The Waffle: Bitcoin's New Clothes

I seldom write about Bitcoin. It's become such a big thing now that everybody is aware of it, you can buy it at ATMs and in banks, and your financial advisor thinks its good for your Sharpe ratio. Whatever that is, you wonder, and believe them.

After all, Bitcoin is now "salonf?hig", one of these fantastic German words that are impossible to translate. Of a person, it means "salon-ready", "convenable," "presentable", as in "worthy of presenting in good society", thus not objectionable, but generally acceptable. This "socially acceptable" Bitcoin must now pass muster with society -- which is made up of conservative elements who understand only one thing: money.

This is Bitcoin's "show me the money" moment. Where is the cash flow? What's the valuation model? Where are the quarterly reports, and on the other accoutrements of tradition finance? Fund managers and advisors went to expensive schools to learn their trade, so Satoshi be damned, they will apply that to that new thingamajig they are supposed to sell in paper form.

Bitcoin has had many outfits. The 5-man virtual study group, in lack of a better word, commonly personified as Satoshi Nakamoto, envisaged it as e-cash, throwing out Professor Uchida's OP_CAT code that would have given it smart contracts from day one. That teenage garment didn't last long, just like the career plans of an 11-year old. It never was an e-cash system. We already have e-cash on our phones, in our bank accounts and on our cards, a form of cash that is much easier to understand: the government backs it and sets the rules. Nobody signficant is today paying for their latte in Bitcoin. Real estate transactions in Bitcoin have dwindled after an initial hype. Most haciendas bought with crypto were paid for either in a stablecoin, or paid for by criminals.

Bitcoin made sense only the initiate, for whom 1 BTC was always 1 BTC and the dollar-value was irrelevant. Unfortunately, in good society, the dollar is all they understand. So the "acceptable Bitcoin" must now survive in a largely hostile environment.

When it became clear that people didn't pay the gas bill in Bitcoin, it rebranded. After Bitcoin's quincea?era, the now grown-up woman took the name "digital gold." Is it gold? The aforementioned guardians of civilized society are having a real hard time valuing it like gold, whose supply isn't fixed (Bitcoin's one and only, but spurious, marketing tool, the magic 21 million!), but which has a million use cases, from bullion in vaults that withstand nuclear attacks (unlike Bitcoin, which can be wiped out by a solar flare and other electronic interruptions), all the way to earrings and necklaces. Gold is desirable. Bitcoin is boring code.

So the digital gold narrative didn't work as Bitcoin went through college, graduated, and took its first job in January 2024, when it started work as an ETF, which stands them "Earning us Trillions in Fees." Its job was to earn fees for the issuers of ETFs, not to be worth neither 1 million nor zero, but anything in between. As long as the people believed in Bitcoin's new Chanel suit, the Jimmy Choo shoes, and the red Ferrari, there were fees to be earned and narratives to be spun. All it had to do is keep the religious apparatus up and running. But there were dissenters, like the apostate Peter Schiff. There were academics like Yonatan Sompolinsky who tried to explain to the people that the emperor was naked. There was the visionary academic behind SpaceMesh, and a hundred others who wrote theses and pinned them to the door of the cathedral. Across the crypto space a wave of doubt and criticism swept and threatened the Empire. The reformation had begun.

High priests of orange catholicism like Michael Saylor then gave Bitcoin its third set of sartorial rendering: the grown-up, hard-working, programmable Bitcoin. He and his altar boys would henceforth promote this new Bitcoin through the use of inscriptions, maybe Runes, maybe another inventions to give it new relevance. He convened the great Conclave of 2024, during which he presented his plan for "Useful Orange".

Like the Catholic Church after one too many abuse scandals, Bitcoin as a religion is having a hard time staying "relevant". Believing in Bitcoin is harder than believing in transsubstantiation. "Think of it," a fellow academic said to me last Thursday as we mused on the future of crypto, "if you started Bitcoin today, with the same code, people would die laughing." Bitcoin's incentives are skewed, its decentralization in peril, its security budget wobbly. Looking at it purely with analytical, technical, "scientific" eyes, it's worthless, and is relevant today as the Telex machine.

Looking at it through the lens of a financial advisor, and analyst, or similar member of civilized society, it's also not worth as much as it currently trades. Of course, things are worth what people are willing to pay for them, but the "fair value" of Bitcoin has been calculated with many different models, none of which goes far above $28000. Once the ETFs were available and Bitcoin settled in its daytime job, society, while accepting the new emperor, also judged him with its time-tested, conservative yardsticks, and found him wanting. An army of advisors has now come out questioning the wisdom of selling something that is so hard to value. ETFs are bringing with them a massive backlash. A thousand microscopes are now examining the emperor, and many are saying he's naked after all.

For decades, the monotheistic religion of Bitcoin held on firmly to the commandment "though shalt not have other gods before me". For other gods, read "altcoins." The truth is though that many of these altcoins have an actual function, a business plan, a "utility". Many altcoins, many blockchains, have a purpose, and a good one at that. They solve problems, which Bitcoin does not. They help make the world a better, fairer place, enable faster money, and better money, they actually work as a payment system. And still, the people prefer to believe in their God. After all, uncle Wilhelm and cousin Michael are going to church too. It's hard to give up a religion. Peer pressure is strong. Over 40% of ETF business queried said that bought Bitcoin because their advisors and friends told them to. [source] But, as Hans Christian Andersen wrote, it only takes a child to expose the truth.

Bitcoin still has a chance, despite its wastefulness and lack of efficiency and purpose. It can still be useful as a programmable blockchain, which is what Michael Saylor now proposes on a grande scale. But then the question is "Why Bitcoin?" Why not use faster, cheaper, greener, alternatives? If it is cash we want, why not just use stablecoins? If we want a payment system that's fast, efficient, and not fiat-bound, why not use Kaspa? If it is gold we want, why not gold on blockchain? If it is programmability: there are hundreds of blockchain, even the dysfunctional Ethereum, that do a better job. Once we accept that the Emperor is naked, what's the point of an emperor?

Bitcoin has grown up, went to school, and took its first job. That is a whole new world, where the values of childhood, the dreams and tribulations of adolescence, and the boozy college years, no longer matter. Let's see how Bitcoin performs at its first job. Let's see if we want to keep the emperor in charge, or start a revolution.