Mike Green, portfolio manager at Simplify Asset Management, has published a novel critique of bitcoin’s 21 million hard-capped supply. In his view, bitcoin’s absolute scarcity destroys, rather than creates, value.
Some resources such as gold and silver are rare and hard to extract. Thus, they have natural scarcity with persistent demand for adornment and electronics. In contrast, markets for other resources like diamonds use cartels and artificial scarcity to charge premium prices.
Mike Green places bitcoin into the latter category of artificial scarcity. Indeed, Satoshi Nakamoto decided to artificially reduce the coinbase reward in half on an arbitrary, four-year schedule. This disinflationary schedule hard-caps bitcoin’s total circulating supply at 20,999,817.31308491.
Fundamental laws of economics dictate that increasing scarcity will drive up prices if demand remains steady. Hoarding bitcoin increases scarcity such that consistent buying forces new buyers to pay higher prices to obtain more.
Just as reducing the rate at which a scarce asset like gold is mined, so does Bitcoin’s halvening naturally reduce the rate at which new bitcoin coinbases. Every 10 minutes on average, bitcoin miners earn 6.25 newly coinbased bitcoin. In 270 days, the coinbase reward halves to 3.125, and continues halving every four years thereafter until 2140.
Similarly, OPEC+ often adjusts its oil production to keep the price of oil high. Likewise, gold mining companies often slow or even cease production in their mines.
Mike Green laughs at Bitcoin
One of Green’s many jabs at Bitcoin included Dave Portnoy’s comical purchase of bitcoin. The Winklevoss brothers, who founded the Gemini exchange, extolled Satoshi’s disinflation toward absolute scarcity: “The same qualities that make gold valuable, the fact that it’s scarce… Bitcoin is gold for the internet… Bitcoin is the only fixed asset in the galaxy.”
Read more: What are recursive inscriptions on Bitcoin?
Green says the scarcity of commodities like gold often leads to hoarding that asset in the hope that its price will increase. Bitcoin holders call it “HODL,” a term that originated as an inebriated typo but has since been embraced as an admirable “hold on for dear life.” They encourage investors to hold onto bitcoin even when the price plummets in the belief that it will inexorably rally.
Bitcoin marketers consistently advertise its scarcity as a way to reward people who buy in early. Many people call it “digital gold.” Marketing tactics encourage fear of missing out (FOMO).
According to Green, all of these tactics are an attempt by early hoarders to increase the value of their stash — rather than create real value for anyone else.
In his view, a higher price of bitcoin negatively affects the value of the rest of the world — excepting the value of HODLers’ hoards, of course. In this way, bitcoin’s absolute scarcity destroys, rather than creates, global value.
According to Green, “Our current fascination with scarcity as a driver of asset appreciation is a deep misunderstanding of value creation.” As HODLers hoard productive capital and new converts opt for bitcoin over capitalizing productive startups and businesses, the Bitcoin network destroys value on the global stage.
Bitcoiners respond to Mike Green
Bitcoiners have countered with a simple argument: The point of Bitcoin is to create a new financial system. The primary motivation of Satoshi Nakamoto was to create a new type of money that allowed anyone on the internet to receive irreversible payment from a peer without trusting any third party.
In their view, whether the Bitcoin network measurably accretes value to the rest of the world is secondary to its primary mission of disintermediating banks and financial gatekeepers.
Other Bitcoiners have countered Green’s argument more directly.
As bitcoin’s price and pervasiveness increase, they say, Bitcoin will demonstrate a workable alternative to the world’s demoralizing, regressive status quo of fiat debasement. In the view of many Bitcoiners, irresponsible money-printing, Cantillon Effects, and too-big-to-fail banking are such calamitous problems that Bitcoin must prove out an alternative.
In summary, Mike Green has published a novel critique of Bitcoin. At the end of the day, the world might not gain value if Bitcoiners simply HODL their artificially scarce asset purely in the hope of selling it to newcomers at a higher price.
Green opposes what he calls the “artificial scarcity” of Bitcoin, which encourages hoarding. However, he fails to address the regressive shortcomings of fiat debasement and too-big-to-fail banking.