While some FUD is easy to defend, some will only get much worse.
Eight years ago, Bitcoin was something people laughed at. It was OK to laugh at the time because most people really don’t care if people are buying weed from the Silk Road, or experimenting with digital currency. But as Bitcoin has become a smart investment, people are dropping the scorn and replacing it with a salty attitude. The salt we are seeing is only the tip of the iceberg. It will continue to get worse and worse as Bitcoin becomes more expensive. Remember, if 2% are Bitcoiners, the other 98% aren’t. These other 98% aren’t going to simply say “y’all we’re right after all, I’ll pay 100000X what you did for the same thing.” Bitcoin is a threat to the status quo. FUD is here to stay and will grow exponentially with the marketcap.
We’ll start with the easily debunked stuff and move to the more problematic.
- “Bitcoin is stupid and will never catch on.” When Bitcoin proponents say “critics were wrong” this is usually what they are referring to. Anyone who back in 2013 claimed that Bitcoin would never catch on was wrong. This doesn’t require any argument, other than “check the scoreboard.” The market cap is over $1T USD. Next.
- “Tether is fake and pumping the market.” Even if, at some point, Tether did something untoward, at this point it doesn’t matter. There’s enough money sucked into the cryptocurrency ecosystem that Tether could’ve covered all sorts of malfeasance by now. It’s completely believable that a portion of obnoxiously wealthy people who offshore their money would like to get in on some of that Bitcoin action.
- “Criminals use Bitcoin.” The obvious retort here is that criminals use cash, too. It’s been quite a while since the Silk Road, and marijuana is legal in most places in the US these days. However, there are many more creative ways for Bitcoin criminals to use an anonymous decentralized that allows one to send payments all over the world. Ransomware is on the rise, and while this is not an existential threat yet, it could consume larger and larger parts of our time and attention, especially as Bitcoin becomes more ubiquitous. As more people own bitcoin, the motivation for these hacks will increase. This will intensify.
- “Bitcoin is harming the environment.” This has not been debunked, and will not be debunked in the near future, even if Nic Carter writes 26 pieces claiming he debunked it. (He hasn’t, he has only argued that it’s feasible that Bitcoin isn’t quite as bad as some people say. Which is true.) Most attempts to downplay the environmental issue appeal to today’s numbers, not what Bitcoin promises to be in 5,10, or 15 years. Sure, if Bitcoin were to steady out at $60K for the next 10 years, the margins would tighten and cheap energy would become the driving economic force, but this simply isn’t the case, and anyone can see this. There’s some very simple math that’s going to create problems. Suppose today that Bitcoin uses 50% renewable energy, and suppose that in ten years Bitcoin uses 95% renewable energy, but the demand has surged by a factor of 200 (which is a slowdown compared to the last 10 years). The result is that Bitcoin will have multiplied its dirty energy use by a factor of 20! This will not be acceptable. While the economic argument that Bitcoin mining favors efficiency is clear, a surging market requires that any capital is spent on the latest and greatest mining technology. The mining equipment is run at full force with whatever energy is available before it becomes obsolete in 18 months. Energy cost is not the driving concern. This FUD will stick around, and requires definitive evidence from someone other than Nic Carter to be debunked.
- “Bitcoin threatens American hegemony and ability to spend.” I’m not an expert in the global market for Treasurys, but at least on the surface, this makes sense. There’s a huge appetite for Treasurys. The US issues Treasurys in order to do things like stimulating the economy. If Bitcoin were to become a reserve asset of choice, it would seem to threaten the demand for Treasurys. There are smart non-laser-eyed people such as Joe Weisenthal who have shrugged this FUD off. Maybe they're right. But it’s certainly not obvious to me that they’re right. As far as FUD goes, this might stick because it’s easy to construct and hard to counter.
- “Bitcoin makes taxation difficult. ” I’m even less an expert tax evasion. In fact, most people don’t know much about taxation, so this might be persistently believable. It’s unclear to me if using crypto for tax evasion is preferable to the normal way of say, calling your guy and having a couple million in profits disappear in the Bahamas for a while. Surely there will be some jackasses who think they don’t have to report their crypto gains that they withdraw from Coinbase — this won’t end well. We are still nowhere near an economy where you can actually get something of value for Bitcoin without going through your bank.
- “A nation-state could cripple Bitcoin.” On its face, this statement is absolutely true, as I’ve argued here, here and here. This is basic economics: Bitcoin was not built to be resistant to a 51% attack. The more salient questions: which nation? would they actually do that? This is more complicated. It seems unlikely that in the near future, the US would have the focus and motivation to do this. Maybe in a decade, political and public opinion will have changed. It’s possible but unlikely, but it can’t be debunked.
- “Bitcoin is a weapon that can be leveraged against the United States” There are other threats to be aware of, besides the reserve currency concern. One issue is that in the US free market, corporations could find themselves motivated to expose themselves to Bitcoin in various ways. If Bitcoin were to become integrated into the financial health of the US, we would become vulnerable to any manipulations by miners or large holders. Another vulnerability particular to the US is the politicization of Bitcoin: Bitcoin agrees with conservative and Libertarian principles and tends to be antithetical to socialist fiscal policy. As more of the population becomes involved, Bitcoin itself could be an issue. Other nations know the US weakness for division and how easy it is to exploit this. Keep an eye on this one.
- “North Korea or Iran is going to build nukes from Bitcoin profits.” Keep an eye on this one too. It’s not an issue today, but if the price does some more 10–20x cycles, North Korea could have a lot of money to throw around.
- “Bitcoin is increasing inequality.” Well duh. Anyone who tells you otherwise is doing some crazy mental gymnastics. There’s simply no way that a deflationary currency that is inherently risky is going to be fall in the hands of lower or middle-class people in any large quantities. At the early stages, Bitcoin is primarily attractive to people who can handle some risk, precisely the people who are already on the upper crust of the wealth distribution. This FUD will never, ever go away. Trite remarks like “anyone could’ve bought it back in 2010” are tone-deaf and aren’t going to placate anyone who literally had no money in 2010. Bitcoin is necessarily a zero-sum game that heavily favors those with the means to take risks. As the price continues to rise, holders will hang on tight, and the price will continue growing exponentially. By the time 30% of the population is in, they may be paying a premium of hundreds or thousands of times what the typical 2020 offshore Tether using billionaire paid for it. Bitcoin will never overcome this.
- “Ethereum or some other coin will take its place.” Not in the near future. Ethereum might not be the slickest competitor, but longer-term, it’s possible to see something much better. We’re only a few years into this. Also, keep in mind that this could be part of a nation-state or corporate attack. Bitcoin has first-mover advantage, but if anything takes the mantle of “digital gold,” Bitcoin would quickly be forgotten.
- “Bitcoin will be taxed and regulated to suppress the price.” If problems start to develop, this is a simple route for the US or China or EU nations to take. It’s easy to modify the corporate tax code so that corporations are taxed for holding Bitcoin, are taxed on unrealized gains or are taxed on gains at a larger rate than for other asset classes. The same could happen to individuals as well — unrealized capital gains taxes or higher tax rates on any digital assets would drag the demand for long-term holding down. In fact, this is much more likely than a direct attack. Ultimately, all the FUDs mentioned above may push political powers to take actions necessary to curtail Bitcoin. But what if the politicians themselves are into Bitcoin? It’s not like elected officials are strangers to insider trading. They just sell at the right time. In my opinion, this will ultimately sink Bitcoin. The People will have had enough, and the political pressure to put an end to it will outweigh the US Libertarian sensibilities. Over 70% of millennials would vote for a socialist, so as the voting demographics shift, such a move will become more politically viable.