I Just Lost $40,000 Worth of Ethereum and Bitcoin
Bitcoin is dead, long live Bitcoin!
At least one of those statements is true. Right now, however, it feels like it’s the former.
This is why —
No one expected Bitcoin to dip below $46,000 ever again.
No one expected Ethereum to dip below $2,000 ever again.
No one expected Elon Musk to shill Dogecoin (a useless token) over Bitcoin.
As one of my good friends tells me about girls, it’s best to keep your expectations low. Lesson learned.
Conversely, this begs the question: Is the FUD (fear, uncertainty, doubt) warranted?
Is this time really the end for crypto? Is this crash unlike the others?
Many seem to think so.
Here are the most pervasive arguments against Bitcoin and Ethereum and my thoughts.
1. It’s Old Technology
Jared begins his article arguing against Bitcoin’s proof-of-work systems. These heavy-duty mechanisms — which require substantial computing power — are used to validate transactions on the Bitcoin network [watch this to learn more].
Miners in a decentralized POW system keep the network safe, secure and methodical like a well-oiled machine.
Bitcoin’s greatest innovation is not proof-of-work systems, however. In fact, that technology predates Bitcoin entirely. What Satoshi Nakamoto revolutionized when he invented Bitcoin is the blockchain.
“A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990’s. I hope it’s obvious it was only the centrally controlled nature of those systems that doomed them. I think this is the first time we’re trying a decentralized, non-trust-based system.” — Satoshi Nakamoto, the anonymous creator of Bitcoin
Blockchain Has Already Changed the World
Ford Motors plans to use blockchain to allow car-to-car crypto transactions to pay vehicles to move out of your way in traffic. Visa, JPMorgan and Barclay use blockchain to make banking more efficient. Recently the European Investment Bank even used the Ethereum blockchain to issue bond tokens to investors (Goldman Sachs partnered with them on it).
2. It Isn't a Hedge Against Inflation
‘Cryptocurrency isn’t a hedge against inflation— it’s a speculation against them.’
I can feel the brunt of Jared’s argument with this $40,000 hole in my pocket right now. Moreover, with the Federal Reserve printing one-fourth of all U.S. dollars ever created last year alone, it would seem that Bitcoin isn’t as great an inflation hedge as we all believed.
Historically speaking, however, Bitcoin is a good hedge against inflation and will get even better with time.
The higher Bitcoin goes up in value the more stable it becomes, as one CNBC article pointed out. That’s actually the opposite of how the stock market works; in other words, it's a hedge against inflation.
More volume + liquidity = Less volatility in the case of Bitcoin
Bitcoin is sound money. Only 21 million will ever exist making it the scarcest asset on the planet. No matter how hard you dig for this digital gold, at a certain point you won’t be able to get more Bitcoin out of it.
While it isn’t a bulletproof hedge against inflation now, it will become one. Most likely the strongest hedge the world has ever known.
3. It’s Expensive
While Bitcoin has one usage case, Ethereum on the other hand [the second-leading token by market cap] is a utility workhorse. Ethereum desires to be a crypto-Google that ushers in a new generation of web technology; one that is permissionless, trustless and decentralized. It’s called Web 3.0.
However, because Ethereum is used so heavily it’s become very expensive to transact on top of. A few days ago my gas fees for Uniswap — Ethereum’s largest decentralized exchange — totaled over $100. It didn’t help that I’d lost thousands the day before…
This is a big problem for Ethereum (and my wallet).
That’s why Eth devs are working tirelessly to fix this problem with Ethereum’s largest update, Eth2.0. This update turns Eth into a POS system, in turn, making it less expensive and more efficient to use.
Eth2 is already out. It’s been out for five months and is running alongside Eth1.0. It’s commonly referred to as the beacon chain. All that needs to happen is “the merge” or when the two chains come together like the smash-hit Beatle’s song.
The first steps of “the merge” occur this summer.
4. It’s Horrible for the Environment
Some have called Bitcoin’s environmental concerns its Achilles Heel.
Instead, what it should be called is completely blown out of proportion.
When Jack Dorsey Tweeted this, Elon Musk said “true.” Not one month later the Tesla CEO radically changed his stance for some weird reason. That guy’s a strange one. However, ARKK Investment’s founder Cathie Wood debunked Musk’s assertions that Bitcoin mining is bad.
“The one thing that has changed here is the environmental concerns around Bitcoin, which have caused people like Elon Musk to pull away,” said Wood in a Bloomberg interview. “We believe even this is going to change, because first of all, the percentage of Bitcoin mined with renewables and hydroelectric power is quite substantial. In China, I believe it’s over 50%.”
She went on to add that miners have adopted green energy because they go to where power is cheapest. Cheaper power = more profits.
Here’s the upshot, nobody is actually sure how much energy Bitcoin mining uses. It’s hard to make a credible claim without complete data from the entire mining network.
In Jared’s article, however, he does point out that Bitcoin uses far less energy than gold mining and the traditional banking system. I’d take that a step further: Cryptocurrency is the most energy-efficient financial system in the world. Especially in the wake of proof-of-stake systems.
What’s the Real Cause of Climate Change?
In a recent Coin Bureau video, Bitcoin educator “Guy the crypto guy” points to inflation as the cause of global warming. It might sound crazy until you hear him out —
“Inflation incentivizes spending over saving, which creates unnecessary consumption, waste, and energy usage. By contrast, Bitcoin is deflationary and incentives saving.” — Coin Bureau
In the book ‘The Price of Tomorrow’, Jeff Booth argues that wild increases in prices hurt the environment more than any other human activity. Deflation and Austrian economics can not only save the economy, but the planet too.
In addition, what I find strange is that people act as though Bitcoin does nothing. As though it hasn’t brought an entire group of investors — including myself — out of poverty. As though it isn’t bolstering financial literacy or providing the soundest money in existence.
5. Death and Taxes
Hear me out…
Regulating Bitcoin is a good idea. This is because it legitimizes crypto even more.
These regulations allow for equity markets to create ETFs or exposure in retirement accounts so that grandma and grandpa can have a slice of the Bitcoin or Ethereum pie. As Anthony “Pomp” Pompliano pointed out in a 2017 interview, not being exposed to Bitcoin is financially irresponsible.ould reach $500,000 per coin by 2030, a conservative estimate
Even if the U.S. government — the engine of global capitalism — decided to ban Bitcoin (in turn disrupting Tesla, ARK, Twitter, Square, Paypal, Ford, Bank of America, JPMorganChase, Wells Fargo… etc etc) crypto still wouldn’t go away.
The whole world cannot ban Bitcoin all at once. Tell me if you’ve heard this one before: Bitcoin is sound money. One country's failure to adopt it is another’s opportunity. Just look at what Cardano is doing for Africa.
“The most terrifying words in the English language are: I’m from the government and I’m here to help. “ — Ronald Reagan
Lastly, and perhaps most important of all, Bitcoin is free speech. It doesn’t have a single point of failure. It isn’t like a McDonald’s or a Burger King where you can tell the CEO “sorry sir, your entire business is closed down now.”
And talk about an Orwellian society if that were to happen in a country like America. Bitcoin is a capitalist invention like anything else. Outright banning it isn’t going to happen.
My Personal Problem with Bitcoin
I do have one BIG problem with Bitcoin, and that’s Tether.
In case you’re not familiar, Tether is a stable coin that allows investors to easily switch their money from Bitcoin into a stable dollar-backed currency.
However, Tether is a smoking gun. The company that controls the stable coin doesn’t back Tether 1:1 with U.S. dollars. Just like the crony capitalistic fractional reserve banking, there is something to the tune of $25 billion in Tether that is unbacked.
It really is magic internet money. What's worse is that most people buy Bitcoin with Tether. It’s the third leading coin by market cap and leverages the entire market.
Tether isn’t sound money. It might be the doomsday device that explodes the entire cryptocurrency market. This is because Tether is the third-largest cryptocurrency and is how most of the market trades for Bitcoin.
My only defense against all of this is this old Warren Buffet quote —
“Price is what you pay. Value is what you get.” — Warren Buffet
If Tether really is manipulating the market then Bitcoin is in for a beatdown the likes of which we’ve never seen. But that still doesn’t change what Bitcoin is.
It’s… [drum roll please] the soundest money in the entirety of human history; and it’s in the hands of everyday people like you and me. Permissionless, decentralized and global money for all. That’s the value.
Bitcoin is going to change the world.
All we have to do is what we always do — wait.
Thanks for reading and none of this is to attack another writer. I’ve talked to Jared before over my Cardano article and he really is a cool dude with an awesome beard ;)
Oh and don’t forget —
Ever since I was a child it was my dream to become a financial advisor. Unfortunately, it never came true. Therefore I am not a financial advisor and you should do your own research and not just listen to random people on the internet. Nothing contained in this publication should be construed as investment advice.