Spitznagel: Why Cryptocurrencies Will Never Be Safe Havens

Tyler Durden's picture

Authored by Mark Spitznagel via The Mises Institute,

Every further new high in the price of Bitcoin brings ever more claims that it is destined to become the preeminent safe haven investment of the modern age — the new gold.

But there’s no getting around the fact that Bitcoin is essentially a speculative investment in a new technology, specifically the blockchain. Think of the blockchain, very basically, as layers of independent electronic security that encapsulate a cryptocurrency and keep it frozen in time and space — like layers of amber around a fly. This is what makes a cryptocurrency “crypto.”

That’s not to say that the price of Bitcoin cannot make further (and further…) new highs. After all, that is what speculative bubbles do (until they don’t). 

Bitcoin and each new initial coin offering (ICO) should be thought of as software infrastructure innovation tools, not competing currencies. It’s the amber that determines their value, not the flies. Cryptocurrencies are a very significant value-added technological innovation that calls directly into question the government monopoly over money. This insurrection against government-manipulated fiat money will only grow more pronounced as cryptocurrencies catch on as transactional fiduciary media; at that point, who will need government money? The blockchain, though still in its infancy, is a really big deal.

While governments can’t control cryptocurrencies directly, why shouldn’t we expect cryptocurrencies to face the same fate as what started happening to numbered Swiss bank accounts (whose secrecy remain legally enforced by Swiss law)? All local governments had to do was make it illegal to hide, and thus force law-abiding citizens to become criminals if they fail to disclose such accounts. We should expect similar anti-money laundering hygiene and taxation among the cryptocurrencies. The more electronic security layers inherent in a cryptocurrency’s perceived value, the more vulnerable its price is to such an eventual decree.

Bitcoins should be regarded as assets, or really equities, not as currencies. They are each little business plans — 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’t 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. 

If you wanted to create your own private country with your own currency, no matter how safe you were from outside invaders, you’d be wise to start with some pre-existing store-of-value, such as a foreign currency, gold, or land. Otherwise, why would anyone trade for your new currency? Arbitrarily assigning a store-of-value component to a cryptocurrency, no matter how secure it is, is trying to do the same thing (except much easier than starting a new country). And somehow it’s been working.

Moreover, as competing cryptocurrencies are created, whether for specific applications (such as automating contracts, for instance), these ICOs seem to have the effect of driving up all cryptocurrencies. Clearly, there is the potential for additional cryptocurrencies to bolster the transactional value of each other—perhaps even adding to the fungibility of all cryptocurrencies. But as various cryptocurrencies start competing with each other, they will not be additive in value. The technology, like new innovations, can, in fact, create some value from thin air. But not so any underlying store-of-value component in the cryptocurrencies. As a new cryptocurrency is assigned units of a store-of-value, those units must, by necessity, leave other stores-of-value, whether gold or another cryptocurrency. New depositories of value must siphon off the existing depositories of value. On a global scale, it is very much a zero sum game.

Or, as we might say, we can improve the layers of amber, but we can’t create more flies.

This competition, both in the technology and the underlying store-of-value, must, by definition, constrain each specific cryptocurrency’s price appreciation. Put simply, cryptocurrencies have an enormous scarcity problem. The constraints on any one cryptocurrency’s supply are an enormous improvement over the lack of any constraint whatsoever on governments when it comes to printing currencies. However, unlike physical assets such as gold and silver that have unique physical attributes endowing them with monetary importance for millennia, the problem is that there is no barrier to entry for cryptocurrencies; as each new competing cryptocurrency finds success, it dilutes or inflates the universe of the others.

The store-of-value component of cryptocurrencies — which is, at a bare-minimum, a fundamental requirement for safe haven status — is a minuscule part of its value and appreciation. After all, stores of value are just that: stable and reliable holding places of value. They do not create new value, but are finite in supply and are merely intended to hold value that has already been created through savings and productive investment. To miss this point is to perpetuate the very same fallacy that global central banks blindly follow today. You simply cannot create money, or capital, from thin air (whether it be credit or a new cool cryptocurrency). Rather, it represents resources that have been created and saved for future consumption. There is simply no way around this fundamental truth.

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 - thinking that we are magically creating new stores-of-value and thus a new safe haven is a profound mistake.

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aloha_snakbar's picture

Lets not forget that all crypto owners are terrorists, as well...

Bitcon owners wife: "Honey... why is there a black helicopter parked on our front lawn?"...LOL...

tmosley's picture

Mark doesn't understand the difference between a mineable cryptocurrency and and ICO. Pay attention to his ramblings at your own risk.

BaBaBouy's picture

Whats come out of the Cryptos Saga?

The fact that the vast majority now accept the Problem that CB's/Etc manipulate the price of GOLD & PM's ...

Creepy_Azz_Crackaah's picture

Here they come...

"You're just stooooopid."

38BWD22's picture



I would agree that Bitcoin is a speculative asset.  But, at least in the short term, has pretty good "fundamentals".

A L I E N's picture

Anyone that tries to seperate the blockchain from the coin which provides the incentive to secure the blockchain is following the confused banter of the banks..

BuddyEffed's picture

After the NSA tool hacks and recent ransomware, I would think that relying on crypto would be stupid. Who is to say whether backdoors will be added to any crypto currency. Or whether existing OS backdoors makes that scheme vulnerable

Zero_Ledge's picture

"the problem is that there is no barrier to entry for cryptocurrencies; as each new competing cryptocurrency finds success, it dilutes or inflates the universe of the others."

Ding! Ding! Ding! We have a winner! 

tmosley's picture

What does he win?

A bunch of rocks that only go down in value!

tmosley's picture

Also he had to pay for the rocks.

balanced's picture

Bitcoin haters remind me of the quote, "Art hath no haters but the ignorant." The arguments that they put up illuminate nothing but their own lack of understanding in how cryptocurrencies function. Some of my friends actually laughed at me when I bought BTC at $90. At this point I've taken multiples of my original investment out of bitcoin and still have plenty invested. It's so strange, because when I try to explain bitcoin to friends, they don't even want to hear it -  they think it's some sort of scam. These same friends have their life savings in the stock market and gold. Gold is great, but it's not going anywhere until the central banks lose control, which is to say until the entire system collapses. PMs are checkmated by the banks, so money that would have gone into PMs has now begun to flow into cryptos. This is the trend and it's axiomatic. What the gold holdouts don't realize is that when the current system collapses, they won't be selling/trading their gold for dollars, they'll be trading it for a cryptocurrency, probably bitcoin. 

funthea's picture

Ok, lets say I'm now a convert and I've masturbated 3 times to the bitcoin logo just yesterday: I still can't get anyone of the bitcoin sycophants to explain away, if Bitcoin is the shit, and by extension so is every other alt-coin, as they are all using the same encryption. They are all the same, save that of name alone. So by proxy, they are not rare at all. Why at one point will the law of substitution not prevail? why buy bitcoin at $5000 when blowme-coin is selling for a fraction of that, and yet has all the exact same properties as bitcoin. Can someone explain?

monero's picture

Only idiots and scammers say every alt-coin is the same as Bitcoin.  (They also don't all use the same encryption.)  They are not compatible with each other even if they are exact clones of each other as far as the software is concerned.  I can go create Bitcoin365 by copying the source code tonight if I want and run around hyping it as the new best thing (which is exactly what scammers do), but I can't then spend it where Bitcoin is accepted.

funthea's picture

While I appreciate the ad hominem attack, I'm not a scammer though I could be an idiot, depending on who you ask. However, to your point, for which you made mine; If you did create bitcoin365, and it was, as I said, the same as bitcoin in every way, except not on its network, but the same type of sha256 hash, as the myriad of other alt-coins out there.  Why would I pay the exorbitantly high premium for bitcoin when it is no better than your bitcoin365? Your answer is acceptance and first adoption, really? Thats it? You mean like Myspace and Mastercharge?

BadLibertarian's picture

His "bitcoin365" wouldn't be better than Bitcoin though, because it wouldn't have the same amount of hashpower securing it. And worse than that, if an alt coin does appear and uses a direct copy of the Bitcoin sha256 double hash function, then it would be practically begging to be destroyed by a few miners from a more secure chain - just having fun. This has happened before.

tmosley's picture

>While I appreciate the ad hominem attack

That wasn't ad hominem.

Please learn how to debate (preferably honestly) before posting again.

funthea's picture

"That wasn't ad hominem"

Acutally it was text book ad hominem.

"Anyone who believes that that alt-coins are like bitcoin is a scammer or an idiot"

Please learn definitions of things you espouse others do not understand before posting again

EHM's picture

I've heard bitboys claim "because of the network of users" kind of like what myspace had.

BullyBearish's picture

the more people hate it and protest against it, the higher it will go...

Hugh_Jorgan's picture

Ah yes, and the only question is when to get out. When they're yelling, I'm selling.

Hugh_Jorgan's picture

The greater fool principle is a bedrock tenet. Learn that or remain the greatest fool.

TuPhat's picture

"Gold is not going anywhere."  Quite true and exactly what I like about gold.  It will stay where I put it.  Your bitcoin is going somewhere, and when it goes, it's gone.

Hugh_Jorgan's picture

If your referring to Au, it will never be worth nothing, very few stores of value that you can say that about. Certainly not crypto...

zebra77a's picture

Nobody is stopping anyone from leaving Amazon and listing and selling their product for FREE on Kijiji, yet the number of products on Amazon dwarfs that of Kijiji - it's simple market momentum / market force.

The US dollar fiat is backed by enforced GDP, - it's backed by the force of the US government MAKING people use US dollars in the arbitrage and as a mechanism of exchange, and preferable as a world reserve currency for the trading of oil. *that's* why it is valuable, as its value represents X dollars of GDP (by force).  Saddam and Qaddafi both found out what happens when their countries decide to leave the oil exchanges that are US dollar denominated..

All fiats are backed by force, as there was no escape - until crypto. The G8 Central Bankers could fiddle and play with the fiat all they liked.  Then if that wasn't enough the governments wait to feed after the Central Banks have gorged themselves.. A little jawbone talk could move the DJIA up or down $100 billion.  Notice no matter what central bankers say it has almost no bearing on the value of Bitcoin..

That's right, they cannot control it without a full internet shutdown. 

Crypto's value is the removal of the the parasitic function that accompanied all forced fiats.  It's value is that it escapes the inflation mechanism of 'growth' forced upon everyone that utlizes fiat dollars.  In otherwords it is the escape velocity vehicle to escape the black sucking hole that is your central bank..  

And the more they destroy their fiat (which is a mathmatical certainty), the more governments seize your stuff to feed their ever growing parasitic nature, the more people will realize that there is no wealth in fiat, it must come from a mechanism that cannot be easily diluted, like crypto..


doctor10's picture

The Euro and Dollar are "cryptos" in the sense they are merely the computer chits distributed by the ECB and FED. A few more people still use them versus modern currency.

The advantage of 21st century cryptos is their emission and use circumvents and disintermediates the 20th century banks with their expensive overhead and "protection" racket. The banks enable expensive, slow, outdated and unresponsive 20th century governments to still exist in the 21st century. Consequently most of the world yet awaits the 21st century-and this is ultimately the primary driver behind crypto.

Eventually nothing more than an iPhone/android app will be required to exchange value between two people. That value for now remains denominated in Dollars or Euro - but that WILL disappear-only question being when.

Ultimately the prevailing cryptos will be directly tied to gold and silver in some fashion .

The first crypto to reliably and honestly bind to precious metals, and that has the "ideal" crypto character and features, will be the most transacted.

Until then its the Wild West however...

TuPhat's picture

Until they sieze your crypto to feed on.

BadLibertarian's picture

Good luck to them with that - it's just not happening. If one government tries, then crypto holders can just leave for better pastures. And when they search them at the airport - they won't find anything because you don't need to carry anything physical to hold crypto. And if you don't "hold" it, then they can't steal it, sabe?

monero's picture

Houses have known doors that can be kicked in by theives (private or government) allowing your PMs valuables to be stolen.  Vault stored assets can be confiscated as well.

piceridu's picture

2 words: quantum computing...

Greenspazm's picture

Good paper profits, huh? Or sold some for ca$h and hoping you won't get an IRS audit? Or bought 20 gallons of perfume and 10 dining-room tables on Overstock?

JRobby's picture

EMP attack

Computer & phone no work.

Lead, gold & silver still work.

tmosley's picture

You could also get hit by a bus.

So sell all your assets and invest in bus-proof armor!

tmosley's picture

>Who is to say whether backdoors will be added to any crypto currency

The programmers who have completely rewritten the code for bitcoin, or the other programmers who wrote the code for their coins from scratch.

Also the stark reality that coins have never been stolen from anyone's wallet.

AtATrESICI's picture

A past and now fixed bug in open source software that lived for around 2 years and may have been coded by a FED mole...

The Heartbleed Bug

The Heartbleed Bug is a serious vulnerability in the popular OpenSSL cryptographic software library. This weakness allows stealing the information protected, under normal conditions, by the SSL/TLS encryption used to secure the Internet. SSL/TLS provides communication security and privacy over the Internet for applications such as web, email, instant messaging (IM) and some virtual private networks (VPNs)...



Some words for you...

“If you think technology can solve your security problems, then you don’t understand the problems and you don’t understand the technology.”

– Bruce Schneier


any_mouse's picture

Open Source Software. The code is available to all.

Think of 4chan /pol/ looking for Shia the Beef's flag.

No guarantee though where the NSA and the State is involved.

Who funded Satoshi?

Chances are the same funding that FB, Amazon, Google, Microsoft, etc. received.

Raffie's picture


Almost as bad as the triple dog dare thing.

Yup, someone with lead takes you out and takes your gold and silver. Works well.

Or they seriously wound you, torture you to give up the gold and silver and then you get off'd.

mrtoad's picture

Places that sell use computers and tech that is effected by EMP's too. They dont have scales any more.

mtl4's picture

I'd be curious to see how much electricity is used per transaction considering all the hashing done to support it.

The Cooler King's picture

"would agree that Bitcoin is a speculative asset.  But, at least in the short term, has pretty good "fundamentals".


DO CHEN ~ ffs man, I like you, but you're gonna need to explain your casual use of the term FUNDAMENTALS in this reference.

BarkingCat's picture

Maybe he needs one of his bearings replaced. . 

tmosley's picture

Hahahaha, leftists eat centrists too.

You fucks just attack ANYONE that has even the SLIGHTEST disagreement with you.


Raffie's picture

They are part of the G Soros gang using their own Antifi methods to attack anyone who disagrees with them.

TuPhat's picture

I see you attacking more than anyone else.

tmosley's picture

Only people who are actively hostile. Not kind hearted centrists like DoChen, who actually have open minds and thus are not subject to ridicule.

The Cooler King's picture



I'm replying TO YOU... & YOU ONLY HERE... NOBODY ELSE, (& notwithstanding other, uninvited inputs, & limited ONLY to those replies of DO CHEN himself).


That's what I was thinking (vis-a-vis, your comment), myself, as, I'm having a hard time trying to reconcile the term 'FUNDAMENTAL' with things in contrast to the manufacturing and order books, of, say 'BEARINGS', versus the capricious price movements of bitcoin.

Saucy-Jack's picture

Methinks he was using sarcasm as a language element to elicit laughter...

The Cooler King's picture



I'm not really sure...


DO CHEN has admitted all along that he's been dabbling in cryptos.


So that's why I'm pressing him on this subject (because I don't consider him a 'clown')


Note: once again, I'm ONLY talking to SAUCY here (& adhereing to the FIGHT CLUB RULE of "only 2 to a fight").