Thread by @schaaf_jurgen

1/ The debate over Bitcoin’s utility and sustainability began already with Nakamoto’s 2008 work. Many economists see Bitcoin as a speculative bubble that will eventually burst, leaving behind substantial social damage amid its high energy use and facilitating illicit payments.

2/ Bitcoin supporters argue it’s a valuable investment asset, with the potential for continued value growth. Even latecomers, they say, should jump in. But our analysis shows a different story.
papers.ssrn.com/sol3/papers.cf…

3/ Even if Bitcoin prices keep rising and the bubble doesn’t burst, the wealth gains by early adopters come at the expense of latecomers or non-holders, leading to significant redistribution effects.

4/ It’s like filling a big barrel by draining water from many buckets— the latecomers have to give up for the benefit of the early birds.

5/ This redistribution isn’t just a matter of bad timing in the market. Early holders’ wealth and consumption rise while others get poorer, regardless of whether they ever own Bitcoin.

6/ Bitcoin doesn’t alter the economy’s productive potential. If at the same time Bitcoin wealth is sizable, then higher consumption of early investors must be at expense of others.

7/ In a theoretical scenario of ever-rising Bitcoin prices, this wealth shift will be a lasting legacy, with early adopters’ luxury consumption financed by the diminished consumption of those who missed out.

8/ The societal impact is real: “missing out” on Bitcoin different than just a lost opportunity, it means actual impoverishment compared to a world without Bitcoin.

9/ This wealth redistribution could destabilize society. Latecomers, though unable to pinpoint the cause, will feel frustrated as their purchasing power erodes.

10/ Bitcoin’s value is also shaped by government policies. Paradoxically, this undermines Bitcoin’s original goal of independence from public institutions.

11/ In democracies, Bitcoin could influence elections. Crypto-friendly candidates may gain support from early adopters, swaying outcomes in favour of policies that harm non-holders.

12/ Non-holders should recognize that Bitcoin’s rise is fuelled by wealth redistribution at their expense. There are compelling reasons to advocate for policies that curb Bitcoin’s growth or even eliminate it.

13/ The stakes are high: pro-Bitcoin politicians could skew wealth distribution further, threatening societal stability if non-holders don’t push back.

#bitcoin #assetpricebubble
#redistribution