Bitcoin: Early adopter zeal –vs– Intrinsic Value

Smaulgld is a boutique web site that offers resources and analysis for economists, real estate professionals and pundits interested in real properties. They specialize in the ultimate intrinsic commodities: Real estate, gold and silver.

Its safe to say that, at Smaulgld, columnists don’t place Bitcoin high on their list of suggested portfolio assets. They argue against it as an investment and especially as a form of currency. Many others do though, articles at websites like About Bitcoin ( discuss its value in great length. Often people still don’t see its value though.

Bitcoin-05I’m OK with that. I don’t expect everyone to agree with my position on the new crypto-currency. In fact, some friends point out that I am smug in the belief that I was miraculously enlightened early in the dawn of a paradigm shift.

On Thanksgiving day, as the price of a single Bitcoin soared to $1200, a writer for Smaulgld, presented a surprisingly clear description of my psyche and attitude. It is hauntingly accurate and it forces me to face my motives and passion; perhaps even separate the passion from my arguments.


I am an early Bitcoin proponent. As editor and columnist at AWildDuck, I have advocated for it as a currency (and tangentially as an investment commodity) for two years with compelling arguments.*

I disagree with Louis Cammarosano’s argument and conclusions, specifically that:

  • intrinsic value is more important than scarcity and capped growth
  • government backed currency has intrinsic value in the absence of an unalterable link to a scarce commodity
  • US currency is rooted in anything more substantial that Bitcoin’s faith based advocacy

Withdrawing advocacy? …
No. But an acknowledgement

But in this update, I am not offering feedback to defend my position or promote debate. My belief that we will all be handling Bitcoins is solid. Rather, I acknowledge that the Smaulgld article takes me down a notch. It is the first article that impresses me with a clearly articulated argument against jumping on the Bitcoin bandwagon and not for the reasons that you might expect. In my opinion, the compelling and cautionary portion is not Cammarosano’s warning about intrinsic value (a fundamental argument), but rather the one that forces advocates to examine themselves especially the paragraphs that begin with these words:

  • Early adopters often overpay…
  • Bitcoiners fancy themselves as political activists…

While I don’t agree with the assertion that Bitcoin lacks the intrinsic value that is a necessary property of any currency (a fundamental argument), I am haunted by Cammarosano’s accurate description of the ego, bragging rights and compulsive behavior that drives early adopters, especially when it relates to a Geeky gadget or a difficult to grasp concept that the Geek insists will rise to commodity status and be universally adopted.

Yes, I am confident that Bitcoin will grow in trust, stability and adoption for many years to come. But this article a lucid contrarian view gives me pause. Several close friends have also argued against Bitcoin throughout my spasm of evangelism. They feel that my fascination with cryptocurrency has taken on a life of its own and will lead to both financial ruin and a lack of credibility (as the bubble bursts). Of course, warnings from friends weigh on my psyche. But until now, I have smugly taken refuge in my understanding and argument of Bitcoin’s underlying mechanism and its provable scarcity.

But Cammarosano identifies and pushes all of my emotional buttons. While, I can eloquently refute his argument about intrinsic value (Like Bitcoin, the US dollar is also “faith-based” the leading con of detractors), I am haunted by his understanding of emotions, technolust, and bragging rights.

Pro & Con Argument: The key difference

OK, OK! This a tribute to Louis Cammarosano and not a rebuttal. But its reasonable to articulate the primary area in which our opinions differ. It boils down to our disparate interpretation of Aristotle’s reference to Intrinsic Value as a critical property of any currency. For this reason, we have prepared a primer and of course, a Wild Duck conclusion. But in deference to Cammarosano, we have pushed that discussion off page.

Adoption Rate or Investment Bubble?

Bitcoin triple-chartThe debate about irrational uptake and greed and a comparison with the tulip panic in 17th century Holland will go on until Bitcoin is stable, credible and widely adopted. But for now, an observation: These charts plot the Dollar exchange rate when the Bitcoin value hit $75, $140 and $1242 (all during 2013). Note that all 3 charts look eerily similar. The only difference is the smoothing out of a June 2011 blip. (Actually, the bottom chart covers only 2013. The blip on that one occurred after the period covered by the earlier charts).

My point is that these charts are meaningless. Jumping in at any point will eventually seem like early investment genius if the trend continues. Of course, it will look like greed, sheepish behavior and panic if the Bitcoin value tumbles. Only fundamentals matter…

If you believe that Bitcoin adoption and credibility are growing, then the total future market cap of 21 million coins is small compared to world population and the $20 Trillion US dollar-denominated, debt based economy. If you believe that something without intrinsic value must eventually come back to earth (and be deemed worthless by the millions who now value it), then refrain from thinking of it as an investment. Simply wait a few years and then use it only if it becomes a major currency with benefits to you.

A Note About Reader Feedback

I invite comments. But this is not the place to address the fundamentals of Bitcoin as a currency or as an investment. Those arguments should be appended to past articles, especially our recent analysis: Is the US dollar backed by more than Bitcoin? Feedback to this article should relate to issues concerning the emotions and psyche of Bitcoin proponents and how non-fundamental arguments affect their attitude and behavior.

* Some readers are surprised that I am only acquiring my first Bitcoins now in Dec 2013 after it eased from $1200 to 700/coin. If I had purchased just a month ago, I would have paid $150 and if I had purchased when I first predicted its ascent, I would have paid less than $4 per coin.

3 thoughts on “Bitcoin: Early adopter zeal –vs– Intrinsic Value

  1. Is the argument for Bitcoin based on the fact that people are buying it? I don’t “buy” that argument.

  2. No, Stephen. Not because people are buying it, but because people are using it.

    “Buying” indicates an intent to INVEST. Let’s say that you are contemplating an investment in a Picasso painting. (An example of a scarce commodity, but with appeal to a limited community). Of course, the day-to-day value is based on supply and demand. That’s true of all tings. But with a painting, equity comes with risk and value is based more on the desire of a closed community than on widespread popular demand.

    Bitcoin (and the Ebay token) are not intended to be used like a Picasso painting (although the option is open to anyone who wishes to speculate). Instead:

    (a) Bitcoin is a currency *
    (b) A payment token is a debit card (or very similar)

    Neither (a) nor (b) are equity investments—although (a) can be used that way. They are transaction mechanisms. And (a) may have a profound impact upon world currencies, because with sufficient trust and adoption, it can replace the incumbents.

    * The wild rise and swings in Bitcoin value (especially the steep curve in exchange rate from 20011~2013) are the result of startup adoption. Some of that adoption may be due to speculation, but two other things very definitely drive adoption: Growth in trust and growth in the number of vendors accepting Bitcoin.

    Rapid adoption is not unusual, in the ramp up and shakedown of any pretty new thing. But, this is not restricted to transient fads. It happens with fads (who remembers Cabbage Patch dolls), investments (Dom Perignon 1952), commodities (DVD players), and currency (the Euro). In the case of the Euro, it was deemed legal tender by government consensus and it is necessary for the payment of taxes. In the case of Bitcoin, we are witnessing the user-driven counterpart to government backing. It’s a two sided network effect.

    But if Bitcoin becomes the next widely adopted currency—even if only for a fraction of internet transactions—then we won’t be asking “What is the current value of a coin?” (say, in US dollars). Rather, we will be asking “What is the value of a dollar?” in those rare circumstances that we need to conduct a transaction in dollars.

  3. Ellery, ok. I will give you 20USD of “me” coin for nothing, Please use it in my frilly shop so I can pay my incumbents.

Ellery reads all feedback. 1st comment delayed for moderation