Christine Lagarde, the president of the European Central Bank, said that Bitcoin and other cryptocurrencies are worth nothing.  She said, “It is based on nothing.”  She said, “There is no underlying asset to act as an anchor of safety.”

My question:  How does this make it any different from any other fiat currency?

I’m surprised she didn’t slip up like Bush, who accidentally (or not) referred to the unjustified and brutal invasion of “Iraq” instead of “Ukraine”.

Lagarde could have easily replaced her statement with “the U.S. dollar” or “the euro” instead of “Bitcoin”.

I have been a critic of Bitcoin, even though I sympathize with many of the people who promote it.  I don’t think it is a form of money, and I don’t think it will ever be a true form of money.  Still, I like the idea of competing forms of money.

Unfortunately, Bitcoin is somewhat associated with the libertarian movement for this reason.  The biggest proponents of Bitcoin tend to be critics of the Federal Reserve.  They are right to be critical of the Federal Reserve.

I half jokingly say that Bitcoin has been pumped up by quasi libertarian tech nerds who have nothing better to do in their life.  They thrive on everything Bitcoin and blockchain.  Their whole life revolves around this.  If Bitcoin crashes and goes to nothing or close to nothing, I don’t know what these people will do.  I think some of them will need major therapy, although they won’t be able to afford it because they dumped all of their money into Bitcoin.

What’s more unfortunate is that many good libertarians have hopped on the Bitcoin bandwagon.  They don’t spend every waking hour promoting it, but they generally favor it as an investment and as a prospect for future money.

The investing side – which is really just gambling – is one thing.  I think it is ok to buy Bitcoin in this bubble economy with the hopes of making a profit (in U.S. dollars).  But it should be clear that it is a gamble.  If you are putting money (U.S. dollars) into Bitcoin, you should be prepared to lose it all.

When really good libertarians promote Bitcoin as a future money, I really get annoyed.  I think they are making a critical mistake, and the critics of libertarianism will use it against all of us in the future.  That’s why it is important for Peter Schiff and other Bitcoin critics to go on record as saying that Bitcoin is not our future.

I have no problem with the idea of the blockchain and its many possible future uses to help human beings.  But Bitcoin is not the blockchain.  The hardcore Bitcoin proponents will come back at Lagarde and say that Bitcoin is anchored by the technology of the blockchain.  But this is flat out wrong.

You can’t take your bitcoins and trade them in for “the blockchain”.  The blockchain is just a technology that Bitcoin uses.  Bitcoin isn’t backed by the blockchain the way the dollar was once backed by gold.  And it isn’t like a share of stock where you actually own a small piece of the company and can share in the profits.

So Christine Lagarde was correct when she said there is no underlying asset for Bitcoin.  I’m just not sure if the irony was lost on her regarding fiat currencies.

I have to criticize Bitcoin for two reasons.  I don’t want to pick a fight with people who are generally in the same camp with me, but I feel compelled to do it.

First, I want it to be clear for people buying Bitcoin that it is a pure speculative play.  It doesn’t offer much diversification for your portfolio, especially these days if you are invested in tech stocks.  There is nothing close to a guarantee that it will make you money (i.e., U.S. dollars) in the distant future.  It is a gamble.  It may or may not pay off.  It depends how far down the line the suckers with money go.

The second reason I criticize Bitcoin is because I want libertarian voices who are warning against it.  I don’t want the downfall of Bitcoin to be a major black eye on the libertarian movement.

I think there will always be critics of libertarianism who try to use anything they can against libertarians.  But some of the criticisms fall flat.  With this, a lot of people will agree that Bitcoin was a bad call if it goes down to something near zero.  Even if the price goes down below $10,000 and stays there for a while, it will be used against libertarians.

In terms of libertarianism, the only thing to say about Bitcoin is that people should be free to buy or sell whatever they want as long as they aren’t aggressing against others.  There should be a free market in money.  There should be no capital gains taxes on Bitcoin or gold or anything else.

It is ok to make predictions, but it should be done independently of political philosophy and with the acknowledgement of uncertainty.

After the Fed created trillions of dollars out of thin air in 2008 and 2009, many libertarians were predicting runaway price inflation.  I think that is ok, except it should be made clear that it isn’t a libertarian theory.  There are many factors involved with regard to price inflation.  The base money supply is one of several factors.

From a libertarian standpoint, using this example, it should be made clear that the massive increase in the Fed’s balance sheet was bad regardless of whether high price inflation followed.  The newly created money favors some at the expense of others, and it greatly misallocates resources which makes almost everyone less well off.

So if you are a libertarian and a Bitcoin proponent, please separate the two.  Bitcoin could easily go to near zero, and we don’t want libertarianism to get a bad name if it does.