Mises institute weighs in on Bitcoin and cryptos as being more like stocks than currencies
Much of economics today is bound by two schools of thought, with the Keynesian model primarily dominating the financial, monetary, and political spheres within the real world. ¬†But for the alternative community, it is the Austrian school of economics that is most highly prized, especially in their beliefs of a central bank free monetary system.
So it is quite interesting when the main gatekeepers of Austrian economics have finally come out with an opinion on cryptocurrencies in an article published on Aug. 14, and perhaps even more so when their assessment of Bitcoin happens to be in line with that of the courts and central banks who have labeled cryptos as being equities rather than as currencies.
Bitcoins should be regarded as assets, or really equities, not as currencies. They are each little business plans ‚ÄĒ each perceived to create future value. They are not stores-of-value, but rather volatile expectations on the future success of these business plans. But most ICOs probably don‚Äôt have viable business plans; they are truly castles in the sky, relying only on momentum effects among the growing herd of crypto-investors. (The Securities and Exchange Commission is correct in looking at them as equities.) Thus, we should expect their current value to be derived by the same razor-thin equity risk premiums and bubbly growth expectations that we see throughout markets today. And we should expect that value to suffer the same fate as occurs at the end of every speculative bubble.
Viewing cryptocurrencies as having safe haven status opens investors to layering more risk on their portfolios. Holding Bitcoins and other cryptocurrencies likely constitutes a bigger bet on the same central bank-driven bubble that some hope to protect themselves against. The great irony is that both the libertarian supporters of cryptocurrencies and the interventionist supporters of central bank-manipulated fiat money both fall for this very same fallacy.
Cryptocurrencies are a very important development, and an enormous step in the direction toward the decentralization of monetary power. This has enormously positive potential, and I am a big cheerleader for their success. But¬†caveat emptor‚ÄĒthinking that we are magically creating new stores-of-value and thus a new safe haven is a profound mistake. –¬†Mises
If you ask the majority of holders of cryptocurrencies what they are, and what their potential is, they will primarily tell you about how the price will continue to go up… to $5000, $10,000, and even $1 million per coin. ¬†Thus the majority of individuals in the cryptocurrency space are themselves seeing it as a speculative investment, and promoting its ‘future value’ the same way someone would if they bought shares of Amazon or Apple.
Wall Street banks are also now providing guidance on cryptocurrencies, and in their assessments are treating them like equities rather than currencies. ¬†And with the Austrians (Mises) in agreement with the Keynesians on what cryptocurrencies truly are and represent, investors from both sides of the debate need to adapt their risk management of Bitcoin in the same way they would any other stock or equity.
Kenneth Schortgen Jr¬†is¬†a writer for¬†The Daily Economist,¬†Secretsofthefed.com,¬†Roguemoney.net, and¬†Viral Liberty, and hosts¬†the popular¬†youtube podcast¬†on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.