Has Bitcoin Lost its Purpose?

Intro

I actually started writing this post back in December, and for whatever reason got distracted by things elsewhere in the markets and never finished writing it. This is a thought that has been swirling around my mind for several years now. It is no secret that I don’t invest in $BTC or in crypto more broadly any more. The primary reason I gave was that the risk/reward was weak compared to stocks, but behind that was a larger concern - Bitcoin has lost its purpose.

In this post, I want to argue the case against Bitcoin. What first drew me to invest in it over a decade ago? What was Bitcoin’s purpose originally? How did its purpose shift and evolve? And what comes next?

Genesis

Bitcoin came into existence in 2009, the 2008 Financial crisis was fresh news, MySpace was still the 2nd largest social network and $PYPL was the only major player in online payments.

In the original whitepaper, Satoshi outlined Bitcoin as being “a peer-to-peer electronic cash system”; Bitcoin was cash for the internet. He added that it was a decentralized network that used a proof-of-work system to validate transactions and build an immutable ledger of transactions - better known as a blockchain.

This theoretically meant Bitcoin would function as money that could be used globally without any third parties gatekeeping how you use it, or governments devaluing it through monetary policy.

Within the whitepaper, it's clear that Satoshi’s vision was for Bitcoin to fill 2 key roles:

• Money

• A peer-to-peer payment network

Beyond the whitepaper, fans of Bitcoin were quick to argue that it had a 3rd role:

• Digital gold / inflation hedge / store of value

I don't think Bitcoin fits any these categories convincingly, and I'll lay out the arguments one at a time in this post, starting with Money.

Is Bitcoin Money: Defining Money

Economists are broadly aligned that for something to function as money, there are 3 core properties it must have:

Medium of Exchange

People must use it to exchange and transact for buying and selling goods and services.

Unit of Account

Prices must be denominated in it; and people should use it to measure the value of other commodities, goods and services.

Store of Value

It must hold its value and purchasing power over time.

Is Bitcoin Money: Early Experience

Back in 2013 I tried selling an old laptop on an early Bitcoin website structured similarly to $EBAY for a few Bitcoin. The problem I quickly encountered was that the price of Bitcoin fluctuated so much that I had to edit the price of my listing every few days. The laptop never got any bids, and eventually I listed it on eBay instead. This is obviously just an anecdotal example from over a decade ago, but it perfectly illustrates that Bitcoin did not fit any of the core properties of money at the time.

That was just my experience though, so let’s explore a more recent, much larger real-world experiment for Bitcoin acting as money: El Salvador

Is Bitcoin Money: The El Salvador Experiment

Medium of Exchange

In 2021 El Salvador adopted Bitcoin as legal tender, all shops were to accept payments with it, and every citizen received $30 of Bitcoin in a digital wallet.

• Within weeks over 45% of the country installed the wallet.

• After a year, only 40% of those people had even used it.

• A 2023 survey found that 88% of the population hadn’t used it for at least a year.

Just 2 years after its introduction with full state backing, the medium of exchange argument was dead. Almost nobody was transacting in Bitcoin for daily goods and services.

Unit of Account

Stores in El Salvador still list prices in US dollars, and its difficult to find any examples of goods/services being priced in Bitcoin. This completely undermines the unit of account argument.

Store of Value

Initially people justified Bitcoin’s value based on the intrinsic value it provides by serving as Money, and as a Payment network for that money. I’ve already demonstrated that it fails at the other two criteria of money, and it can’t derive its store of value status from being a store of value. That would be circular logic. I’ll explain why it fails as a payment network in the next section, which only leaves one other argument: Bitcoin is un-correlated to other assets, and acts as digital gold.

A genuine store of value or hedge should hold purchasing power when other asset classes fall. Gold has a long track record of this. Bitcoin used to boast almost no correlation with equity markets like the S&P500, but in 2019 it started climbing, hitting a coefficient of >0.3 consistently by 2021, and >0.5 in 2025. It makes sense, prior to 2020 Bitcoin was much more volatile because it was a lot smaller and more difficult to access, especially for institutional investors.

For the people of El Salvador holding Bitcoin felt more like gambling than protecting their wealth.

Across all measurable criteria - Unit of account, Medium of exchange and Store of value - Bitcoin has failed, even in a nation that marketed it, gave it away for free, and legally mandated its use.

Is Bitcoin a Good Online Payment System?

If Bitcoin can’t function as money, perhaps it could succeed as a global online payment network. It's supposed to be fast, cheap, and provide borderless transactions without intermediaries. But how does it really stack up against the more mainstream payment rails?

As with money, there are a handful of key factors that make an online payment system attractive: Speed, Cost, and Scale.

Bitcoin struggles to compete on all three. Blocks are produced every 10 minutes, so transactions take 10 minutes to clear, and aren’t truly considered settled until 5-6 blocks are added to the blockchain. By contrast, $V authorises payments in seconds, $PYPL clears them instantly and SEPA settles in real-time.

Fees are unpredictable, they usually range from $1-$50, but can PayPal during periods of high demand, sometimes exceeding the value of transactions people would like to make. Meanwhile merchants max out around 3% for Visa and PayPal; customers pay nothing. SEPA transfers cost nothing usually, or just a few cents.

Then there’s scaling - Bitcoin’s base layer can only handle around 7 transactions per second globally, leagues apart from Visa’s 24,000. Both SEPA and PayPal have proven their ability to handle thousands per second too.

But Lightning Network?

Those of you who are fans of Bitcoin will point to the Lightning Network as the solution to all of this. Fundamentally though, Lightning Network still has a wide range of problems, and some of the co-authors for its whitepaper have since moved on to other projects. Here are the problems:

Adoption

Even some of the biggest exchanges in crypto have yet to adopt it, and only a minuscule fraction of Bitcoin transactions use it.

Centralization

The number of hub nodes required for payment routing is low, meaning it is vulnerable to attacks aimed at controlling transactions through them. This goes against one of Bitcoin’s core principles.

Cost & Scale

To open or close a channel still requires a fee and capacity on the underlying Bitcoin Blockchain. If every person on the planet only wanted to open/close a channel once per year, it would completely overwhelm the network, potentially leaving your funds trapped.

Attacks

There have been several vulnerabilities over the years, from targeting nodes individually to flooding and jamming channels.

Although Lightning Network initially looked like an elegant evolution of Bitcoin, years after going live, it too has failed to deliver on fixing Bitcoin’s biggest flaws.

Does Bitcoin Have a Purpose?

The big question I’ve been building towards, and I’m afraid I’ll likely spark a lot of debate and controversy with my answer.

The short answer is “No”. The long answer is more concerning. I think Bitcoin is now a purely speculative asset that has more in common with a Ponzi scheme than it does with money, equities, commodities, or as a hedge against inflation.

Before you spit out your tea and furiously write your rebuttal, let’s look at the facts.

Stocks represent ownership of a company. The company then creates and sells products and services, hopefully generating a profit. Your shares are backed by those profits and as profits build up, the price increases.

Bonds are a form of debt. Buying a bond is lending money to a government or business who aim to pay you back with interest.

Real estate is a tangible real-world asset. The buildings and land can be used for a wide range of purposes so people are willing to pay rent to use it.

Commodities derive their value from their demand in industrial applications, as energy or raw materials used to build and run our society.

Bitcoin has none of this. It doesn’t produce anything, it doesn’t provide a service, it doesn’t pay interest or earn rent, and it doesn’t have core applications driving demand. There is no dividend, no yield, and no real utility.

Bitcoin is a purely speculative asset. In its early years, that was fine. The speculation was that as the technology improved and adoption grew it would eventually have real utility, function as a store of value, or operate as money. However, as we approach the 20 year anniversary of Bitcoin, none of it has come to fruition. Instead, the speculation is centered around its price going up as more people buy it - a core mechanic it shares with Ponzi schemes.

Let me be clear - Bitcoin is NOT a Ponzi scheme.

There is no group or individual running it from the top promising future returns, using the latest investors to repay those looking to cash out. Instead it's essentially a global game of hot potato or chicken, where the incentive is to hype it up and convince others it has value, because adoption is the only thing driving price. Nobody wants to be holding it when the hype dies down because it doesn’t produce value of its own.

Many of Bitcoin’s biggest investors act exactly like participants in multi-level-marketing (MLM) schemes - they spend all their energy recruiting new people to invest, and convincing those already invested to keep adding more and retain their investments.

Some people argue that the arrival of ETFs, governments like El Salvador, major funds, corporate treasuries, and coverage by some of the world's biggest investment banks prove its legitimacy. My counter-argument is simple - they are just bigger players. After all, there were plenty of huge names that got caught up in Bernie Madoff’s Ponzi scheme. That Ponzi scheme lasted around 20 years, becoming one of the largest hedge funds of all time - at least on paper.

Since Bitcoin has no leader and no truly agreed upon goals or direction... If sentiment remains strong, and it is supported by markets, Bitcoin could well survive another 20 years purely from speculation.

Closing Comments

I was a believer in Bitcoin’s potential for around 5-6 years before it started to fade and I began questioning it. You might disagree with me or simply think it needs more time to prove itself. For me, there is one ultimate reason not to invest in Bitcoin, or at least to limit your exposure.

The major upside potential for Bitcoin is behind us, and investing in equities not only offers better security and downside protection, but significantly better upside as well. Most investors didn’t buy Bitcoin until late 2020. If you invested then, you’d have made around 300%-500%. If you invested in Nvidia instead, you’d have made around 1300%-1600%.

This post is already quite lengthy, but I could have delved further into Bitcoin’s environmental impact, social and political impact, economic impact and risks around quantum computing. If you’re interested in hearing them, perhaps I will write a follow-up post. Let me know if it sounds interesting or not.

I look forward to reading some extremely lively comments debating Bitcoin. My mind will be difficult to change, but I’d still love to read your opinions, just remember to keep it civil.

Thanks as usual to everyone who follows and copies me. Thanks for taking the time to read this.