Investing in BTC is “moving from the frying pan to the fire”
Updated
Crypto’s much-vaunted status as an inflation hedge is a myth because they suffer from the same weakness as fiat currencies in that they are only backed by confidence, according to economic commentator Peter Schiff.
Renowned goldbug Schiff who owns a precious metals brokerage and whose Euro Pacific Bank is a full reserve lender, in contrast to the fractional lending model practised by mainstream banks, said people who invested in digital assets like bitcoin as an inflation hedge are “foolish” and “wrong”.
“Obviously there are going to be some people who speculate in crypto if they feel they need an alternative to money but all they are doing is moving from the frying pan into the fire.”
Bitcoin not an inflation hedge
“This is because the problem with fiat money is that it has no real value because [its value] comes from confidence, and the same is true of cryptocurrency – it only has value because people believe in it.
“And that is what all cryptos including bitcoin are. If people are foolish enough to buy bitcoin as a store of value, as an inflation hedge then they are wrong.”
Schiff speculated that bitcoin may not have peaked in value when its price nearly reached $69,000 in November last year. The digital coin’s price has retreated since then and currently trades around $43,000. Schiff did not rule out a further rebound but he said that ultimately cryptocurrencies are a bubble.
“Maybe [bitcoin] will make another high. I am not smart enough to know how big a bubble will get before it implodes. I am smart enough to see a bubble when I see one,” he said.
Schiff made his comments on a Capital.com video debate with fellow economic commentator, Australian Steve Keen, titled, “Is a global financial crash inevitable?”.
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Energy use concerns
Keen had a less apocalyptic view of cryptocurrencies, describing them as a very effective speculative instrument because of the ease with which their units can be divided and traded.
He did, however, point to mounting concerns over the energy consumption involved in mining digital currencies, with bitcoin mining alone accounting for 129 terawatt-hours (TWh) power consumption annually.
“My biggest worry about cryptos is energy consumption, particularly bitcoin,” he said.
Last year, bitcoin prices tumbled when Chinese authorities banned mining activities over power consumption concerns and Keen predicted similar actions by other governments in the future.
“When we face an energy crunch, and we will do so over the next decade, if we continue to use fossil fuels, the easiest way for governments to reduce energy consumption is to shut down cryptocurrency [mining].”
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