SEC Panel Debates the Merits of Bitcoin as a Store of Value

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2014

Late last week, The Securities and Exchange Commission Investor Advisory Committee held a public meeting that included a discussion regarding blockchains and other forms of distributed ledger technology in the context of securities markets. Throughout the discussion, the committee and the panel of experts invited to discuss blockchain technology at the meeting debated the merits of bitcoin as a store of value.

Cryptocurrencies Aren’t Going Away

Notably, the Investor Advisory Committee (IAC) members were somewhat skeptical on the usefulness and long-term promise of bitcoin and other cryptocurrencies. At one point, IAC member Stephen Holmes asked if distributed ledger technology may still have value in a world where cryptocurrencies have disappeared.

“Cryptocurrencies will not go away, ever,” responded Chain CEO Adam Ludwin. “There’s an economic incentive for them to exist and there’s a big world out there and lots of different jurisdictions, so they’ll exist somewhere.”

Nasdaq Vice President of Blockchain Innovation Fredrik Voss would later add,

“[A cryptocurrency] will be valuable as long as there are two people who think that it has value . . . And that is, to Adam’s point, quite likely to exist for a long period of time.”

Ludwin also pointed out that, much like encrypted messaging, the popularity of cryptocurrencies can change with the times. The Chain CEO pointed to the increased popularity of encryption technology in the aftermath of the Edward Snowden revelations as an example of his point. He also noted that the election of U.S. President Donald Trump is an example of how the state of the world can change rather quickly.

“Encrypted messaging is now mainstream,” said Ludwin.

Bitcoin as a Store of Value

In addition to asking about the prospects of distributed ledger technology in a world without cryptocurrencies, Holmes also wondered about the viability of bitcoin and other cryptocurrencies as potential stores of value.

“The notion of store of value doesn’t apply to cryptocurrencies, right now at least (I think),” said Holmes in a somewhat mocking tone.

Holmes went on to ask the panel how bitcoin could work as a store of value if its supply is limited.

“Gold is a store of value because it has a finite limit, and the same is true of bitcoin,” responded Ludwin. “The best way to think about bitcoin is as digital gold. In fact, the predecessor to bitcoin was called Bit Gold, which is a paper by Nick Szabo, and bitcoin is a very slight evolution of Bit Gold.”

Ludwin added that there is empirical evidence for the value of bitcoin as a store of value if you look at the price history.

“It’s certainly a store of value if you’re willing to ride the ups and downs,” said Ludwin.

Another panelist, Bandman Advisors Principal Jeff Bandman, pointed to the large amount of volatility and debatability over the future bitcoin price in his comments on bitcoin as a store of value.

“I think you’re right to be skeptical,” said Bandman to the committee.

IAC member Anne Simpson then said that the comments on bitcoin as a store of value up to that point reminded her of the history of the use of cowry shells as money and the notorious Dutch tulip bubble of 1637.

“It all hinges on the idea that a store of value exists, so long as everyone believes in it,” noted Simpson. “You can’t eat bitcoin.”

Simpson then compared bitcoin and other potential stores of value to Tinkerbell from Peter Pan where the fairy only exists if the children believe in her.

“But that’s how markets work,” added Simpson.