Interview with Uni Basel-Profs: “Fiat money is also a bubble”

Professor Dr. Aleksander Berentsen and Dr. Fabian Schär head the Center for Innovative Finance in Basel, Switzerland. Our author met with the two scientists at their university to interview them on their research topic. In part 2 you learn that Fiat money is also a bubble, why Charlie Munger doesn’t like Bitcoin and when the two scientists first heard about Bitcoin.

Charlie Munger described Bitcoin profit in an interview as “antisocial, stupid and immoral”

What makes a chairman of a multinational conglomerate make such a Bitcoin profit statement? AB: What can I say about that? I don’t think people like Munger are able to judge that Bitcoin profit – they haven’t looked at it. They probably think that any asset you can’t explain is a bubble.

What they don’t understand is that every asset has a bubble component. Of course, Bitcoin is a bubble. But Fiat money is also a bubble. That’s nothing out of the ordinary. As a money theorist, I’ve known that for a long time.

Basically one can divide an asset into two value components. It has a fundamental value and a bubble component. If you look at it, you will quickly see that most assets have a bubble component. This means that the price is higher than the fundamental value. Of course, you can never say exactly that, but let’s take gold, for example. I’d say that 90-95 percent of gold is a bubble. You can only use it to a limited extent in industry – that’s the remaining 5-10 percent of fundamental value. With Fiat money, it’s all bubble. That is confirmed. There’s the saying: the dollar bill is 75% cardboard and 25% paper. That is the fundamental value. The rest is bubble.

FS: Many people don’t realize that this is the same for all Fiat currencies.

This is just the initial Bitcoin profit phase right now

AB: I can understand what Munger is saying. Or Warren Buffet. He only invests in something he understands. Coca Cola, for example, he understands. He knows what they produce and what they sell. You can estimate what will happen in the future – that’s a sensible approach overall. We are dealing here with technical Bitcoin profit innovations. This is simply the initial Bitcoin profit phase at the moment – we are all speculating what will become of it. There are many older people who think similarly. That is also a matter for generations.

FS: Maybe they’re not willing to deal with it. The problem is that you really have to deal with it for a long time before you actually understand it. At the beginning I was also extremely skeptical: How does it work? What is behind it? It takes a while. Many people in such positions simply don’t have the time to deal with the topic. Then such statements come out.