new does not always fit into the old categories and schemes. The new is not always attractive to academics. But popularity does not depend on academics. Technology is to be used. And it is the users who determine their future.
Reading Paul Krugman, I recognize that he is right in much of what he says. But we cannot deny that Bitcoin has been a very beneficial instrument for many people. That is to say, its usefulness justifies its existence. It is not a matter of theory. It is a matter of pragmatism and demand. Has Bitcoin made life easier for many or not? Has it improved the lives of many or not?
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