By the time Amazon.com stock had been trading for seven years, it was 2003, the internet bust of 2000-2002 was over, and the world’s biggest online store had $5.26 billion in sales, $35.2 million in profits (not to mention $392 million in operating cash flow) and was worth $21 billion. It also had helped set off a productivity resurgence in the broader economy that lasted for a decade and raised US standards of living notably.
We’ve been arguing about bitcoin for about that long — I first wrote about it in 2014, and was hardly the first.
So, what has bitcoin actually, you know, done?
The answer, of course, is: basically nothing. And that’s why the world’s most-traded cryptocurrency is worth basically nothing.
There’s a reason that even billionaire troll Elon Musk has come to his senses. His automaker, Tesla, has suspended plans to accept bitcoin to pay for cars (citing environmental concerns that have been well-known for years — in other words, that’s probably not the real reason). Musk also hinted this weekend that Tesla has sold its estimated $1.5 billion worth of bitcoin, with his moves contributing to a 30 percent meltdown in its price over the last month — a familiar pattern for bitcoin over the last seven years, according to Zacks Research strategist Tracey Ryniec.
Investments rise in value, and stay elevated, when the invested-in asset adds value. The dot-com boom did. Bitcoin doesn’t.
I reported on the web boom, bust and resurgence for BusinessWeek magazine (now Bloomberg Businessweek.) In 1999 it was relatively easy to separate most of the wheat from the chaff and to see the underlying value creation that made the boom the thing it was (and, later, was once more.)
Amazon’s store was simply cheaper to operate than a chain of Barnes and Noble bookstores and Tower Records selling the same stuff. Expedia, then in the process of disrupting the entire hotel industry, aggregated travel demand in a way that industry had never seen before, allowing it to deliver better, cheaper vacations at higher profit margins than travel agents had probably ever seen. eBay connected buyers and sellers in ways that had never been done, raising the value of both used goods and craft work because it created global communities of interest for sellers who had previously only been able to access local markets.
All of those were completely new, more flexible, cheaper, and ultimately more profitable ways to do business that people already wanted to do. That’s why those three companies are worth $30 billion, $40 billion and $1.6 trillion today.
Sure, we got some things wrong then — plenty of them. A telecom equipment company called Corvis was more valuable after its July 2000 stock offering than General Motors, before Corvis notched its first dollar of sales. (It ended up selling for pennies on the dollar.) And plenty of web software companies were not unique enough to hold up when the real competition from bigger technology companies began.
But they all did something, or tried to, better and cheaper than any other way that real tasks had been done by real people before. Cryptocurrency doesn’t. Sorry.
It’s still accepted basically nowhere — and if there are five stores online that accept bitcoin on more favorable terms than the US dollar, I don’t know of them. Name a single business process made more efficient if it’s paid for in bitcoin rather than dollars. Now do it with a business process that’s legal.
Sure, hackers who shut down the Kochs’ oil pipeline last week collected a $5 million ransom in cryptocurrency because they believed it was untraceable (online, though, everything is traceable with enough effort.) But that is not exactly an argument for the idea that a bitcoin — essentially, a bit of computer code that has very few legal, liquid uses — is worth anything like the current price of $42,000 and change.
Don’t even start on the notion that bitcoin is a currency or a store of value, or a hedge against inflation. The unstable price chart belies all of those notions, as does exposure to bitcoin advocates, none of whom will be running the Federal Reserve soon.
Some advocates will argue that the real value is less in bitcoin than in blockchain technology for processing payments. Venture capitalist Marc Andreessen made that very argument to me in 2012. Eight-plus years and 31 crypto investments later, Andreesen’s firm hasn’t had any exits according to its own website (an exit is a firm in which a VC group has sold its stake), although it has a piece of Coinbase, which recently went public via a merger.
But when you pay $42,000 for one bitcoin, or some tiny amount for a dogecoin that is even more worthless, you don’t get ownership of blockchain technology. You get to use it to expedite your trade, which doesn’t make the underlying asset valuable. And there’s not much evidence that blockchain makes actual business fundamentally faster, more frictionless or cheaper than alternative technologies -- the only reason people will choose blockchain in any numbers.
That’s why Square is basically the only startup to go public, of any size, that gets any material amount of its valuation from blockchain. Motley Fool’s list of the seven best blockchain stocks includes Amazon, MasterCard and IBM, all of which get a trivial share of revenue from it. Indeed, Motley Fool left out the public company that makes the most noise about bitcoin, Overstock.com — whose former CEO ended up peddling conspiracy theories about the 2020 election.
By this time in the web boom, literally hundreds of companies have gone public to expedite e-commerce. Crypto is not at all the same thing.
Really, about the only thing you can do more or less easily with bitcoin is trade it. The ultimate buyer is likely to be one of the greater fools on Robinhood or Reddit, all of which are basically just updated versions of the Yahoo Finance message boards, which loved Overstock 17 profitless years ago. And they, in many cases, want bitcoin partly because Elon Musk gave it an aura of the new.
So, you say you want a revolution? Well, you know, you got to tell me what your revolutionary technology does in the real world. Amusing Elon doesn’t count. For crypto, t’aint much.