Donald Trump may be banned from social media, but millions still look to him for political leadership. So, it’s worth explaining why the former president’s recent comments on Bitcoin and cryptocurrency are off-base.
For context, cryptocurrency is just what we call decentralized and encrypted digital currencies that are not controlled by any central authority or government. Bitcoin is just the most prominent and well-known cryptocurrency of many. And, apparently, Trump isn’t a fan. In a recent interview with Fox Business, he blasted Bitcoin as a “scam.”
“I don’t like it because it’s another currency competing against the dollar,” he said. “The currency of this world should be the dollar. And I don’t think we should have all of the Bitcoins of the world out there. I think they should regulate them very, very high. It takes the edge off of the dollar and the importance of the dollar.”
Let’s break down the former president’s concerns. First, Bitcoin is not a “scam.”
It is, like many cryptocurrencies, highly volatile — its valuation varies rapidly over short periods of time. But this is widely known, and most investors in volatile cryptocurrencies such as Bitcoin know that they may lose money; they’re treating it like a speculative asset, similar to rolling the dice on a stock investment. What about this situation is a “scam” is unclear, given that people can easily know exactly what risk they’re taking on.
Secondly, Bitcoin is not just a superfluous competitor with the U.S. dollar. While the two are similar in many ways, there’s an important difference that makes Bitcoin useful in its own right.
“Bitcoin is similar to the dollar in many respects,” economist and currency expert Will Luther told me in a recent interview. “Both are intrinsically worthless, meaning they have no use apart from their role as a medium of exchange. Both are irredeemable, meaning they are not backed by some underlying asset. And both are digital base monies. (Bitcoin is fully digital, while the dollar is only 99.96% digital — close enough.)”
But there’s a key difference in the supply.
“Bitcoin’s supply is preprogrammed,” Luther explained. “There will never be more than 21 million Bitcoin in circulation, and the supply will follow a predetermined trajectory until it reaches the maximum. The supply of dollars, in contrast, depends on the discretion of the Federal Reserve.”
This means that while the U.S. government can print dollars and inflate the currency to finance big government spending, if it wishes, no one can inflate Bitcoin. So, it’s not just a superfluous competitor to the dollar — it’s a valuable hedge on inflation.
Price inflation, such as the more than 4.2% rise in prices we saw from April 2020 to April 2021, hurts consumers and acts as a “stealth tax” on working Americans. It’s essentially a roundabout way the government can rob you without you noticing. By providing an alternative currency that cannot be inflated, Bitcoin offers a way to escape this stealth taxation and thus limits the federal government’s ability to inflate the dollar unchecked.
In all of this, Bitcoin and other cryptocurrencies are providing something valuable. So, Trump’s dislike for Bitcoin is totally off-base. Whether you love or hate the former president, just don’t heed his cryptocurrency advice.