Debunking more BitCoin propaganda: “you can’t efficiently transact with it, but the same is true with stocks”

It’s what cheerleaders do best — chant team slogans and optimistic phrases to psyche up the home team.

Here’s a slogan I see peppered throughout financial message boards, particularly in threads that dare criticize cryptocurrencies:

You can’t efficiently transact with [BitCoin], but the same is true with stocks

A bit of paraphrasing on my part, but the gist of their argument is that BitCoin, while too slow, costly and cumbersome for daily financial transactions, suffers from the same problems as stocks. Stocks also suffer with brokerage fees and their inability to barter like currency.

However, they imply that BitCoin is a better “investment”, enjoying 1000% returns if you got in a few years ago, outperforming stocks.

To a short-sighted greedy trader or investor, this pickup line may just work.  To everyone else that prioritizes long term fundamentals over short term psychological bets, this team slogan has to qualify as one of the least effective.

Stocks in general are ownership of a company. Companies produce things.  It is expected to grow wealth.  Stockholders are expecting a return based on their initial investment, because they believe the company and its workers can transform that capital, along with raw materials and brainpower, to something more valuable in the future.

BitCoin and cryptocurrencies are not a company.  They do not grow wealth.  For every person that buys a BitCoin, someone has to sell a BitCoin which they bought earlier (or “mined” out of thin air).  It is a zero-sum game where there is transfer of wealth from a later-stage buyer to an early-stage buyer (or “miner”).  BitCoin holders are only expecting a return if there is a gullible buyer in the future willing to offer more money than they put in. That gullible buyer is buying it for the same reason. They buy it for their chance to sell it at a higher price to a different gullible buyer down the road.  It’s Ponzi 101.

Because BitCoin is not a company, at no point in time is that capital ever put to use to transform raw materials and human resources into something more valuable in the future. The market capital circulating in BitCoin doesn’t grow and thus give investors a return like a company. A company would reinvest growth back into the company or return dividends to shareholders.  BitCoin produces nothing, and only serves as a means of transferring wealth between individuals in a zero-sum game of chicken.

Rampant speculation does encourage a lot of copy-cats to crop up, so indirectly it’s producing more ideas in the realm of convoluted pyramid schemes and cryptography (all of which hurt BitCoin’s desirability, by the way). If you’re interested in supporting R&D in cryptography, why not invest in quantum computing security firms instead?

I give this piece of BitCoin propaganda a 2 out of 10 on the persuasion scale, particularly when used against people on financial message boards. People that hang out on financial websites at least are familiar with how markets operate, much more than the millennial cheerleaders with zero savings and zero real-world market experience who have just entered the high-stakes game of short-term trading.

Like fish at the poker table, they will be swallowed whole by the sharks.

Congratulations to the fish that cashed out their winnings early, thankful for their luck knowing what the long-term would eventually bring.

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Dare to say “you don’t understand cryptocurrency”, “do your research”, or have something else to add?  Leave a comment below, share and subscribe to the RSS feed for more realistic crypto analysis.

You can be a miner too! Exchange higher electricity bills for that hope of reeling in a sucker to pay top dollar for your Internet funny money. Check out my beginner’s guide to mine Monero while your computer is sleeping.

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