The price of bitcoin continues to surge, defying critics to set a new all-time high of $4,500 today.
But even though bitcoin's price has soared in recent weeks, there will always be bears who see the market through a profoundly darker lens. One of the best-known among the bears, investor Peter Schiff, is now making his case in even stronger terms for why bitcoin has advanced ever farther into bubble territory.
Schiff, who predicted the 2008 mortgage crisis, famously referred to bitcoin as digital fool's gold and compared the cryptocurrency to the infamous bubble in Beanie Babies.
Moreover, the recent run-up in bitcoin hasn't softened Schiff's view: If anything, it's reinforced his sense of impending doom.
Schiff told CoinDesk:
"There's certainly a lot of bullishness about bitcoin and cryptocurrency, and that's the case with bubbles in general. The psychology of bubbles fuels it. You just become more convinced that it's going to work. And the higher the price goes, the more convinced you become that you're right. But it's not going up because it's going to work. It's going up because of speculation."
In other words, bitcoin’s upward momentum – even the price more than doubling within 90 days – may be a kind of self-fulfilling pipe dream.
Schiff does acknowledge that, under certain circumstances, bubbles can lead to trading opportunities for investors who aren’t wedded to the long-term viability of the asset.
"People who get in and get out can make money," he said. Unfortunately, that's easier said than done. He added: "Most people never get out. Most people just don't sell, because of the psychology, and what happens to most people is they just keep buying more. So, when it crashes, they don’t just give back the paper profits – they give back real money."
In a wide-ranging conversation with CoinDesk, Schiff sketched out why he's still okay leaving money on the table when it comes to the crypto asset class.
'Bitcoin ain't money'
The most fundamental of Schiff's arguments can be summed up in one quote: "What it comes down to is that bitcoin ain't money."
Schiff, who is both a passionate advocate and long-time investor in gold, has a narrow definition of money. Simply stated: "Money must be a commodity," he said.
While Schiff is clearly an advocate for the inherent value of gold, he acknowledges a role for fiat currency in the modern economy.
According to Schiff, government-issued money works because there are other valuable things people can do with money. All of the following , for example, are true of fiat currency: you can pay taxes using fiat money; you can buy insurance denominated in dollars; you can buy bonds denominated in dollars, which will pay you interest in dollars.
In Schiff's view, based on this use case, "People have jumped to the conclusion: Since dollars have no intrinsic value, they jump to the notion that cryptocurrencies can work. Two wrongs don't make a right."
Based on this interpretation, Schiff doesn't believe bitcoin can fulfill those functions.
In Schiff's telling, the nefarious uses of bitcoin are one of the primary reasons why regulators are going to go after operators in its market.
"The main benefit of bitcoin – the only segment of society where it's used for something other than speculation – is crime," he said, noting that when cybercriminals hijack computer systems they very often demand their ransom in bitcoin.
While Schiff acknowledges that early adopters of bitcoin have legitimately used it to purchase legal goods and services, he still believes its association with criminal activity is a net negative.
Schiff also points to the risks of future regulation by the Securities and Exchange Commission (SEC), who recently weighed in on the DAO, calling its sale of DAO tokens equivalent to the sale of unregistered securities. If the broad strokes of that report were imposed on the industry as a whole, the large segments initial coin offering (ICO) market might quickly withdraw.
What makes bitcoin different?
While Schiff expressed skepticism about cryptocurrency, he's bullish on the long-term potential of blockchain technology more broadly.
But he does pose an interesting question about the long-term use case for bitcoin.
"Even if you believe that cryptocurrency is going to work, how do you know that 10 years from now bitcoin is going to be the one? If digital currencies can work, someone can come up with another one. And another one. And another. And another. There's nothing special about bitcoin that another cryptocurrency can't replicate and improve on. Right now, bitcoin is just the most popular because it was first," he said.
Schiff also noted that owners of bitcoin only have claims on the value of the currency itself, and don't own a share of the process.
In this sense, owning bitcoin is roughly analogous to owning a single product made by a company, rather than owning the company's stock, which represents a claim on corporate ownership. (If you own a share of Apple, you own a claim on the cash from future products, not just a portion of one model of iPhone.)
Schiff alludes to a kind of innovators dilemma: Very often, companies that are first into a market, or are the most impressive early innovator in a space, are not the ones that are ultimately most successful.
Or, as Schiff frames the problem: "How do we know that someone isn't going to come around and do to Facebook what Facebook did to Myspace?"
If you extend Schiff's metaphor to the cryptocurrency space, the implications are clear: What if the experience that the cryptocurrency world gains from bitcoin is leveraged in creating a newer, shinier cryptocurrency in the future?
When asked to sum up, Schiff was unequivocal:
"This is a speculative frenzy. Right now, this is a bubble. It's a cult. When you're in it, obviously you need more people to believe in it, because the price can only go up if other people buy in. In that sense it's a natural Ponzi scheme – a lot of it is just plain greed."
Those are very tough words for any investor in bitcoin to hear -- and ones they've heard from both inside and outside the market before.
So what's Schiff's advice to investors?
Mostly, Schiff urges investors in bitcoin who have seen outsized gains to take some profits: "If you think you're smart, don't be afraid to take 10% off the table. Don't be afraid to sell into the rally. Don't get greedy. Don't lose all your money."
While it may be disappointing to members of the cryptocurrency community to hear such criticisms, Schiff said he's still "very sympathetic" to the idea of a free market alternative to fiat currencies, and would very much like to see something that can compete with the US dollar and the Yen as a reserve currency.
"Libertarian-minded crypto fans saw this was a way to liberate people from the government," he said, concluding:
"I think it will have the opposite effect. People are going to lose money. This could really backfire, giving libertarian ideals a bad name by making fiat look good. The downside can be really spectacular."