Is Bitcoin A Brilliant Scam?

This is Matthew Crowder's Bitcoin University. Today I want to answer the question, is Bitcoin a brilliant scam, and we'll be doing a reaction to this video. So, let's get started. This is a video by Casual Finance. >> That's right. The number one crypto hater on YouTube has returned. And for >> So, that's a bad start already conflating Bitcoin and crypto. That's what you'd expect. The perception is that Bitcoin is a subset of the crypto industry when in fact crypto is a subset of fiat. So, that's not a very good start to a video. >> Those of you who don't know me, about 6 months ago, I made a video breaking down how Micro Strategy had essentially turned itself into a giant leveraged bet on Bitcoin. My argument was simple. Michael Sailor had turned Micro Strategy from a dying software company into a leveraged time bomb and that the whole thing only work well, I wouldn't say it's a leveraged time bomb. If we take a look at the actual data, Micro Strategy has about 10 billion in preferred which can be sort of counted as debt uh to some extent and then they have 8 billion in debt. So that's about 18 billion in debt. Current market cap is 41 billion. And if we do the math for that, that's about 40% debt to equity ratio and it's a lot less if we just count the pure debt. If we do 8, it divided into 41. So this is certainly not a highly leveraged company by any measure. And in terms of its success, when Micro Strategy first bought Bitcoin, the company Micro Strategy had a market cap of 1.5 billion, currently at 41 billion. So in spite of the fact that Micro Strategy is down a lot, I would say that's a pretty successful uh last few years. >> Worked if Bitcoin's price kept going up forever. And at the time, this was a pretty unpopular take. The general consensus in the comments was that I didn't understand what Michael Sailor was building, that this video was going to age poorly, and that I was apparently a dumb ass. But I'll have you know that since I made that video, Micro Strategy has lost nearly a hundred billion in market cap, and their stock price is down more than 50. We've also had a Bitcoin bare market over that process. So, it's always hard to uh know what is attributable just to the cycle and what's attributable to actual problems with an individual company in the in the ecosystem. >> Percent. So then fast forward a few months after the micro strategy video and I uploaded another crypto video. This time it was about again he's conflating Bitcoin and crypto which is not a good look. Crypto tends to be highly centralized with premines and centralized management teams. Crypto is basically unregistered securities if you want to use that language. Whereas Bitcoin is a sovereign bearer asset which is much more like gold. Crypto has an issuer. Cryptocurrencies always have an issuer whereas Bitcoin has no issuer. it has no counterparty risk and it doesn't have some centralized team uh that's running it. >> The broader crypto industry, it was about how the industry was much more fragile than people realized. And >> again, he's talking about the crypto industry. The cryp crypto industry is mostly scams and things that are leveraged off of Bitcoin. Bitcoin itself is the foundation and is something very different. And Bitcoin can exist without crypto. Crypto can't exist without Bitcoin. And if you notice cryptocurrency prices, they often follow Bitcoin. They're basically just leveraged versions of it. Cryptos come and go. Bitcoin is the only cryptocurrency that's been around since 2009. It remains the largest. It's a $1.5 trillion asset. And if you're going to argue that a $1.5 trillion asset is a scam, uh, I don't know what to tell you because there's never been an asset quite that big that was a scam. The other thing about Bitcoin, it's not centralized. So, if it is a scam, who is running the scam? It's this completely decentralized network and protocol. Once again, this video was not exactly popular with the crypto community. And since that second video was published, the global cryptocurrency market has lost well over a trillion dollars in market value. And the total market is down over 30%. But let me be clear, I'm not bringing this up to take some victory lap over the people who bullied me in the comments, even though I should be. I'm bringing this up to highlight the fact that both of these videos were built off of the same idea. the idea that underneath the narratives, parts of the crypto ecosystem are much more fragile than people are admitting and that underneath all the narratives, there are real issues with the crypto industry. Which leads us to the obvious follow-up question, what about Bitcoin? And that's because Bitcoin isn't just another crypto project. It's the foundation the entire industry is built on. It's the bottom block in a very tall, very unstable game of Jenga. Well, the crypto industry may be a Jenga tower, but I don't really care because I own the foundation piece. I only own Bitcoin. And that's what I'm going to be talking about today. Because Bitcoin's price is driven by the same false narratives. Narratives that say Bitcoin is digital gold, that it's the future of money, and that it's a hedge against inflation and corruption. And if you've spent any time in the crypto industry, you've heard these same arguments a thousand times. But here's the problem. When you actually start testing these narratives, when you stop looking at the story and start looking at the data, what you start to see is something very different. You start to see a pattern where the story keeps changing every time the technology fails to deliver. I'm not sure the story has kept changing. Bitcoin has been money since 2009, since the Bitcoin white paper on previous promises. But to understand Bitcoin's real value, we have to start with a much simpler question. What is Bitcoin actually supposed to do? And when Satoshi Nakamoto introduced Bitcoin in the original 2008 white paper, the idea was extremely clear. Bitcoin was described as a peer-to-peer electronic cash system. In other words, Bitcoin was supposed to function as digital money, a decentralized alternative to banks and governments where people could send payments directly to each other without intermediaries. And that's exactly what Bitcoin was. That's what Bitcoin has always been. And that's what Bitcoin is today. And you can still do that. You can send everything peer-to-peer. And if Bitcoin actually accomplished this, it would have been revolutionary. But there's a problem. It didn't. It wasn't even close. Because economists generally define money using three basic criteria. First, it >> Well, he's ignoring the fact, too, that the value of the market cap of Bitcoin since that point has gone from 0 to 1.5 trillion. Again, that's something he probably should should mention at some point. >> Has to function as a medium of exchange. Basically, people need to widely accept it as a form of payment. Second, it has to function as a store of value, something you can hold today and spend later without massive swings in purchasing power. And third, it has to function as a unit of account. Meaning, it must serve as a standard measure for pricing goods and services so it can allow people to compare their value. And when you start evaluating Bitcoin using these tests, it doesn't just fall short, it fails all of them. And I can prove it to you because as a medium of exchange, Bitcoin is slow, expensive, and inefficient. The Bitcoin network processes roughly half a million transactions per day. And if you think that sounds like a lot, it's not because, >> well, the funny thing is half a million transactions per day is approximately what Fed Wire does. So, he's conflating a few things here. Let's just let him finish the point, though. >> If you compare that to something like Visa, well, Visa processes roughly 65,000 transactions every single second, which means Bitcoin's entire daily transaction volume could be cleared by the Visa network in under 8 seconds. The speaker here is making a fundamental category error by confusing the base layer of money with higher layers of money. So he's comparing a base layer settlement network like Bitcoin to a much higher layer of money like Visa, which uses many different uh layers on top of it. So the Fed wire currently processes about 800,000 transactions per day. That's very close to what Bitcoin processes on the base layer, 400,000 to 600,000. And when you consider the fact that Fed wire is closed in the evenings and on weekends, these numbers are much closer to one another than you would expect. So it's proper to compare the base layer of one money to the base layer of another money. So you have to compare Bitcoin onchain payments to something like Fed Wire, which is the settlement layer. You can't compare it to a higher payment uh payment layer because Visa basically builds on top of many different layers as we can see here. And I would actually flip this diagram upside down and put the settlement layer on the bottom. But the settlement layer is basically banks sending money to one another using Fed wire. And then you have various clearing institutions for your own bank account and for the merchants bank account. And then all the way at the bottom, what should actually be the top if we flip this are the higher layers like you using your Visa to buy a book from Amazon. Then what happens is Amazon and your bank that issued your Visa, Amazon's bank, they send some money back and forth. They either do a or Fed wire and then everything eventually gets settled at the base layer. So you can't compare a higher layer of money like Visa to something like uh something like Bitcoin, which is base layer money. In terms of Bitcoin being too slow, Bitcoin does about seven transactions per second. In this video, I show how Fed Wire does about 8.6 transactions per second. So it's really the same order of magnitude and the Bitcoin lightning network which is a higher layer that's more analogous to Visa except for the fact that it's open anyone can use it. You don't need it's not a permission network. Whereas for Visa to be a merchant or consumer on the network, you need to be permission. Bitcoin lightning network is opened to open to anyone. Anyone can open up lightning channels and it has TPS transactions per second throughput in other words of a million TPS or more. So this is actually much faster than Visa when you think about it. And it doesn't stop there because a single Bitcoin transaction has a carbon footprint equivalent to roughly 1.5 million Visa transactions. And in terms of energy use, a single I can't even believe he's making this argument in 2026. If you want to look at the actual carbon footprint of a visa transaction, you have to take into account all the different layers, including all the skyscrapers, all the heating and air conditioning, electricity that goes into them, all the bank branches, the fact you have to drive to your bank branch to get physical cash, and then all of it is ultimately secured by proof of war. And if you want to think about the biggest poller on the planet, it is the US military. And that is what secures the US dollar. Whereas Bitcoin is secured by something much less violent which is proof of work. So if you look at the carbon footprint, if you even care about such things, if you look at the carbon footprint of one Visa transaction or $1, you'll see that it's much much higher. In terms of consuming a lot of electricity, this is a sign of a high civilization. And as we're seeing right now with AI, AI consumes a lot of electricity. And if your AI doesn't consume more electricity, if you're not using it more than your rival, namely China or Russia, you're going to be in big trouble. So using more electricity, if you live in a mud hut in some third world country, you don't use a lot of electricity. The more electricity you use, the higher the level of civilization. If you want to go a little deeper down this rabbit hole, I'll put a link to my video called Does Bitcoin Mining Waste Energy? single Bitcoin transaction consumes roughly the same amount of electricity as the average American household uses over 43 days. >> This is complete nonsense because he's not taking into account all the different layers, all the transactions that take place on the lightning network, for example, which do not require proof of work. You can send money back and forth in the channel. This guy basically is citing the old uh Dutch central bank arguments from a few years ago. He really hasn't done his research and kept up to date on the research. And so it's ridiculous to attribute a certain amount of electricity per Bitcoin transaction. If you want to do the comparison again, you have to compare proof of war, the US military, and you also have to compare, for example, if you're using gold as a settlement layer, how much energy would it use to settle gold to fly airplanes full of gold back and forth between Europe and Asia and North and South America, for example. And so you have to look at it always not in terms of the ideal world but in terms of what the actual alternatives are. And you can either have fiat which is secured by proof of war or you can have something secured by gold which is obviously very bad for the environment. Both in terms of the environmental destruction wrought by gold mines as well as the fact that you have to put that gold on ships and airplanes and move it all over the earth. Uses over 43 days which explains why Bitcoin hasn't become a widely adopted payment system yet because it isn't a good one. So what about using Bitcoin as a store of value then? And at >> if you've ever tried to send money from Europe to America or vice versa, uh you realize Bitcoin is actually very very good global money and it's also found on every country on Earth. >> First glance the argument seems reasonable. It has a fixed supply and historically assets with limited supply like gold have often been used as a store of value. And to that I say no. And there's two reasons why. The first stability. A store of value needs to reliably preserve purchasing power. And Bitcoin has historically been one of the most volatile assets in the world. Which is exactly why this is one of the misunderstandings that a store of value cannot be temporarily volatile. So for example, everyone knows that gold itself is a store of value. But if we take a look, gold has had many large draw downs. For example, even in 2008, it went down 30% during the crisis. It had a flash crash in April of 2013. And stocks are another store of value. Real estate's another store of value. It doesn't mean that the prices don't fluctuate. So even the most conservative stores of value or the most traditional stores of value like gold have had a lot of price volatility. Bitcoin's volatility has continued to come down as it mark as its market cap has increased. Gold currently has a market cap that's much higher and so you'd expect much lower volatility. This is the same thing you see with tech stocks. For example, Apple's stock has been a very good store value over time. It was very volatile in the early days and it's become less volatile as its market cap has increased. Also, if we take a look at the value of Bitcoin, if we really scroll out and look at the big picture, it's been an excellent store value that's actually helped you to increase your purchasing power. why you don't see anyone dumping their entire net worth into Bitcoin because an app >> actually you see lots of people doing that uh lots of people including myself and including people who watch this channel obviously >> set that can swing 20% in a single month isn't reliable that's a level of volatility where businesses households and individuals start to treat it as a speculative >> again he's still thinking in fiat terms for example so if you're earning Bitcoin and you're spending Bitcoin you're not really worried as much about these fluctuations in purchasing power or fiat value is just really measuring the value of Bitcoin in fiat >> of investment rather than a true store of value. And the second issue that rarely gets discussed with Bitcoin ownership because despite the narratives you read online about Bitcoin being decentralized, the actual distribution is extremely concentrated because roughly 2% of addresses control 95% of the supply. Those 2% of addresses are mostly exchange addresses where people are storing their bitcoin on an exchange and then the exchange itself has a wallet. So the actual ownership of this bitcoin is much more widely distributed. That being said, wealth concentration and wealth inequality is found everywhere whether it's in the in the gold standard on the fiat standard whether it's the ownership of stocks etc. This is just one of those problems in the world and only socialists want to steal money and property from one person to redistribute it to another. But the statistics he's citing here are really exaggerated by the fact that this concentration of Bitcoin holdings is really uh exchange wallets rather than anything else. And when ownership is this topheavy, price movements can easily be manipulated by a relatively small group of large holders like the recent Jane Street incident. Because right now, Jane Street is currently being sued for allegedly helping trigger the 2022 crypto winter and wiping out 40 billion in market value. And the fact something like this is even possible. Yeah. As if there no crashes in the traditional finance system. You can have short-term fluctuations in the price of gold or stock or stock index or silver or anything like that, but it doesn't affect their uh their long-term value. So again, he's focusing on really short-term movements. And again, these short-term movements don't really matter. If you're earning Bitcoin and you're spending Bitcoin, you're living on a Bitcoin standard >> possible isn't exactly the kind of foundation you want for a stable store of value. So, uh, what about the third requirement, Bitcoin as a unit of account? Well, let's just say this one doesn't exactly knock it out of the park either, because even businesses that accept Bitcoin as a form of payment don't actually price things in Bitcoin. They price everything in dollars and then >> Well, that's because the world's still on a on a dollar or fiat standard. This is really the last step. So Nick Zavo, people like him have spoken about how money starts off as a collectible, then it becomes a store of value, then it becomes a medium of exchange. And finally, when it's widely distributed and a lot of people are using it, people begin to price everything in that new money and then it becomes a unit of account. Though many of us already are using Bitcoin as a unit of account. So for example, when I see the price of a car, I think, wow, that's about one bitcoin, etc. So this is a gradual process. And much of his critique is, wow, the whole world isn't on a Bitcoin standard yet. But if you look at the direction, if you look at directionality, we are headed toward a Bitcoin standard every year. There's more and more Bitcoin adoption. >> Convert the amount into Bitcoin at the moment of payment, which means Bitcoin isn't actually acting as an economic measurement. It's just temporarily passing through the transaction. And even after laying out the specific reasons why Bitcoin fails each of the three basic functions of money, before we move on, I wanted to add that Bitcoin is already being widely used as a medium of exchange. And again, it gets better every single year. We have Square just recently rolling out Bitcoin payments to 4 million US merchants. We have Stake and Shake accepting Bitcoin. We have the SAT market in Calgary. We have my own website, for example, accepting Bitcoin. And we have Bitcoin Jungle in Costa Rica. So, Bitcoin adoption continues year after year after year. But for some reason, he's not thinking in terms of the the big picture. He's very focused on very small details. I already know the response that's coming from the Bitcoin crowd. >> Um, well, we haven't given it a fair shot yet. >> And to that I say, well, we actually did because if you want to see what Bitcoin actually looks like when people try to use it as a real currency, you don't have to speculate anymore because we already ran that experiment. Well, it's being used in every country on Earth. So, I think he's going to pick a particular country here and show something going wrong. Uh but that doesn't change the fact that Bitcoin is being used globally. >> Because back in 2021, El Salvador became the first country in the world to adopt Bitcoin as a legal tender. The government launched a national wallet called Chevbo. They required businesses to accept it as a payment and even gave every citizen $30 worth of free Bitcoin as an incentive for people to try it. It was finally time. This was Bitcoin's Magnum Opus moment. The moment where Bitcoin finally showed the world it could function as a real monetary system. And the results? Well, it was a huge failure because according to IMF data, Bitcoin accounted for less >> I love that he's he's citing the IMF, which hates Bitcoin and has done everything it it can to uh oppress El Salvador. >> Less than 2% of El Salvador's remittances. So after years of government promotion, legal tender status, and even a monetary bribe, 98% of people still chose to send money internationally through a traditional financial system, which is a huge deal because remittances were supposed to be Bitcoin's magical use case that it would allow people to send money across borders without banks, fees, and without friction. And when people actually had the option to use Bitcoin to do so, no. So here he's conflating domestic El Salvador usage of Bitcoin versus international remittances. People outside of El Salvador sending Bitcoin to their relatives back home. There is a good I think he is correct that people are probably using uh stable coins, US dollar stable coins to do this more. I think the El Salvador experiment shows that top-down driven Bitcoin adoption doesn't work as well as sort of organic grassroots bottomup driven adoption. And this is really what happened. what's how the whole thing started in Elzante in El Salvador, the world's first Bitcoin circular economy. There were problems with the Chiva wallet as he points out, but again, you could use Bitcoin with any wallet in El Salvador. Nobody did it. And it gets worse because when the Chebo wallet launched, millions of people signed up immediately. But data from the National Bureau of Economic Research shows that 60% of users downloaded Chebo to cash the $30 bribe and never made another transaction. Again, this shows us more about human nature than it does about Bitcoin itself. If you give someone something for free, they simply don't value it uh as much as if they earned it or they put in the time to understand it, which is why Bitcoin adoption really always does need to be grassroots. The top down versions don't work as well on the app. Meaning, they just downloaded it for the free money and bounced. And fast forward to today and reports show that 66% of El Salvador's population considers Bitcoin a failed project and 77% believe that further public funds should not be used to support Bitcoin. Which brings us to the harsh reality of Bitcoin because if it doesn't function well as a medium of exchange, it doesn't function well as a store of value and it doesn't function well as a unit. >> Actually, it's a great medium of exchange and it's a great store of value as we saw >> of account. then we're left with a very obvious question. Where does the value of Bitcoin actually come from? And the answer to this question lies at the foundation of Bitcoin. Because once you strip away all the narratives, remove all the marketing, and ignore the memes, the only thing left is a very old concept in finance. Something economists call the greater fool theory. And this theory says that the price of an asset doesn't necessarily have to be justified by its underlying value. as long as there's a greater fool willing to buy it from you later on for a higher price. And when you start to look at not only Bitcoin, but the entire crypto market through this lens, it becomes a lot more clear because Bitcoin doesn't generate cash flows like a stock does. It doesn't produce goods like a well, gold doesn't generate cash flow either. There are lots of things that don't generate cash flow. For example, paintings, for example, they can still be fine art can still be a very good store of value as can gold. >> A commodity. And in reality, it has pretty much no widespread utility. The price is entirely >> It has widespread utility. Bitcoin can be used to store a billion dollars in your brain and you can just memorize 12 words. You can move it across borders in that way. It has no counterparty risk. It cannot be debased like fiat money and you can zap it to anyone in the world in a matter of seconds or minutes. So, it has no counterparty risk and it has no debasement risk. dependent on the belief that a greater fool will buy it later for more money and that belief creates demand and then that demand drives the price higher and then the price going higher attracts more buyers and the cycle repeats again and again. So every narrative you hear about Bitcoin serves a very specific purpose. Whether it's the digital gold argument, the future of money argument or the hedge against inflation argument, these stories are crafted to create new buyers. Because the moment new buyers stop entering the market, the entire machine breaks. And that's the uncomfortable reality of Bitcoin. It's entirely supported by hope and its value comes from people believing someone else will buy it for a higher price later on. >> So he's basically comparing it to something like the Tula bubble. The Tula bubble collapsed in one or two years. The chart did not look like this and it didn't maintain a value. The tulip bubble never had a market cap above a trillion or inflation adjusted above a trillion and lasted for over a decade. this greater full uh theory critique. I made a video about it. This was basically mostly pushed by Warren Buffett and Charlie Mer. In this video, I discussed greater fool theory. Uh there's something quite significant that you can do with your Bitcoin besides sell it to a greater fool. You can send your Bitcoin to anyone on the planet using Bitcoin's global financial network in a peer-to-peer manner without needing to ask a bank or ask anyone for permission. You can send your Bitcoin to a politician or human rights advocate who's trying to help overthrow a violent and corrupt regime. You don't need permission from a bank to do that. You can send your Bitcoin to someone in the global south who needs it to pay for food or shelter without having to pay Western Union a 40% fee. And here's something else you can do with your Bitcoin besides sell it to a greater fool. As I mentioned, you can store it in your house on a hardware wallet along with a 12-word recovery seed engraved on a steel plate. If you do this, you don't have to trust a bank not to freeze or steal your money. And you don't have to trust a central bank not to debase your money. And if you hold your Bitcoin in self- custody, no one can freeze it. No one can turn it off. That's definitely not true for cash held in a bank or stocks or bonds held in a brokerage account. And I go on to write, "In a world of political persecution, World Economic Forum dominated narratives, central bank debasement, and CBDC's being rolled out, central bank digital currencies. Is there actually zero use for a bearer asset like Bitcoin that has no counterparty risk? History will show that those who failed to buy any Bitcoin were the true greater fools." on because the truth is it's not any of those narratives you hear online. It's just the largest real-time experiment in the greater fool theory the world has ever seen and it might not be today and it might not even be tomorrow but eventually you will run out of greater fools. So in summary, I would say this video pushes a lot of narratives and a lot of FUD that's been debunked over the last 5 to seven years. And so I'd encourage Casual Finance to actually do some research, but he's probably not interested in that. he just wanted to make another clickbait video trashing Bitcoin. I would ask Casual Finance, what would he invested instead? Where would he put his savings if not Bitcoin? And it'd be very easy to critique to show the fact that if you store it in a brokerage account or bank, it can be turned off or censored. Or if you store it in cash, it can be debased by a central bank. If you store it in some physical form like real estate, you have very high maintenance costs, property taxes, etc., and seizure risk. So, Bitcoin really is this unique digital global bearer asset, and it would be nice if channels like Casual Finance that had that many subscribers did a little better job of covering this. If you enjoyed this video, be sure to hit the subscribe and like buttons, hit the notification bell if you want to be notified when I publish my next video, and let me know your questions and comments in the comment section below. Thanks a lot for watching. I'll see you in the next video and wishing you all a very happy Easter