Bitcoin: The Spectator Columnist Confronts a Post-Thatcher World
The Spectator published an op-ed with the ominous title ‘Bitcoin is now a threat to us all’. The implied threat seems to be the challenge for a Spectator columnist to understand changes in the world since the Thatcher government—a truly daunting prospect.
Bitcoin’s unprecedented ability to create and destroy fortunes in a flash is unparalleled in history. Yet, the biggest boom and bust could still be ahead. Since January, Bitcoin has made a significant recovery, now trading at or above its 2022 highs. This rebound is particularly notable given it coincided with the trial and conviction of Sam Bankman-Fried. Following the collapse of his cryptocurrency exchange FTX, Bankman-Fried is now reportedly trading grains of rice with fellow inmates at Brooklyn Metropolitan Detention Center. For many of his customers, Bitcoin turned into the scam critics feared. So why do people still buy it?
Easier Access, Greater Risks
The answer seems to lie in the Grayscale Bitcoin Trust, an exchange-traded fund that simplifies Bitcoin investment for retail investors. After years of battling regulators, Grayscale won its case in January. This victory levels the playing field between ordinary retail investors and sophisticated traders who know how to use Bitcoin wallets. However, this development poses risks to the financial stability of millions of households. Bitcoin gambling has effectively gone mainstream, akin to allowing bookmakers in every living room.
The Zero-Sum Game of Bitcoin
Whether Bitcoin’s price rises or falls, its fundamental nature as a zero-sum game remains unchanged. Many can make paper fortunes by bidding up the price, but not all can cash out without causing the price to plummet to zero. Quick sellers profit at the slow sellers’ expense. Bitcoin, lacking intrinsic value and income, is essentially a high-tech Ponzi scheme.
Potential for Financial Disaster
As Bitcoin becomes easier to buy, the risk of financial disaster increases, transferring wealth from the naive to the savvy. Despite no recent price spike, Bitcoin’s value surged from $26,000 last October to $73,000 in March, then fluctuated between $60,000 and $70,000. This fluctuation might suggest a respite from speculative mania, but history warns otherwise. Bitcoin has survived multiple bubbles, unlike tulip bulbs or South Sea shares. The ability to buy Bitcoin through an exchange-traded fund could fuel another bubble, potentially devastating even more people’s wealth.
The looming question is whether this next Bitcoin bubble will indeed be the largest yet, bringing with it unprecedented financial instability and wealth destruction.
