The list of experts and talking heads eager to belly up to the bar and spout forth on why Bitcoin is a bubble and we’re all fools for believing in it is, as Goose would say, long, but distinguished. The latest expert to lend his voice to the bubble echo chamber is Columbia University professor Jeffrey D. Sachs.
Sachs, who is also a published author and director of the Center for Sustainable Development at Columbia University, penned an article in The Boston Globe today wherein he explained in a very concise and easy to digest manner why Bitcoin is a bubble that is ultimately doomed to collapse.
Unfortunately, he is wrong on a couple of key points that he uses to shore up his argument.
To be fair, Sachs was not completely biased against Bitcoin. He did acknowledge its strengths, saying:
Bitcoin is billed as a virtual currency that is independent of government or any other centralized authority. Its strengths are that it enables anonymous transactions and safety from taxation and confiscation by the state.
Of course, he later goes on to talk about claims of Bitcoin being used for criminal purposes, such as human and drug trafficking and tax evasion, but at least he started out saying something positive, which is more than some other critics have done.
Poke. Bitcoin vs. Fiat Currency
In his article, Sachs makes several claims that attempt to show how Bitcoin falls short when compared to fiat currencies. Using the US dollar as an example, he notes that it, and other national currencies, are legal tender that can be used to pay a debt or public obligation.
So far, so good. Then he goes on to state:
…Nor is any individual or business obligated to accept bitcoins in payment for debts in national currencies.
The implication here is that while businesses don’t have to accept Bitcoin, they do have to accept the national currency. Wrong. They aren’t obligated to accept the US dollar, either. The U.S. Treasury Department states that while Section 31 U.S.C. 5103 mandates that all United States coins and currency are legal tender, private businesses, individuals, and organizations are not required to accept it.
As the U.S. Treasury Department website explains:
There is, however, no federal statute mandating that a private business, a person or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law which says otherwise.
It all comes down to whether or not a debt has been incurred. A ‘debt’ in this situation would be any instance where a product or service has already been provided prior to payment being made. So if you were to pull up to a gas station and fill your tank before paying, you now owe the gas station a “debt”, so they have to accept your USD payment.
In a situation where no debt has yet been incurred, however, all bets are off. That’s how businesses can legally choose not to accept cash or not to accept certain denominations of cash. So while it’s true that businesses aren’t obligated to accept Bitcoin, they aren’t obligated to accept fiat, either.
Poke. You Can’t Pay Public Debt (Taxes) With Bitcoin
Another one of Sachs’ arguments against Bitcoin as an alternative to fiat currency is that you can’t pay taxes with it. Specifically, he declares:
No governments accept bitcoins for taxes, and none are likely to do so in the future.
Wrong again.
Even if you ignore then hair-splitting workaround of loading a debit card with bitcoin and using it to pay taxes, there are a few places that are beginning to allow its citizens to use the digital currency to pay their tax bills.
The Swiss municipalities of Chiasso and Zug are allowing residents to pay their taxes, up to a certain amount, using Bitcoin as a payment option. Australia also allows residents to pay their tax bill with bitcoin using services like Livingroom of Satoshi and BPAY. In fact, the Australian government’s tax agency, Australian Taxation Office, lists BPAY first among payment options on its website.
There have been some attempts here in the U.S. to pass laws allowing residents in individual states to pay taxes with Bitcoin but so far they have all been struck down. The fact that they have been introduced at all, however, should give U.S. Bitcoiners hope for future acceptance of the cryptocurrency.
Poke. Countries are Cracking Down on Bitcoin
Again, Sachs begins his argument soundly enough. China’s crackdown on cryptocurrencies and ICOs was felt around the world in 2017. Prices fell, but then rebounded in spectacular fashion. It put other countries, like Japan and Singapore, in a position to step into the breach and actually advance the acceptance and adoption of Bitcoin – and cryptocurrencies in general.
Speculating on Bitcoin’s future, he warns:
As governments tighten their grip, bitcoin prices will most likely fall, and perhaps collapse, though the timing is impossible to judge.
Either Sachs just got back from a year-long sabbatical or he’s cherry-picking facts to fit his narrative, but either way, he has ignored several significant developments in how countries around the world are treating Bitcoin:
- In March of 2017, Japan officially recognized Bitcoin as a legal method of payment;
- In September of 2017, Japan officially licensed and registered 11 Bitcoin exchanges, with additional exchanges being added since then;
- In December of 2017, Belarus officially recognized and legalized Bitcoin, as well as ICOs, cryptocurrency mining, and cryptocurrencies in general.
Oh, and of course there’s that little thing with the US Commodity Futures Trading Commission approving the trading of Bitcoin futures. CBOE and CME Group launched futures trading on their exchanges in December and Nasdaq announced that it will be doing the same sometime in 2018. Even the NYSE, whose owner is no doubt kicking himself for sitting that one out, is getting in on the game, having petitioned the SEC for approval to list two Bitcoin ETFs.
Way to really lower the boom on Bitcoin there, guys.
Are governments looking to regulate Bitcoin? Absolutely. Does that count as “cracking down” on the digital currency? It depends on who you ask. For people who love the thrill and uncertainty of the current Wild West landscape, probably. But for those who want a little more security and accountability with their bitcoins, a little oversight might not be a bad thing.
Disclosure: I am not a lawyer and have no expertise in U.S. Code statutes. My statements and opinions are based on my own research and are not meant to advise anyone.
Do you think I let enough air out Sachs’ argument? How else do you think his claim is wrongheaded? Let us know in the comments below.
Images courtesy of Shutterstock, AdobeStock