The Case Against Crypto: How Backlash is Growing

Key Insights:

• Amidst the crypto market crash, sceptics have doubled down on their critique.

• Bill Gates suggested that crypto and NFTs are shams based on a greater fool theory.

• Warren Buffet and Christine Lagarde have labelled crypto as having no value. 

Crypto sceptics, or crypto catastrophists if you will, have been around since the advent of Bitcoin. They moan about BTC‘s ostensible worthlessness and band together in order to convince the world that crypto has no future as an industry mired with hacks, tax evasion and money laundering.

Amidst the turmoil of the crypto market crash, however, sceptics have doubled down on their critique.

Yet, there is a lot to say about an industry that achieved mass adoption, mainstream legitimacy and a $3 trillion market capitalisation in less than ten years – with no institutional backing, may I add. The usual spiel is that crypto has revolutionised and restructured outdated financial systems and increased financial mobility for the underbanked and unbanked. But, this isn’t a spiel because it’s true.

While the crypto sceptics’ voices get louder, real financial use cases have emerged. The fact that a labourer in El Salvador can pay his electricity bill instantaneously, avoiding the three hour arduous bus journey he would have had to take without the possession of a crypto wallet, proves that digital assets have real-world utility and value. But it’s rare to come across stories like this because we have been inundated with criticisms. Let’s take a deeper dive into what constitutes the current case against crypto.

Warren Buffet 

If you were new to crypto and came across the likes of Warren Buffet labelling Bitcoin as a “delusion” that only “attracts charlatans”, you may want to head for the hills. Yet, this is just one of the many attacks the long-time crypto critic has launched against Bitcoin.

During Berkshire Hathaway’s annual shareholders meeting in May, the world renowned investor said that he wouldn’t buy all the world’s Bitcoin for $25. Back in 2020, he labelled BTC as a “non-productive asset” during an interview with CNBC where he declared that cryptocurrencies, in fact, have no real value.

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His major criticism is that although Bitcoin is intended to provide real value as a payment system, that use is still limited because its value simply originates from the optimism that someone else will be willing to pay more for it in the future than you’re paying today.

As some institutions flip flop on adoption and retail investors bear the brunt of Bitcoin’s price swings, one thing is certainly clear; Bitcoin has value. Put into perspective, in 5,000 years, gold went from a nickel to $1,850. In 10 years, Bitcoin went from zero to $57,000. The numbers say it all and upon closer examination, any asset that can skyrocket from $40,000 to over $60,000 in the space of a few months is worth paying attention to.

Bill Gates

Another prominent sceptic is Microsoft co-founder Bill Gates who once packaged the entire crypto movement as simply “mania”.

Last month, he suggested that crypto and non-fungible tokens (NFT) are mere shams based on a “greater fool theory”. This reference alludes to the notion that investors can make money on worthless or overvalued assets as long as people are willing to bid them higher.

Gates, who prefers old fashioned investing, added that he is “not long or short” on crypto whilst mocking Bored Ape Yacht Club (BAYC) NFTs as “expensive digital images of monkeys” that do not “improve the world immensely”.

He added: “I’m used to asset classes, like a farm where they have output, or like a company where they make products”. This is often the case with cryptocurrencies whereby people mistakenly link tangibility with utility – a rookie error in a world that is increasingly moving towards digitisation.

Christine Lagarde

Finally, we get to European Central Bank President Christine Lagarde who in May stated that Bitcoin and cryptocurrencies are worth nothing. Her comments came at a time of heightened regulatory scrutiny of the crypto market. Lagarde stated:

“My very humble assessment is that it is worth nothing. There is no underlying asset to act as an anchor of safety. I’m concerned about those people who think it’s going to be a reward, who have no understanding of the risks, who will lose it all, and who will be terribly disappointed”.

This view reveals a misunderstanding of what different crypto-assets represent.

Crypto is a nascent industry and many projects are barely a few years old. Most crypto coins today act as start-up equity with the distinctive properties of having liquidity and price discovery from the start.

Also, most digital assets are a hybrid and transition from one category to another throughout their lifecycle. For example, Ethereum (ETH) started as a security since its coins were sold up front to fund development. But it later transitioned into being a cross between a currency and a commodity. It can be used as a store of value or medium of exchange, while others use it to pay for transaction validation.

These features separate it from traditional equity and commodities and the best metaphor for this is that you can’t pay for a taxi ride with Uber stock. In fact, ETH has evolved even further to a yield-bearing instrument, a collateral asset for borrowing, a reference currency for NFTs, and a means by which validators participate in consensus.

Overall, the crypto-sceptic community is deep and varied. It goes without says that the Terra-UST ecosystem collapse, which wiped out $60 billion worth of value and led to cascading failures among crypto lenders, raises many questions. But, ultimately if crypto booms, believers herald a revolution and if it falls through the floor, sceptic point to an Armageddon.

This article was originally posted on FX Empire

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