“Bitcoin is currently money to a very limited degree. It’s a speculation.”
“Bitcoin has been a speculation right from the start.”
“Bitcoin has indeed been a wild roller-coaster ride for recent speculators…”
“The price of Bitcoin plunged from a high last year of nearly $70,000 to less than $30,000. Some crypto investors who had become millionaires lost it all.”
Cryptocurrency enthusiasts would not be surprised to read the words above from an outspoken critic such as Charlie Munger, who called Bitcoin “stupid and evil.” If the above statements were made by Paul Krugman, who argues that Bitcoin has potentially lost its ability to bounce back from horrific declines, those who promote Bitcoin on ideological grounds would dismiss the statements as the rantings of a left-leaning defender of centralized state power.
Surprise! The author (on Twitter) of the foregoing cautionary comments about the best-known non-government-controlled currency possesses impeccable libertarian credentials. Gene Epstein moderates the Soho Forum debate series, which in its own words, “features topics of special interest to libertarians and aims to enhance social and professional ties within the NYC libertarian community.”
The Soho Forum is a project of the Reason Foundation, a think tank that describes itself as committed to advancing “the values of individual freedom and choice, limited government and market-friendly policies.” Epstein proudly proclaims that neither vaccination nor masks are required for admittance to Soho Forum debates. Another of his quotations attests to his fealty to the libertarian creed: “With the turn toward profit-seeking capitalism in so much of the world over the past few decades, hundreds of millions have been lifted out of grinding poverty.”
Here, then, is a seeming paradox. An ardent libertarian sounds critical of the cryptocurrency that its inventor, who goes by the pseudonym Satoshi Nakamoto, said could be “very attractive to the libertarian viewpoint if we can explain it properly.” It is imperative, however, to place Epstein’s above-quoted comments in proper context.
To begin with, Epstein does not consider “speculation” a pejorative term. On the contrary, he rightly maintains that speculators perform a useful function in a market-driven economy. Buying assets that one believes to be undervalued—and selling those one deems overvalued—helps to price capital appropriately. Such reconciliation would not occur if 100% of people’s savings were passively invested in the market portfolio.
Epstein also appears to see a positive role for investment, but he does not include purchases of bitcoin in that category. Instead, he characterizes that activity as a long-term investment. Bitcoin, he says, is a “possible substitute” for the dollar if crypto boosters’ direst predictions of financial crises and dollar devaluation come true. He warns, however, that Bitcoin devotees might prove wrong about all that.
This is a far cry from taunting skeptics with crypto-lover lines such as, “Have fun staying poor.” Epstein’s libertarian bona fides nevertheless remain intact. Championing free markets and acts between consenting adults does not require a suspension of sober financial analysis for the sake of supposed ideological consistency.
Dispassionate analysis points toward caution on regarding Bitcoin as an investment with a diversification benefit. In three of the S&P 500’s five down quarters during 2011-2015, bitcoin posted gains. Since then, however, bitcoin has fallen in conjunction with all four S&P 500 full-quarter declines. True, the cryptocurrency’s loss was smaller than the stock index’s in two of those instances. In the current quarter through June 3, however, the scores are S&P 500 down a modest 9.3%, bitcoin down a whopping 35.2%.
One conclusion is clear: Your financial future is too important to allow it to get tangled up with philosophy. Opinions can differ on the topics addressed at Gene Epstein’s Soho Forum, i.e., legalizing prostitution and abolishing all patent and copyright laws. There is no room for debate, however, when it comes to establishing facts such as the comparative price performance of equities and cryptocurrencies. Past performance does not guarantee future results, but evidence is a better guide to long-run wealth maximization than ideology.
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