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.

After years of buying from China, time to pay the bill

I wrote this in April 2011 as feedback to this article in PC World.

After decades of buying from China, it’s time we paid the bill.

Step back from rhetoric & ideology. What, exactly, do we expect the Chinese to buy with all the dollars that they’ve amassed? What happens if we try to dictate their options? –Making available just a few items at the bazaar?

Most Americans want balanced trade. Trade is balanced by encouraging foreigners to return dollars to America. That means purchasing goods & services or investing (purchasing equity or debt). But purchasing debt isn’t real balance. It postpones and magnifies a trade imbalance.

The Chinese have built vast quantities of products that we consumed for more than 30 years. For whatever reasons, they have built them cheaper and responded quickly to consumer demand, and with sufficient quality and style that we loved acquiring them.

Now China has pockets stuffed with dollars. There are so few places that want those dollars, the logical recourse it to spend before it depreciates. That’s logical. Getting them to use those dollars is what we want.

The US exports movies, airplanes, weapons & software, and we charge foreigners to attend our Universities. On the international stage, that about sums our brag sheet. But when we consume trillions from foreigners, do the promissory notes that we issue (“dollars”) limit them to these few commodities? What else can the Chinese purchase that isn’t manufactured closer to home, better, and in larger quantities? They export the really big ticket items themselves–like skyscraper contracting, oil drilling, nuclear technology!

When a foreign corporation or government wants to purchase something significant from the US, suddenly we stop yelling “Buy American” and we start yelling “Security Threat!”. Poppycock! If we create such enormous red tape that international telecom players cannot acquire or invest in one another, we reduce liquidity and further weaken our dollar. Face it: Our start up companies are commodities as certainly as a retail copy of Windows, a Boeing jet or a patent portfolio. When we turn up our nose at healthy interest in intellectual trade or infrastructure acquisition, we are not protecting our interests. We are simply informing trading partners that they were fools to trust us, and that the dollars they stockpiled can be redeemed only in Hollywood films.

It’s natural to be skeptical. China is controlled by an authoritarian dictatorship. Citizens lack social & political freedom. But don’t be misguided about their economy – both within and abroad. It is lubricated by capitalism and is more adaptive and free-wheeling than our own. Whatever their shortcomings, we accepted these when they were selling. We must also allow them to buy. Our technology plays are the only thing on our menu.


  • A) If we refuse to allow the Chinese to repatriate dollars or offer them only the local goods of our choosing – typical of a Banana Republic – then they will dump our dollars and also stop buying our debt. It would crush our economy in a heartbeat.
  • B) If we allow those with large stockpiles of our dollars to use them as they see fit, the dollars will return to build factories, create jobs, and produce good, old fashioned innovation. But this won’t happen with newly printed dollars. It doesn’t work that way, because that weakens both parties and makes our factories unattractive. It must be the dollars that we willingly handed over for TVs, computers, shoes, toys and even building materials. We must accept that we owe China—big time! For decades, we passed off pictures of George & Ben in exchange for tangible goods. We knew the Chinese crafted high tech goods for less and that the political system was repressive. But we looked the other way. We really wanted those things! Whether you like their government or not, we promised to expend future time and resources supplying their children with commensurate goods.

Why does China say “America works for us”
Click image to learn why (video = 1min)

This video was commissioned in an effort to defeat Obama’s 2010 universal health care bill. It has terrific shock value. It depicts what China believes to be our economic weakness. I won’t comment here about health care or stimulus economics. It’s unrelated to my point. But the video also depicts what Chinese believe to be their imminent destiny, perhaps at America’s expense.

They deserve all of the positive things they have earned. Although it’s natural to whine and complain about an uneven playing field, and our past glory (Automobile assembly, television, the moon landing and the Internet), China is winning in the global economy and any trade in which we engage is, by definition, fair. In fact, the only uneveness in the playing field of international trade is just the opposite of popular perception: It has been tipped in our favor for the entire 20th century!

We must get it through our heads that capitalism is not a contest! This simple truth is often overlooked. The emergence of China as an economic superpower is a good thing. Not just for the Chinese, but for every American. If we keep our own ship in order, the result will be an abundance of goods and services from both sides because we will have affluent trading partners, broader access to labor and markets, and eventually, democratic trading partners.

– Ellery Davies|
Ellery clarifies law and public policy. He is a frequent columnist and TV commentator.