Tramping Through the Tulips with Blodget
Let’s state the obvious; writers have to write. They have to write something, anything, in order to be called writers and to be paid as writers. That’s what they do. And with today’s technology, what we end up with is a lot of noise. We’re used to it. Nevertheless, Henry Blodget’s recent column in Business Insider, while easily falling into the useless noise category, does merit some comment.
Blodget is CEO and Editor of Business Insider, which is “dedicated to aggregating, reporting, and analyzing the top news stories across the web and delivering them to you at rapid-fire pace.” Ok, fine; it’s about speed, not quality content. So the provocative headline “Bitcoin is Heading Toward a New High — and It Could Go to $1 Million” is meant to be just that; provocative. It turns your head like a fast speedboat but doesn’t carry a lot of valuable cargo.
Blodget says in his column (in which he actually claims profundity) that “$400 is a perfectly reasonable target for Bitcoin. As is $1,000. As is $10,000 or $100,000 or $1 million. And as is $0.01. This is because Bitcoin has no intrinsic or determinable value.” He makes this claim while ignoring the underlying utility of the BTC protocol, which he himself readily admits in an accompanying video interview.
But in print, Blodget cannot bring himself to recognize that the intrinsic value of BTC is in the protocol as a utility. At a fundamental level, Bitcoin is a process, not a thing. He is right about the difficulty of determining value, not because it has no intrinsic worth, but because we do not know what that intrinsic value is worthin relation to existing currencies. Its value in real life can be enormous. It is like trying to determine the value of a new ability.
Obviously, almost no one, including the most skeptical, would say that the protocol has no value. It clearly does as a verifiable frictionless transactional method for any agreement, monetary or otherwise. We just can’t tell what the exchange rate of BTC should be at this point because its deployment is just beginning and it is being traded against fiat currencies whose deployment is long established, currencies which are also backed by nothing except military force.
In print, Blodget seems to want to address BTC as if it were a commodity only, which clearly it is not. As such, he remains planted among those who proclaim no difference between Bitcoin and tulips. He ranks BTC alongside bubble assets like tulips, pogs, and beanie babies. Of course he does this to be disparaging. He does not rank it alongside our latest bubble asset, real estate, which like Bitcoin does have some obvious utilitarian value.
Yet if you dig far enough down in Blodget’s writing, he says “I do think the world is ready for a simple, global, electronic currency, and that Bitcoin has a shot at becoming that. But this success is the farthest thing from guaranteed.” Wait… a moment ago you were comparing BTC to tulip bulbs and beanie babies. If we’re talking about a “simple, global, electronic currency”, clearly Bitcoin is not 100% guaranteed, but it is also not “the farthest thing from guaranteed” either. I would think that beanie babies would be a lot less likely to succeed with that.
Blodget conveys his confusion by repeatedly emphasizing that (to him) it is impossible to determine BTC real value. “There is no theoretical difference between a price of $1 per Bitcoin and $1 million per Bitcoin. The only thing that will determine Bitcoin prices is what people are willing to pay for Bitcoins.” That’s called a free market. What is difficult (but not impossible) to arrive at is a stable exchange rate vis-a-vis traditional fiat currencies. People used to use whiskey as a medium of exchange when cash was not available or was worthless. At the time, the utility of whiskey was well understood. We are not yet at the point of understanding the full utility of Bitcoin, but it keeps increasing as we get to know it better.
Blodget does makes some good points in that he rightly says that until Bitcoin makes more progress in adoption as a currency, it will remain mostly in the province of speculators. I agree, but the protocol is designed to be traded in small, peer-to-peer transactions and those are increasing daily. I also agree that it is impossible to know the upper limit of BTC exchange rates, and there probably will be volatility. But could it go to zero as easily as $1 million USD, as Blodget asserts? I don’t think so. That depends on what BTC does and what USD does.
But this kind of speculation is just so much noise among people who write a lot of words for a living.