Dear Vivek Kaul,

I love your writing and I have followed you as an economics enthusiast for years now. So, with all due respect, here is an open letter that addresses all the points in your detailed article.

I am a sane bitcoiner and I would like to apologize for all the abuses you would have faced on Twitter. All I can do is respectfully discuss with you on a public platform, point by point. Let’s go.

Dali’s cheque

You gave an example of the great painter Salvador Dali and how he started paying by making sketches behind a cheque. Then he flooded the market with too many of these sketches.

Dali’s cheque is a classic example of a centralised authority flooding the market with too much money supply. Most bitcoiners could not have explained the raison d’être this well. So thank you for that.

To the uninformed, because of bitcoin’s mining economics and consensus algorithm (technical and social consensus) that is built in its open-source code, its supply is always predictable and limited. The integrity of the rules defined in this code is protected by the mammoth processing power of bitcoin miners.

While you are right and many bitcoiners and crypto folks don’t understand bitcoin themselves, it is a great opportunity to clarify what few understand.

The larger point here is that unlike the paper money system (or to put it slightly more technically the fiat money system) which can be manipulated by central banks and the governments, the bitcoin system can’t.

We can agree on this but the fact that you think bitcoin started with a grand goal is off the mark. 

You said, “bitcoin was supposed to be a grand idea.”

Bitcoin was always considered as a nerdy experiment. It did not start as a grand idea. Most people take years to fully grasp what bitcoin is and we’re only understanding it’s beauty in hindsight. If it was a grand idea, most early bitcoiners would be Elon Musk wealthy today. 

No one took it seriously, and I can’t say it has changed even now. Having been studying bitcoin for over four years now, I can say that there might be a hundred people on this planet who really understand bitcoin. A few like myself are trying to grasp the grandiosity of bitcoin. Many others are speculating and most of the world is oblivious to bitcoin apart from its price action.

So, while there are people like me, who believe bitcoin has a fair chance of becoming the world reserve currency, I would be stupid to say that is a concrete goal for any one of us apart from those special hundred.

The question is, in these times of easy money, has bitcoin reached anywhere near its original goal or is it just another way of pure speculation.

Let’s look at all your points.

Bitcoin as a Store of Value: This comes from a very shaky understanding of what the term store of value actually means.

In this section, you talk about two key points:

• How can bitcoin be a Store of Value if price is this volatile
• Purchasing power of bitcoin is not constant so either value of everything else is depreciating pretty quickly or bitcoin is a bubble

This is a contention that every economics student and a new entrant to the bitcoin space has. Let me address these.

Gold is a universally agreed Store of Value (SoV) because its supply is stable, there is no counterparty risk, and price has been relatively stable. But imagine how Gold price would have been in its initial days. Gold is a mature and proven Store of Value. Imagine traders in 6th century BC in Antolia, did they know the value of Gold? No. As bitcoin matures, these wild speculative swings will become less volatile to a level that within 50 years, the supply and economics will largely be stable.

You are right, the reason for this volatility is speculation where old holders (we call them hodlers for a very strange reason) attract new speculators. If you look at the 4 year swing cycle, you will see volatility % (different between peaks and troughs) is getting smaller by a significant margin. 

Right now there is no living being who has witnessed emergence of a new Store of Value. This is a theory of how Gold must have matured over a period of time. Do you think Gold supply on the planet (or in one economy) increased only by 2% in its initial days? No, it would be as wild as bitcoin today, in terms of supply and also price. Like you said, there is no chart for Gold for its early days, just like a part of the bitcoin chart is missing too.

Let’s address your second point: Purchasing power of bitcoin is not constant so either value of everything else is depreciating pretty quickly or bitcoin is a bubble.

Your quote: “If bitcoin really was money, using which we could make and receive payments and borrow and lend, the recent rally would have created a havoc in the economy.”

Here, I would like to present a 100 year chart of Gold.

Do you think the purchasing power of Gold suddenly went up after 1971 and hence everything else should have deflated in price? No, because we are not valuing Gold to Chai or Gold to a Car.

A price chart only indicates how two variables are doing and the fact is that when compared to Gold or bitcoin, Fiat currencies like USD/INR are losing out because of unhinged money printing.

Purchasing power is a mythical concept that is always measured in some abstract concept, be it Gold or USD or bitcoin.

What does the rise in the value of any form of money really mean? It means that the price of everything that money can buy is falling. And in this case prices would have fallen big-time. As Goldstein puts it: “This rise in the value of bitcoin would have caused a deflation far worse than the one in the Great Depression.” Deflation is the scenario of falling prices and is deemed to be dangerous because people keep postponing their consumption in the hope of getting a lower price. This hurts businesses and the overall economy.

This chart only indicates the fact that USD is losing its value against bitcoin. It has nothing to do with purchasing power, which can be measured with any baseline. If one Parle-G is getting %-wise more expensive than one chai, that doesn’t mean every other asset is deflating. It means chai is losing its value.

Also, if you can see, a sane bitcoiner will never claim bitcoin is money. It is a Store of Value and that is all we’re claiming right now. So let us address your concerns regarding that.

In its current form, bitcoin is no store of value. If it was to be used as money, the world would hyperventilate between deflation and inflation.

Price of a Store of Value has nothing to do with “everything” in the economy. Each asset has a different value depending on the base of the chart we are looking at. Yes, compared to Fiat, most other assets’ value is inflating and compared to bitcoin, it is deflating.

Another key characteristic of money is that it is a medium of exchange or to put it in simple English, it can be used to buy things (like Dalí bought meals at expensive restaurants).

As a sane bitcoiner, I would agree with you. Bitcoin’s scalability is a question, and with transaction fees being so high, it is not a Medium of Exchange (MoE).

Many of us are hoping a Layer 2 solution like Lightning Network will solve this problem.

While this is yet to be seen, it doesn’t negate the fact that bitcoin is still valuable for storing my wealth (SoV) just like Gold is an amazing SoV but a bad MoE.

The bitcoin believers like to compare it with gold. The reason gold has acted as a hedge against the proclivity of the governments and central banks to create paper money out of thin air, is that it cannot be created out of thin air. While alchemists, which included Isaac Newton as well, have tried this over the centuries, no one has been successful in developing a chemical formula that converts other metals into gold. Bitcoin works because of a similar dynamic, the believers tell us. There is a limit to the number of bitcoins that can be created and as time passes by it becomes more and more difficult to mine bitcoins. That’s how the code behind bitcoin is written.

But the thing is that the code behind bitcoin is freely available. Anyone can take it and tweak it and come up with a new kind of money. Over the years this has happened and many of these new forms of money have ended up as shitcoins.

You got us here, sir. Yes, Issac Newton did try to create synthetic Gold. But as you know, that Gold was not nearly as valuable as the real one. Here, what you are talking about is integrity and verifiability. Gold is rock solid in these areas.

And so is bitcoin. You cannot create bitcoin out of thin air. It requires mining and computational effort to do that. Over the last five years, it has become very expensive to create one bitcoin via mining and the mining costs will continue to rise, as it does with Gold. 

Yes, because the code is open source, one can always copy and create xyz coin. But is this xyz coin nearly as decentralised or valuable as bitcoin? You are right, most of them are shitcoins. So how does this affect bitcoin’s integrity? 

Gold’s property of being verifiable (in terms of purity) makes it an excellent SoV. Verifying Gold’s purity means you know the source of Gold is correct. Same with bitcoin. With a pseudonymous blockchain, for each bitcoin in your wallet, you can trace it back to the source. That is verifiability and bitcoin does that well, some would say, much better than Gold because I do not need specialised equipment to verify whether my bitcoin is real or fake.

As Quinn and Turner write:

“In August 2016, one bitcoin was trading at $555; in the next 16 months its price rose by almost 3,400 per cent to a peak of $19,783.3 This was accompanied by a promotion boom, as a mix of cryptocurrency enthusiasts and opportunistic charlatans issued their own virtual currencies in the form of initial coin offerings, or ICOs. These coins had, on the face of it, no intrinsic value – to entitle their holders to future cash flows would have violated laws against issuing unregistered securities – but they nevertheless attracted $6.2 billion of money from investors in 2017 and a further $7.9 billion in 2018.”

A lot of this money never came back to the investors. There is no way to make sure that this won’t happen in the future.

This is similar to saying someone sold fake Gold to investors so the real Gold doesn’t have any value. 

Free market for money

Also, at a broader level, a free market in money is a bad idea. The United States went through this situation sometime in the nineteenth century (Something I discuss in detail in the first volume of Easy Money). It was very easy to get a banking license and banks could print their own money.

As Goldstein writes: “Not all banks were shady. Not even most banks were shady. But the notes printed by the shady banks looked as legit as the notes printed by the honest banks. And there were a lot of notes—at one point, the Chicago Tribune reported that the country had 8,370 different kinds of paper money in circulation.” Imagine the confusion this would have created.

It was also easy for counterfeiters to manufacture their own paper money. In this scenario, a guide called Leonori’s New York Bank Note List, Counterfeit Detector, and Wholesale Prices Current was published once a month. An issue of this guide, dated 18 November 1854, shows that 1,276 such banks were in operation in various states and 825 different kinds of forged notes were in circulation. The financial system was in a total anarchy.

While it is easy to make a case for a non-government decentralised money system, what may lie in store isn’t something we may want in the first place. The sad part is very little thinking has happened on this front. Saying, let the best money win is a very insensitive way to go about it.

I have had this conversation with some top economists in the world and because most of them are Keynesian economists, they only look at the last couple of centuries for examples. I can see the same fallacy here.

Humans have been trading for most of recorded history, with historic proof from 17000 BC. Sovereign currency is, at best, a couple of millennia old. Fiat currency, the one that the United States decided to implement by getting rid of the Gold Standard, is not even a century old. 

Many readers will be surprised to know that the Fiat currency experiment just started in 1971. USD/INR/GBP/EUR have been called Fiat, defined as, “An intrinsically useless object that serves as a medium of exchange. (also known as fiduciary money.)”

So the case for free markets is as old as human history. As Nassim Nicholas Taleb would say, free money markets are Lindy.

While on the other hand, world reserve currency has changed every century. The illusion of the mighty USD is only as old as we are.

As a sane bitcoiner, I am still considering ‘bitcoin as a world reserve currency’ as a hypothesis and a possibility. I wouldn’t claim it would happen.

The bitcoin code which limits their number to 21 million units is written in C++. As Sean Williams writes on Fool.com: “Last I checked, code can always be erased and rewritten. While it’s unlikely that a community consensus would be reached to increase the circulating supply of bitcoin, the possibility of this happening isn’t zero.” Anyway this possibility isn’t going to arise until 2140, when the last fraction of the bitcoin will be mined, and by then you and I, won’t be around. So, it doesn’t really matter.

Yes, you are right. But not even most ardent bitcoiners (who will be busy abusing you on Twitter right now) do not know that there is a ‘social consensus’ mechanism that has prevented such events in the past.

Changing the code (and specifically supply) means the entire network and every bitcoin holder loses their precious wealth. We do not need to be as smart as a bitcoin developer to know that it is in their benefit not to touch the core parts of this code.

If they do, bitcoin does lose its value and I know that is a risk I am taking. The question here is: whether you trust your chancellor whose incentives are not aligned with you (a commoner) or a developer whose interests are 100% aligned with yours?

PS: We know how trusting the chancellors have worked out. See Milgram’s experiment. It basically says when you give someone unchecked power, they will misuse it. For example, the US stopped printing their M3 (total money supply) since 2006. How do you hold such monopolies accountable?

Let’s talk a little more about paper money. Why do others accept it as money? Because they know that the government bank/central bank deems it to be money and hence, still others will accept it as money as well.

Hey Vivek, let’s call it Fiat money instead of paper money? So we’re clear, it doesn’t matter whether it is paper or digital. It is either Fiat or not. Gold is not Fiat and not paper.

Also, I would prefer not using the word money because we have never defined it. But I think we can agree anything that is money has to be a Store of Value, Medium of Exchange, and a Unit of Accounting (UoA). 

I, a sane bitcoiner, am not saying bitcoin is MoE or a UoA as of now and for the next few years. Bitcoin has to cross those milestones by conquering scalability and beating volatility. We discussed this.

As L Randall Wray writes (…):

“The typical answer provided in textbooks is that you will accept your national currency because you know that others will accept it. In other words, it is accepted because it is accepted. The typical explanation thus relies on an ‘infinite regress’: John accepts it because he thinks Mary will accept it, and she accepts it because she thinks Walmart will take it.”

What Randall Wray forgets here is the factor that no common person was ever introduced to the concept of MMT, Quantitative Easing or Austrian economics. So this is the only system introduced to them until bitcoin. They knew they had to trust someone. So they chose to trust the Chancellor’s paper.

bitcoin introduces a choice to trust the MMT or a piece of code backed by solid mathematics and cryptography that hasn’t been hacked for eleven years now.

While this sounds correct there is a slightly more nuanced answer to the question.

There are three main powers that any government has: 1) The right to “legal” violence. 2) The right to tax. 3) The right to create money out of thin air by printing it.

Hence, the government creates demand for paper/fiat money by accepting taxes in it. This has ensured that the paper money system has kept going despite its weaknesses.

I am glad we are talking about the fact that Fiat system is going because governments see it fit their motives.

To the readers, read Vivek’s point 3 again and again, print it, stick it on the wall. This is what Fiat money is. Then read what is hard money. This is the reason Indian elders always preferred Gold. It is one of the few forms of hard money that has mass appeal.

What this also means is that for bitcoin to become popular and move beyond the nerds, it needs a use case as solid as paying taxes in what government deems to be money, is.

I couldn’t agree more with you.

People are already paying taxes in bitcoin. Where? In the US, Switzerland, and maybe in the EU. And hey, they are even getting their tax refunds in bitcoin. 

How cool is that?

On a serious note, do you see game theory at play here? Countries are competing to attract a Trillion dollar crypto industry. And bitcoin, my friend, is $700 billion of that trillion. I am sure you can imagine what bitcoiners are thinking now.

It is worth remembering here what Wray writes: “For the past 4,000 years (“at least”, as Keynes put it), our monetary system has been a “state money system”. To simplify, that is one in which the state chooses the money of account, imposes obligations (taxes, tribute, tithes, fines, and fees), denominated in that money unit, and issues a currency accepted in payment of those obligations.”

Let me introduce the fourth point that you missed. Government, until a couple of centuries ago, were also supposed to have one other power. To impose religion. Every government had a monopoly on the religion of their country.

Then came the separation of Church and State. You know a lot of people thought a secular country was a crazy idea. I can imagine someone saying, “For 4000 years every sovereign has had domain over religion. Do you think a government will give that up?”

Not many people know, but the trigger to separation of Church and State was the Printing Press. Yes, one technological innovation and suddenly the Church did not have monopoly over books (and knowledge).

Many people compare bitcoin (as an innovation) to the internet. I believe it is much bigger than that. It is as big as the printing press.

Now, before I start sounding unreasonable for the sheer lack of page-space and scope of this article to explain this point, let’s get back to the point that bitcoin is still a better Store of Value than Gold.

This is not to say that governments haven’t destroyed money systems in the past. The history of money is littered with examples of kings, queens, rulers, dictators, general secretaries and politicians, representing governments in different eras, having destroyed different money systems at different points of time. But the government has always comeback and controlled the money system the way it has wanted to.

Thank you for acknowledging this. But I would like to point out that governments have not only destroyed money, but when a government starts debasing their currency, it leads to more than inflation.

It leads to the collapse of civilisations. Here, here, and here. And Rome is not the only one.

And unless governments and central banks start taking a liking to bitcoin, there is no way its usage is going to spread to a level where it can hope to challenge the prevailing paper money system. It is worth remembering that if governments start taking interest in bitcoin, it in a way beats the entire purpose behind its creation.

You have an interesting perspective and you understand us bitcoiners well.

I, on behalf of all the sane bitcoiners, would like to clarify that we do not think bitcoin will replace anything. Just like Gold and Fiat and others SoVs (metals, property, paintings, vintage stamps) exist, bitcoin is here to offer an alternative.

Fiat has its uses and benefits. Please excuse some of my fellow bitcoiners who claim that bitcoin is God’s own creation. Also understand that they have been living under a rigged system all their lives and probably have been cheated by traditional financial institutions.

Even if Satoshi resurrects and says this, I am not for breaking the system. But bitcoin will build a more robust system, and educate the masses about the ponzi that is Fiat Standard.

I am not even getting into the Cantillon Effect that a country like India experiences when the US decides to use their money printers. But you get the drift here.

Also, every government will want to protect its right to create money out of thin air. Right now bitcoin is too small in the overall scheme of things for governments to be bothered about it and hence, they have largely humoured it (not in India though).

Thank you for educating a ton of finance enthusiasts that the government will want to protect its right to create money out of thin air.

Now, can you please wear the hat of a common citizen and see what you want? 

Is it too unreasonable to see the fact that governments won’t be able to do this perpetually? Just like no civilisation in history has been able to continue debasing their money without facing a collapse.

Here, I do not want to give an impression that there will be a revolution or a citizen’s uprising. This is a global world. Talent and capital migrate at a fast pace. Capital is already moving to places like Switzerland, Malta, Estonia, Singapore because they have crypto-friendly regulations. Talent is migrating too. 

Many of the Indian crypto startups (worth hundreds of millions of $) are already migrating. Estonia gives Permanent Residency to crypto entrepreneurs. I feel sad to see my country lose out.

You have to see that this is the first time in human history that countries are competing with each other for capital and talent.

The market capitalisation of bitcoins (number of coins multiplied by the dollar price) as of January 8, peaked at around $759 billion. The global GDP in 2019 was around $88 trillion. So the price of bitcoin even at its peak was lower than 1% of the global GDP.

Wow. You are telling me there is so much potential for growth? Okay, one more thing both of us can agree on.

By the way, bitcoin is already larger than any of the banks, Berkshire Hathaway, and many of the currencies. Just half way the market cap of Gold, btw.

Enough fun. Seriously, you are saying $700 Billion market cap in 12 years without a CEO, a company or an entity is insignificant?

Hence, the bitcoin story is like that of a rich Indian father basically allowing his son to play around, until he thinks that the son now needs to grow up.

Actually, I think my grandfather would have loved bitcoin. He was the one who never trusted anything apart from Gold. I think Indian culture is inclined towards savings (as opposed to living on EMIs), which requires a reliable and modern Store of Value.

There is another point that needs to be made here regarding the paper money system. This is something I realised while writing the third volume of Easy Money and it makes me sceptical of anyone who wants to write off the paper money system in a hurry. (Before you jump on me for being a blanket supporter of the paper money system, I am not, but then that doesn’t mean I don’t see logical arguments when they are offered).

Many years back, in one of my first freelancing assignments, I happened to interview the financial historian Russel Napier. He explained to me the link between paper money and democracy. As he told me on that occasion:

“The history of the paper currency system, or the fiat currency system is really the history of democracy … Within the metal currency, there was very limited ability for elected governments to manipulate that currency. And I know this is why people with savings and people with money like the gold standard. They like it because it reduces the ability of politicians to play around with the quantity of money. But we have to remember that most people don’t have savings. They don’t have capital. And that’s why we got the paper currency in the first place. It was to allow the democracies. Democracy will always turn towards paper currency and unless you see the destruction of democracy in the developed world, and I do not see that, we will stay with paper currencies and not return to metallic currencies or metallic-based currencies.”

Back then bitcoin wasn’t really on the radar. The reason people with savings liked gold back then, is why many of them like bitcoins now.

I love it that you understand that Fiat is for manipulation. We agree on this.

As a tech startupper, my aim is to solve this problem, not say “this cancer can’t be cured”.

In bitcoin, I see an alternative. I understand that you do not. But that doesn’t mean no tech will ever be able to solve this problem of currency manipulation.

All I can read in the above paragraphs is: governments will not let you do it. For once, think like a common citizen first. 

Second, don’t see governments as these hegemonic singular entities. They are made up of people. And there are many governments and jurisdictions all competing with each other.

If, as a citizen, you decide what is right for you, some government will end up serving your interests and this will trigger the dominos in line.

The twentieth century saw the rise of both paper money and democracy. Pure paper money started coming into being after the First World War. The reason for this is very straightforward. In a democracy whenever there is a crisis, the politicians and the technocrats advising them need to be seen to be doing something.

As an ex-RBI Governor once told me, do nothing cannot be a strategy. And this need to be seen to be doing something, can most easily be fulfilled by manipulating the paper money system that prevails in a democracy. It gives central bankers the option of printing money and driving down interest rates in the hope that people will borrow and spend more and businesses will borrow and expand.

Wow. So you are saying all that printing happens because ‘governments want to be seen to be doing something. And that we, as citizens, cannot do anything about it.

That is like saying, “Hey, this is why cancer grows.” 

Me: “Yes, great to know. So why don’t we cure it? Here is something that might work.”

You: “No, the cancer doesn’t want us to try. That is how it has been for thousands of centuries.”

Sorry, as a bitcoiner, I am here to cure this cancer. I hope someday you join us.

Of course, this has its own problems (as I keep highlighting in my pieces over and over again). But then, the prevailing system does really allow politicians to show that they are trying. Any other system would take this option away from politicians. Hence, the paper money system is not going to be replaced in a hurry. No government is going to let go of this privilege.

“Hey, these cancer cells are fighting back.”

The bitcoin farms, as they are known as, need a lot of electricity. Hence, mining operations have moved to countries where electricity is cheap. They have moved to countries like Iceland, Mongolia and primarily, China.

This has created another problem. As Goldstein writes: “By the beginning of 2020, Chinese miners had grown so large that they controlled most of the processing power on the bitcoin network. And the way the code for bitcoin was written gave them control over the system.”

I will let Satoshi himself answer this:

Satoshi addressed this matter directly in the white paper:

“The incentive may help encourage nodes to stay honest. If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favor him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.”

For our readers, simply put, if I had enough mining power to break the system and take all the bitcoins for myself, the value of bitcoin will go to zero in a day.

The network’s integrity is its value. So I would be a stupid attacker to hold millions of bitcoins worth $0, not to mention the mining equipment would be useless.

One of the key points of bitcoins was that it was a non-government decentralised money system which promised freedom from the middlemen. But that hasn’t really happened. As Quinn and Turner write: “[bitcoin] had promised freedom from middlemen, but trading it without a third party was cumbersome unless the user was expert in cybersecurity.”

So yes, buying bitcoin on a centralised exchange does mean you are using a counterparty.

But it eliminates two major risks:

• Supply risk: No Cantillon Effect from money printing
• Custody risk: I could buy it from an exchange but store it in my hardware wallet or even on a paper. No one can take it from me or invalidate my bitcoins one day 😉

If you are using a broker to trade bitcoin it beats the entire idea of freedom from middlemen. Also, the moment you convert your money into fiat money and the money comes into your bank account, the entire idea of remaining unknown and the government not knowing what you are doing goes for a toss. Hence, you may have your reasons to buy bitcoins, but basically you are speculating.

That is why Elon Musk, the world’s richest man, prefers to get paid in bitcoin. No buying from an exchange.

You might want to ask why you haven’t heard all this in the mainstream media. The reason for that lies in the fact that the incentives of the media are misaligned these days. Most investment related news is presented as a money-making opportunity. Hence, in this case the bitcoin believers have gotten more space and screen time in the media.

I think the mainstream media doesn’t understand bitcoin nearly as much as you do. So thank you for this article. It is an amazing analysis. And I am happy that you have studied bitcoin so much to understand it from tech, finance, and economics perspectives.

I don’t agree that mainstream media promotes bitcoin or crypto in any way. We have been shunned for a while, been called rat poison, a ponzi, a bubble, going to zero, and what not!

You would be surprised to know that we are not allowed to advertise by some of the largest media companies in the world, including tech giants like Google.

Twitter CEO’s profile says bitcoin. But you can’t advertise crypto on Twitter as easily as you can peddle a penny stock.

Many of the bitcoin believers are like the original investors in a Ponzi scheme. They have an incentive to talk up bitcoin, get more investors into it, drive up its price and make more money in the process. (In fact, these are precisely the kind of stock market investors that you get to see on TV and read in the media most of the time, but that is another topic for another day).

But have you seen such passion for holding a particular stock? We are crusaders.

You may see me as ‘promoting bitcoin’ because I want to sell it to you. From my perspective, when I talk about bitcoin, I have skin in the game.

And I am not selling my bitcoin to anyone.

Also, given the extremely short attention spans that people have these days, the written word doesn’t find much of an audience. As Quinn and Turner put it: “More fundamentally, the move away from the written word to television financial news, docusoaps and social media may corrode the ability of investors to think clearly and understand the complexities of the financial system.”

You cannot understand economic history and the complexities of the financial system by watching TV or watching stuff over the internet or even listening to extremely detailed podcasts (podcasts can just give you a flavour of things and a feeling that you are actually learning a lot). The only way to do understand complex issues is to read, read and read more.

See, our weapons are our memes. We will change the world with these memes.

But yes, please see Andreas Antonopoulos’ YouTube videos and you will find them enriching.

Okay, if you won’t budge, let me suggest some reading. Here is Professor Saifedean Ammous’ book. This is enlightening, especially after reading Yuval Noah Harari’s Money.

We live in an era of easy money. Central banks have printed trillions of dollars during the course of 2020 to drive down interest rates in the hope of encouraging people to borrow and spend and businesses to borrow and expand. Interest rates are in negative territory in some of the European nations.

In this scenario of very low interest rates, investors are desperate to earn returns. Hence, a lot of money has been invested into stock markets all over the world, driving them to levels not justified by earnings that companies are expected to earn in the years to come.

Some money has also found its way into bitcoins. As The Economist puts it: “The current surge seems to have been spurred by interest from the financial establishment, most of which had long scorned it.” In simple English, hedge funds are buying bitcoins. Given that bitcoins are thinly traded, this has driven up prices by astonishing levels. Hence, like stock markets, bitcoin is also in bubble territory.

Yes, chai price went up from 5 rupees to 15 rupees near my office in five years. 300% in five years? Must be a bubble.

No. Everything is going up against Fiat currencies. Or, see it this way, Fiat currencies are going down against everything else.

So what is the bubble?

PS: “Hedge funds are buying bitcoins.” – Vivek Kaul (meme this, folks!)

And as we have seen over the past few decades, hedge fund money can be quite mercurial. They can drive down prices faster than they drove them up.

To conclude, the fact that the price of bitcoin is so volatile tells us that most people investing in it aren’t really bothered about the long-term story of bitcoin as money, the bitcoin believers try selling all the time. If they did believe in this story they would have bought bitcoin and held on to it. But as the crash of 2018 showed that is clearly not the case.

True that. Most investors do not understand bitcoin. Not that everyone who buys a stock reads the company’s balance sheet.

As Saifedean Ammous writes in The bitcoin Standard, the bible of the bitcoin believers:

“Buying a bitcoin token today can be considered an investment in the fast growth of the network and currency as a store of value, because it is still very small and able to grow many multiples of its size and value very quickly. Should bitcoin’s share of the global money supply and international settlement transactions become a majority share of the global market, the level of demand for it will become far more predictable and stable, leading to a stabilization in the value of the currency.”

(Ha ha, this is to show that I also read stuff I don’t really agree with).

You got me. Respect for reading our Bible.

I read Keynes in my management school and again after reading the Austrian school of thought. So we do agree on a lot of things.

Hey Vivek, next up, some Mises?

I am not clairvoyant. This may happen. This may not happen. My reading of economic history tells me it won’t. But then I might turn out to be wrong. What do they say about history not repeating itself but rhyming? But what if it doesn’t rhyme as well?

Thank you. Time and markets are the best judge.

There are no guarantees when it comes to economics. The trouble is that while you are waiting for all this to happen, the price of a bitcoin is at the level of a very very very very expensive large cap stock and its volatility is that of a small cap penny stock.

Yes, I tell this to everyone who asks me about bitcoin or crypto in general. It is a high-risk investment. Know what you are getting into.

That is why, at WazirX, we educate and not sell.

So, if you do invest in bitcoin, do understand that you are taking a punt, you are speculating, you are hoping that the price goes up and does not fall. Also, don’t go looking for fundamental reasons for investing in it.

Given that investing in bitcoin is equal to taking a punt, please don’t bet your life on it. As the old cliché goes, don’t put all your eggs in one basket.

True. Wall Street fund managers like Paul Tudor Jones believe they should invest 1-2% of their portfolio in bitcoin.

PS: This doesn’t mean I am don’t believe in digital money. I do. But I also believe that it will be controlled by large corporations and the governments.

We have our beliefs, analysis and bets. Let the best one win!

“Paav ke kaante ne bataya hai, iss gali me gulaab hai sahab.”

– Gulzar sahab

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Credit: Memes by our friend, @DrDent