Will Bitcoin Destroy Big Government?

Many Bitcoin backers, including Overstock's CEO, harbor libertarian leanings.

Mar 22, 2014 at 12:00PM

Source: Flickr / btckeychain.

Not all of bitcoin's proponents are radical libertarians -- venture capitalist Chris Dixon, for example, is both a cryptocurrency supporter and a self-described lifelong Democrat -- but many of them are.

Last year, Overstock.com (NASDAQ:OSTK) made news when it became the first major retailer to accept bitcoin. The announcement was hardly coincidental: The company's CEO, Patrick Byrne, is a noted libertarian who describes money as "too important" to leave in the hands of the government.

To those who share Byrne's philosophy, the appeal of bitcoin comes from its resistance to inflation: Unlike U.S. dollars, whose supply is dictated by the Federal Reserve, the number of bitcoins is controlled mathematically. A hard cap is intrinsic to bitcoin's design, and though new bitcoins will continue to be mined into existence in the coming years, the total number of bitcoins will never exceed 21 million.

Slaying Leviathan
Jeffrey Tucker, the CEO of Liberty.me, is one of those proponents. Characterizing bitcoin as the magic bullet that will slay "Leviathan," he believes cryptocurrency is an unstoppable force, a technology that will end the age of big government.

Tucker was once the editorial vice president of the Ludwig von Mises Institute, an economic think tank advocating the work of Ludwig von Mises, a somewhat obscure economist who supported unrestrained free markets. Mises was deeply opposed to central banking and advocated for a gold standard. To Tucker, and many bitcoin supporters, bitcoin is the gold standard of the digital age. Unable to be replicated, and not easily controlled by governments or central banks, bitcoin holds the promise of truly unregulated commerce.

But Mark Spitznagel disagrees. The founder and CIO of Universa Investments (a hedge fund with around $6 billion in assets), Spitznagel is such a passionate believer in Mises' theories that they form the basis of his investing strategy. In his recent book, The Dao of Capital, Spitznagel argues that investors can beat the market by successfully applying strategies derived from Mises' work.

Applying Mises' theories, Spitznagel is expecting a major market correction -- he believes the S&P 500 (SNPINDEX:^GSPC) could fall by as much as 40% in the coming months, as poor economic fundamentals finally catch up to the overvalued stock market.

In the meantime, Spitznagel thinks investors should sit in U.S. Treasuries -- not bitcoin. Despite his own libertarian leanings, Spitznagel is deeply skeptical of Bitcoin, characterizing it as "castle in the clouds." Because bitcoin lacks intrinsic value of its own, Spitznagel told me, it's not wholly different from any existing fiat currency. It may help to facilitate digital commerce, but as it stands, it's simply an extension of the dollar.

Just an extension of the U.S. dollar
Indeed, while Overstock.com may accept bitcoin, it doesn't store them -- all the bitcoins Overstock.com takes in (now worth more than $1 million per day) are converted directly to U.S. dollars. The free publicity generated by bitcoin was unquestionably a smart move for Overstock, but Byrne is clearly intelligent enough not to saddle his company with extreme currency risk (and that's putting it mildly).

The rising value of bitcoin has attracted a great deal of attention from investors -- Goldman Sachs released a report on bitcoin earlier this month, trashing it as a currency but suggesting its underlying technology could have some value. Warren Buffett wasn't as kind, telling investors to "stay away," and arguing that its current valuation was "a joke."

But with the cryptocurrency still trading near $600, bitcoin bulls remain undeterred. "Treasury officials are clueless about bitcoin," Tucker told me. For someone whose ideology centers around distrusting the government, such an asset has obvious appeal. Still, there's no consensus, even among Fed critics: Spitznagel argues that all forms of money must have underlying "commodity-value."

While there are people like Dixon out there, much of bitcoin's recent bid appears to be ideologically motivated. While the underlying technology could have some promise, I suspect those buying bitcoin out of opposition to the government are setting themselves up for failure.

A better investment than bitcoin
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers