A few brave skeptics are intentionally short bitcoin. For the rest of us, we are also short bitcoin by the nature of the financial world changing around us.
A short position exists if there is a commitment to do something in the future and you haven't yet performed the action that is required to meet this obligation. This means that you are at risk to the cost of performing that action rising. To eliminate this risk, you cover by performing the action. It is often the case that the longer you wait to cover the position, the higher the expected cost of covering.
Many short positions are beyond your control. You become committed to do something because of external factors. For example, you are a builder and your client gives you a deadline to complete a project for a fixed price. In such case, you are short the project. You must to do it by the deadline and the longer you wait to cover, the more costly it may become to produce what is required.
This is the case with bitcoin. The invention of bitcoin created two economic realities that cannot be ignored - banks must change and decentralized currencies are inevitable. We have a lot of work to do to refashion our financial system to these new economic realities. The longer we wait, the higher the cost will be. Especially to those who wait the longest.
Economic reality #1: Banking must change. It is now possible for people to safely custody digital money themselves, without a bank. The centralized web of interlocking credit risk that is the global banking system is no longer necessary.
This is a very good thing. Consider the benefits - No requirement to lend money to others. No required fees for holding the money. No taxes for bank insurance. No cascading defaults. No too big to fail. No distorted interest rates due to forced lending. No closing hours. No fake accounts. No discrimination. Fill in your own problem with banks . . .
If bitcoin is an attractive option to banks, then the global economy is short a major banking redesign. Bank balance sheets will shrink, with the primary role of banks shifting from principal to custodian or escrow agent. An enormous de-leveraging must occur as the banking credit web is unraveled. Banks will need to meet market based standards for efficiency and value added, rather than relying on government subsidies. The cost of this transition will be high, but the cost of not transitioning to accommodate the promise of bitcoin is even higher.
As bitcoin matures, there will be more and more money taken out of the banking system by consumers making a free choice of the better product. If central banks wait too long to adapt, bank runs are inevitable.
The IMF recently acknowledged this risk:
"To be sure, there are choices and policy trade-offs that would require careful consideration when it comes to designing central bank digital currency, including how to avoid any additional risk of bank runs brought about by the convenience of digital cash. " Empshasis added. Quoted from "Monetary policy in the digital age. Crypto assets may one day reduce demand for central bank money." June 2018, by Dong He, deputy director of the IMF's Monetary and Capital Markets Department .
The Bank of International Settlements does not seem to share the IMF's concern. They recently released a report describing bitcoin with words such as hype, disaster and bubble. This PR strategy may be an effective tactic to reduce bank runs in the near term, but in the long run it only distracts the policymakers from debating the more serious questions about what banks need to do to adapt to the new reality of bitcoin.
Economic reality #2: Decentralized currency is inevitable. The creation of centralized currencies like the dollar was the result of there being no viable decentralized option. Before bitcoin, there was no commodity that served as a good currency. With the bitcoin technology available, currencies will now be rebuilt with this sound, decentralized base. Creditworthy central banks will be able to manage the money supply with synthetic decentralized currency and open market operations. Non-creditworthy governments will be forced to be fiscally responsible. This is a better system that is only now possible with the invention of bitcoin.
Everyone in the world is short any currency that will become needed in the future. This is always the case with a new currency - for example, everyone in the eurozone was short the euro prior to its issuance. However, as in the case of the euro, the risk of this position is usually managed by the government through an orderly conversion process. So long as you convert your money by a certain date, you are OK and everyone will get the same price. The problem with bitcoin is that the governments are not yet on board with this transition.
This problem is especially concerning for the majority of the people in the world who do not have the luxury of being able to speculate on bitcoin's price appreciation. As it exists today, as bitcoin grows to maturity with a value in the trillions, this value is going to accrue to the wealthy. Others will need to buy in at a higher price in the future to obtain their everyday currency. We urgently need a more organized, coordinated system for the adoption of bitcoin or other decentralized currency.
We are all short bitcoin because of our inexorable desire for economic and social improvement. With modern market economies and democracies, an invention that greatly improves society cannot be held back for long. Just like the builder who takes on a commitment to construct a building, our drive to improve our society commits us to build our economy around decentralized currencies. It is inevitable, the only question is the cost of construction. The eventual cost will be determined by how quickly we cover.
We should all be concerned when we hear policymakers use diversion as a delay tactic. The factors that the policy makers point to to divert attention from the real issues are all knobs that can be turned with the widespread adoption of bitcoin. Criminal usage, power usage, transaction costs, transaction speeds, etc. - these are not necessary attributes of bitcoin, they are variables to be optimized over time on a concerted basis.
We all need to respond to the bitcoin invention with calm objective reason, not knee jerk reactions based solely on what we have known before. Good bankers aren't going to lose their jobs. Good governments aren't going to lose their ability to manage monetary policy.
We need to move our critical eye from bitcoin to the banking system. We need to ask the hard questions:
Why is it required that people hold their digital money in banks? Is it to reduce credit risk? No, credit risk is caused by the banking system, not reduced by it. Is it for surveillance? No, we don't need banks to monitor people's transactions if that's what we want to do. Is it to provide credit efficiently? No, the market can handle this very well with government subsidies here and there.
Why do we need a centralized currency? Is it to manage the money supply? No, credit worthy countries like the U.S. can easily manage the supply of synthetic bitcoin just like they do synthetic dollars.
The reality is that bank policymakers are not being self-reflective. They are hoping that bitcoin just goes away.
We should all be very concerned by this. The best way to manage our collective short position in bitcoin is to cover by working cooperatively on a global basis to redesign banking and convert to decentralized currencies. Putting our head in the sand only increases the eventual cost of covering.