Until Mass Utility Adoption, Bitcoin is a Ponzi…

Until Mass Utility Adoption, Bitcoin is a Ponzi…

I saw a recent piece on Market Watch which ran with the following headline in relation to the recent Jamie Dimon saga: 5 reasons Bitcoin roars to its highest level, defying Dimon’s ‘fraud’ call

Before I go any further, I want to state the following point so that readers do not get the wrong impression as to where I am coming from:

  • I like Bitcoin – to be more accurate, I am extremely fond of it

And now I am going to make the following statement which is not in any way contradictory to the point above:

  • Bitcoin, as things stand, is a Ponzi scheme

Coming back to the Market Watch article, the journalist’s insinuation, at least as I read its title, is that Bitcoin’s price resurgence after Dimon’s criticism is a rebuttal of that same remark. This is a fairly common position taken by the pro-Bitcoin camp to which I resolutely belong but the observation is one with which I profoundly disagree.

In reality, this resurgence is, if anything, probably the opposite of a rebuttal. Yes, Dimon’s remarks were self-serving. That much is obvious. He did, however, touch a nerve, and that sparked a price run on the currency.

What pro-Bitcoin commentators are repeatedly failing to register is that the only reason for which Bitcoin proved to be so fragile to the remarks of one man – albeit that one man being the guy who heads up JPMChase – is that most people who are buying Bitcoin are buying Bitcoin simply to buy Bitcoin.

It’s the Utility, Stoopid…

When I first sat down to learn about Bitcoin in 2014, I was fascinated from the off. The concepts of Distributed Ledger, The Byzantine General’s Problem, Elliptic Curve Cryptography – these were simply absorbing, and I was hooked. And I knew and felt like so many others at that time that the implications of the concepts behind Bitcoin were going to be enormous.

Today, those potential implications carry a more succinct name: Blockchain Technology.

Naturally, however, Bitcoin in its beginnings was the sole preserve of a relatively small number of enthusiasts, generally of techie backgrounds.

The problem, however, was that once it began to receive the attention of the mass media, it was doing so for all the wrong reasons – that Swedish guy, for example, who mined some Bitcoin in its earliest days, who then let it all drop before twigging a few months later that it had been rising in value in the meantime, so much so that he subsequently was able to buy himself an apartment.

Bitcoin Needs Mass Adoption

It was stories like that which has led to the frenzy of buyers of Bitcoin that we see today. If I am being honest, as a long-term holder of Bitcoin I myself have only ever engaged in a handful of genuine transactions with the currency.  When I did so, it was because I was making modest donations to a government transparency organisation that was only able to accept payment in cryptos.

I know of no-one else in my circle of friends or family who has ever engaged in any actual purchase of a product using Bitcoin. I know lots of people, on the other hand, who have Bitcoin. Therein lies the problem.

Until Bitcoin achieves mass adoption – and, let’s be honest, that simply means retail – then it will remain a Ponzi scheme. Ironically, it will be the Jamie Dimons of this world who will ensure that the Ponzi scheme will extend a few more years into the future.

The long line of institutional investors who are now lining up and chomping at the bit to jump onto Bitcoin derivate instruments – Bitcoin options, Bitcoin futures, Bitcoin ETF’s or whatever they may be – will not in any way lend legitimacy to the currency. They will simply add to the Ponziness of it all.

In the meantime, Bitcoin will be subject to price runs and price jumps as speculators jump on and off in a bid to outplay one another.

A Small Number of Anonymous Payments Do Not a Currency Make

Yes, there are Bitcoin transactions that prop up some subset of illegal and criminal activities. And, yes, there are transactions that prop up organisations whose actions and goals are altogether more praiseworthy.

But, whilst no-one is in a position to make any kind of accurate calculation, these almost certainly represent a very small fraction of total daily trading volume.

In a nutshell, then, Bitcoin is still waiting for mass adoption. Or, to put it another way, it is still waiting for a legitimate, general use case. Speculation does not fall into that category.

And as long as it continues to wait for that use case, Jamie Dimon or no Jamie Dimon, we cannot hide from the fact that Bitcoin will simply remain a Ponzi.

On the other hand, even if Bitcoin is now simply a Ponzi, that in no way changes the fact that it introduced the world to a concept that is likely to change it – the Blockchain.

And when Cryptos finally do go mainstream, it will likely be not because of the Bitcoin currency itself, but because of its Blockchain offspring which, incidentally, may then subsequently come back to make their progenitor the normal, ordinary it currency  currently isn’t.