Is Bitcoin the Future of Money?
To catch a glimpse of cyber-libertarianism in its natural habitat, I ventured to a December 19 holiday party organized by Cryptos.com, a business incubator for Bitcoin startups; BitcoinNYC, a meetup group; and Halfmoon Labs, which builds trading platforms. I was hoping to find some wildly anti-statist libertarians, and my hopes were further stoked by the first person I saw upon entering—a tall, skinny man with a red bow tie, the very picture of an Ayn Rand adept.
But it was not to be. Though the air wasn’t free of libertarianism, most of the partiers I talked with were interested in running Bitcoin-related businesses or speculating in the currency. Many had day jobs in tech or finance. It was mostly male (but not overwhelmingly so) and mostly white. Only one person was wearing Google Glass. From national surveys of unproved rigor, your typical Bitcoin enthusiast is a 30-ish libertarian white male—though the same survey finds 39 percent of the fan base leftish in some sense. The group at the holiday party, probably because of its business-y skew, was somewhat more diverse.
Cryptos.com founder Nick Spanos worked two cellphones. When I introduced myself and turned on my iPhone voice recorder, Spanos was not cooperative: “I don’t talk to reporters I don’t know. Turn the thing off.” After I did, he told me the place was filled with Bitcoin millionaires—ten of them under 21. When I asked what kinds of businesses they were in, he replied: “All kinds.” That was the end of the interview—a cryptopromoter for a cryptocurrency.
Another partier, Marshall Swatt, the chief technology officer at Coinsetter, a Bitcoin trading platform for institutional investors, was more helpful. Swatt told me that, after building trading platforms for established Wall Street institutions, he was looking for something more entrepreneurial. When I asked him whether Bitcoin was money or a trading asset, he said it was an open question. (In late March, the IRS ruled that Bitcoin is an asset, not a form of money, and that mining and trading gains are subject to income tax.) Bitcoin would need to develop a large consumer market to be taken seriously as currency. Swatt thinks it will: Virgin Galactic, Richard Branson’s scheme to take tycoons into space, accepts Bitcoin. But that’s by nature a small market. To get taken seriously, Swatt would love to see Bitcoin adopted by Google, Amazon, Facebook and Apple. Asked to explain its appeal, Swatt replied that it’s an “extremely well-crafted device,” secure and mobile. Unlike many Bitcoin enthusiasts, Swatt doesn’t talk trash about gold or fiat currencies—he sees it as a complement to state money. It’s deflationary like gold, but like money (and unlike gold), it’s easy to use. He predicts a trillion-dollar volume in Bitcoin someday, though with the supply so tightly limited, that would send the value of a single coin through the roof.
* * *
Bitcoin’s limitations as a currency may be why most of the world’s central banks have tolerated it. States are fond of their monopoly over money. Federal Reserve chair Janet Yellen said in late Feburary, right after the Mt. Gox collapse, that the Fed lacked the authority to regulate Bitcoin because it’s outside the banking system. The Danish central bank stated in a press release: “Bitcoins are not money in a proper sense as there is no issuer behind them. Instead, bitcoins display the characteristics of a commodity to which users attach value. Unlike precious metals such as gold and silver, bitcoins have no actual utility value, bearing closer resemblance to glass beads.” The bank found the market too small to worry about; all the risks are on a small number of participants. And the market is very small: the value of all bitcoins outstanding is $5.9 billion—0.05 percent the size of the US money supply (by the Fed’s M2 definition).
Two Goldman Sachs economists, Dominic Wilson and José Ursua, largely concurred with the Danish evaluation. “We would argue that Bitcoin and other digital currencies lie somewhere on the boundary between currency, commodity and financial asset. Our best definition would be that it is currently a speculative financial asset that can be used as a medium of exchange.” But they also make an important point: the peer-to-peer technology behind Bitcoin could become a model for moving money around without third-party verifiers, like banks.
Bitcoin is not without friends on Wall Street. Gil Luria of Wedbush Securities is following it; he describes the recent volatility as “extended price discovery,” which is a way of saying that no one knows what it is, what it will be or what it’s worth. His firm is selling his Bitcoin research for payment in bitcoins.
* * *