Monday, February 8, 2021

Bitcoin, Speculation, and Legal Tender Laws

Note: I took Banking Law, and received one of only two As, at Georgetown University Law Center under Prof. Daniel Tarullo who, from 2009 to 2017, was a Governor of the Federal Reserve Board.

Bitcoin is currently at $43,389.

And everything you need to know about Bitcoin is contained in that one sentence.  In other words, beyond its cost, there is nothing interesting about Bitcoin (or any other electronic “currency”).

Oh, there are interesting facts about where it comes from (and the monumental waste in “producing” it), as well as the utility of block chain technology (which is actually independent of electronic currencies).  But there is nothing interesting about a Bitcoin itself, which is just a seemingly random string of bits.  This isn’t true of gold or silver or wine or emeralds or cars or real estate.  Sure, one of my rental houses might have a market value of $150,000, but there are lots of interesting facts about it other than its “exchange rate” in dollars.  For example, it provides my tenant shelter, modern plumbing, electric conveniences, a big back yard, etc.  And we can debate all day about the intrinsic value of gold, but it is a good electrical conductor and people like wearing it as jewelry.  At least it does something. 

In sharp contrast, Bitcoin doesn’t do anything.  And it’s not because it’s a string of bits.  Hell, software is just a string of bits and so is the information in your favorite movie or Netflix show.  Unlike these, 1BTC is literally a useless string of bits that is simply recognized as “one Bitcoin” by the open-source Bitcoin algorithm.  Its only value is that ascribed by those who own it and/or want it.

“OK, so what?” asks the enthusiast.  “That’s also true of fiat money like the U.S. dollar.”

My three-word answer: LEGAL TENDER LAWS.

Look, there are a thousand reasons to hate Bitcoin, so I’m not going to mention any of them except the one that no one else seems to be talking about – namely, the fact that governments extract wealth from their citizens in the form of taxation, and taxes will always be payable in the governments’ chosen currency.

There is a common fear among Bitcoin enthusiasts that the government will eventually act to shut down electronic currencies.  Sure, that’s a possibility, but that’s not the main problem with Bitcoin.  The real problem – which almost no one seems to realize – is that the government is never going to accept Bitcoin in payment for taxes.  There is no government on Earth that accepts Bitcoin as payment or as legal tender.  Why?  Because accepting payment in an alternative currency devalues their own state-sanctioned currency.  Historically, there are a few shitty rogue governments that have been so incompetent with their own monopoly over currency issuance that their economies are either effectively or legally dollarized.  Zimbabwe springs to mind with its moronic (and fascinating!) $100 trillion bills.  Within the states and territories of the United States, the U.S. dollar is legal tender, which means that all debts, particularly debts to local, state, and federal governments, are payable in this currency and nothing else. 

You cannot pay your New York property taxes in British Pounds.  You must pay it in U.S. dollars or else the state will foreclose on your property.  If you happen to have a bunch of British Pounds, luckily there are 67 million people on an island across the Atlantic who need British Pounds to pay their property taxes to their government.  The meeting of supply with demand creates an exchange rate.  You cannot pay your U.S. income taxes in Indian Rupees.  If you happen to find yourself awash in Rupees, there are 1.4 billion people who need Rupees to pay taxes to their government, and the resulting currency market will allow you to exchange your Rupees for Dollars so you can pay your income tax bill.  The government has a monopoly on the use of force, and it will ultimately use that force to collect taxes on income, sales, property, value-added, etc.

So let’s say you use 2BTC, which you bought ten years ago for a nickel (or whatever) to buy a Tesla automobile, as Tesla apparently plans to start accepting it in payment.  Under the Internal Revenue Code, that is a realization event that makes you liable for taxes on $86,778 in gains.  But you cannot pay this tax in Bitcoin, nor will you ever be able to.  (The Federal Reserve owns the planet.  OK, it sort of shares it with a few other central banks, like the Bank of England, the European Central Bank, etc.)  And since no other government forces its citizens to pay taxes in Bitcoin, there is no “exchange rate” for Bitcoin.  To pay your taxes, you have to get U.S. dollars either by earning them or selling more Bitcoin, which means that the value of Bitcoin must always be denominated in some other country’s currency.

In other words, because Bitcoin is not and never will be legal tender in any country, it will never stand on its own.  The question will always – always, always, always, always, always – be “How much is Bitcoin today?” 

And that’s a problem... an insurmountable problem for Bitcoin enthusiasts.  When you are about to make a purchase in a store in Paris, the clerk doesn’t have to ask, “How much is the Euro today?”  In fact, to most Europeans, that question wouldn’t even make sense.  After all, 1 Euro is 1 Euro!  The store clerk does not need to look up the “value” of the Euro in terms of other currencies or commodities.  She doesn’t care.  She knows she needs Euros to pay her rent, her bills, and – most importantly – her taxes.  But Bitcoin is different.  A price will NEVER be fixed in Bitcoin... every transaction involving Bitcoin will ultimately involve some person or computer asking the question, “How much is Bitcoin today?”

I don’t want Bitcoin because it has no intrinsic value or use.  Governments don’t want Bitcoin because it devalues their monopoly on currency issuance.  And here’s the thing.  Even Bitcoin owners and enthusiasts don’t want Bitcoin. 

“Andrew, shut up.  Of course they do – that’s why they bought it!” 

Wrong.  They bought it because they think others want it.  (Conversely: if they did not think others wanted it, then no one would buy it.)

I used to collect old U.S. coins because I thought they were fascinating and I loved the history.  When I would share my collection with other numismatists, occasionally one of us would say something like, “Can you believe how much this coin is worth?!”  But that wasn’t the focus of our conversation.  We talked about minting, and history, and coin material and condition, and fascinating mint errors like double-struck coins, etc.  The point is that there was substance to the conversation because we actually enjoyed and valued and appreciated the asset, with “dollar exchange rate” a secondary consideration.

Not so with Bitcoin.  After countless conversations with Bitcoin enthusiasts (who tend to show up in droves at Libertarian conventions), I have learned that conversations revolve almost entirely around these two general topics:

* “The price of Bitcoin is $_____... can you believe it?!”  (Sometimes it’s way up, sometimes it’s way down – the only apparent consistency in the Bitcoin price is its volatility.)

* “Death to the Dollar (or Pound or Yen or Transnistrian Ruble)!”

In other words, even Bitcoin owners and enthusiasts don’t value Bitcoin per se – of course they don’t!  It’s just a useless string of bits!  Rather, they value it in terms of its selling price in dollars.

Let that sink in.  Bitcoin enthusiasts hate the U.S. dollar so much that they purchase a useless string of bits whose value – as judged by their own conversations – is determined by the number of those hated U.S. dollars they can sell it for.  That is madness.

The last thing I want to mention is speculation.  If I can pick a booger and manage, through suave argumentation, to convince a handful of people that it is worth a million dollars – is it actually worth a million dollars?  Value is a very subjective thing and the phrase “market value” only has meaning in an efficient and rational market.  The fact that Bitcoin is at $43,389 is exciting to a lot of people.  There are people who will pay this amount and more for 1BTC.  There may very well be people who, under the right conditions, would pay $1 million for 1BTC.  Just keep in mind that it is pure speculation.  Unlike a tulip, which at least offers the tiny subjective value of being easy on the eyes, Bitcoin’s only “value” is its price as denominated in fiat currencies.

And as much as one might despise the U.S. dollar for its lack of intrinsic value, it at least has the ability to prevent IRS agents from confiscating one's property.  Bitcoin cannot do that.  It cannot do anything.

Bitcoin is currently at $43,389.

And that’s all there is to say. 


  1. You don't get it. Its fixing the broken governmental and financial system. It will give the power back to the people through its uncensored, permissionless properties. The energy industry will have no need to convert to the USD in order to trade. In fact governments around the will WANT to collect taxes in the form of bitcoin because they won't be able to get enough of it otherwise. I know you're hurt because you got in late or based on your angst not at all. You fundamentally don't understand the value prop of bitcoin. Go read "The Bitcoin Standard" and "Layered Money" then try this blog again.

    1. This comment is odd. At this point, I have no subscribers and basically no one reads my blog, let alone comments. But within an hour of posting I already have a very passionate response! Except that it doesn’t make any reference to what I said or refute any of my arguments. Clearly some troll is scouring the Internet for anyone who talks badly about Bitcoin (e.g., using the search terms “Bitcoin,” “speculation,” and “shitty") and then pastes some generic, hackneyed, condescending response to defend Bitcoin.

      Remember: a handful of people will win BIG by the continued speculative growth of Shitcoin. The fact that this useless comment was posted so quickly after a post on an obscure blog with few readers suggests there’s an army of people attempting to spread misinformation about electronic currency. All the more reason to run like hell!

  2. Perhaps an update is in order now that BTC is legal tender.

    1. This comment appeared last year (when El Salvador had just made Shitcoin legal tender). No update to the above article is necessary, as the poster either didn't read it or didn't understand it. As I discussed, there are a "few shitty rogue governments that have been so incompetent with their own monopoly over currency issuance that their economies are either effectively or legally dollarized." El Salvador is exactly one of those countries, having been dollarized for a very long time. Since every unit of their own currency (which is the U.S. dollar) must be "purchased" by $1 of their own goods and services, there is no downside to its shitty rogue government making other things legal tender. The Central African Republic, I believe, either has or is currently considering making Shitcoin legal tender, but this is another example of a shitty rogue government that does not issue its own currency. The vast majority of countries in the world issue (or substantively control the issue of) their own currency -- and they will NEVER allow Shitcoin (or any other competing unit) as legal tender. This point is fundamental to the above argument, and one that is entirely missed by the poster of the comment.

  3. Luckily someone pro Bitcoin answered, coffin nailing the topic with no arguments but insisting. Haha!

    There is this old wise saying of investing, being “if you do not understand it, stay away”. For most people, Bitcoins should be handled like that. However, those understanding greed will happily buy Bitcoins - as the another semi-wise saying is “the last buying idiots to sell to is not yet born.”

    I’m Norwegian, and my assumption is Bitcoins and it’s likes will never be legal tender, but will be both forbidden and made criminal to be used.

    Purely based on the lack of tax control, and the fact criminals likes it. (We have a famous case of ransom money going on with Monero). And, the environmental cost is just an additional negative issue.

    If Bitcoin was to be legal tender, it only could be so if under governmental control - but then again, it’s only value in such a case would be as an unneeded intermediate in exchanging other currencies. Ie, it have no value other than fishing for later idiots.

    1. Erik -- thanks for the comment! I am very much enjoying all your comments on my blog so far. What is your background and interest in these topics? Looking forward to your future comments and thoughts!

  4. Thank you Andrew, for your polite and nice response.

    Googling for critics of QM landed me on your blog. I admit to not understand QM, but considering it’s negative results over four or five generations I find it rational to point to the risk of the obvious: It’s wrong. (I never found it right, hence admitting not to understand it.)

    My interests is pretty much everything, with a hang to be attracted to what’s not understood.


    I’d like to elaborate a bit on Bitcoins :

    One can imagine Bitcoins as a new gold standard, in the meaning of stacks of gold/Bitcoins held by national banks balancing paper-money: “This national bank promise to pay in Bitcoins”. If so, Bitcoins would and must increase in value, as those 20 million “coins” must carry all promises, - which doesn’t add up, unless the promises of payments decreases, in which case it isn’t a standard as Bitcoins have zip zero value compared to gold which have other practical uses. (It’s like Bitcoins is fluctuating double fiat.)

    Bitcoins cannot be a gold standard. What’s left?

    By far, the larger volumes of “money” is set in circulation locally: Money is debts, “i owe you promises”. Such debts needs a functioning society, some symbols and a number system. In small local societies, money could be shells (bivalves) as history shows.

    In Norway, small local saving banks was funded in the beginning of 1800, and within 1875 available locally for everyone. This large series of local establishments, generally made a positive change nationwide. A fisherman in need of a new boat could finance it: Money for a fair cost, and those local receivers of the work put money back into the bank, increasing the bank’s opportunity to lend out more. This is the vital issue of sound finance and economy compared to Bitcoins: The local bank by issuing a loan is adding money into economy, and vitalizing surrounding society. But, a bank cannot issue a loan in Bitcoins, as Bitcoins has a cap.

    So, Bitcoins isn’t a positive “thing” to the better for any society: If something doesn’t gain society it may be immoral, and if negative to society it may over time be deemed illegal.

    Again, - what is it that Bitcoins add to society that is positive for society? (Here, “society” may be translated to humanity, whereas “positive” would be “almost all”.)

    Crypto currency’s is very much the same as a pyramid game where last person in is the looser.


  5. ———————

    As I’ve mentioned in earlier posts, your logical way of reasoning resonates with mine. Your frustrations and irritations is amusing and funny, and I’m not at all trying to diminish the seriousness of what the problem is: Those others speaking and arguing so well and then turning around when the toe is to be dipped into depths of where temperatures of reality makes the difference.

    The debates of Bitcoins and some topics of QM have similarities, as the huge amounts of “experts” floating around on the surface level is shadowing it’s foundations of importance. This way of human behaviors or culture is as I see it, a major problem. It’s like most people somehow is wired the wrong way, or too easily can be wired the wrong way. Muddy managers floating on top shadowing depths that should be scrutinized is hailed in modern society, and those critical is not only pecked on but ridiculed and thrown out/de-platformed.

    I happen to believe the two slit experiment and entanglement phenomena will be de-mystified and simplified. (How many years it will take before the quantum eraser and dumb tester becomes main stream acknowledged as debunked within the QM cults, I will not bet on. It is however worrisome and very telling of the cult it isn’t given any attention. And, I see it as a proof of the cult in lack of intelligence.)

    I will continue grinding through your posts. Keep up the good work!


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