This article was originally published in Chinese on November 22, 2020. Here is the link.

I can't remember exactly when I first heard about Bitcoin, but it was definitely quite late. It was much later than Wu Gang, who knew about Bitcoin as early as June 2009. Back then, I was still young and carefree, and everything around me seemed full of promise. My first Bitcoin transaction was on November 9, 2017, when the price was around $7,250. Just over a month later, on December 17, Bitcoin reached an all-time high of over $19,000, more than doubling the price since I first bought in. You might feel sorry for me, wondering why I didn't buy more. Actually, looking back, it wasn't the best time to buy Bitcoin, just as now might not be the best time either. For the reasons why, please see my previous article "Beware! Don't Be Fooled! Bitcoin Has Never Had a Bull Market!".

What I regret more now is not buying Bitcoin even earlier. This isn't just wishful thinking; there really was a chance. As early as September 11, 2011, a Nobel Prize-winning economist recommended that everyone buy Bitcoin. At that time, the highest price for Bitcoin was only $7.025.

An economist recommending Bitcoin?

Yes, it was Paul Krugman, a Nobel laureate in economics from 2008 and a columnist for the New York Times, who recommended buying Bitcoin. He won the Nobel Prize for his research on "international trade" and "economic geography." Krugman is a proponent of globalization, and his theories on international trade are currently facing challenges in the real world. But more on that another time.

Let's take a look at his article recommending Bitcoin. This was Krugman's first article on Bitcoin, titled "Golden Cyberfetters," a blog post published on September 7, 2011. I repeat this date because it highlights that opportunity is often about timing.

"Golden Cyberfetters"—when I first saw this name, I was confused too. You can't be blamed; this term was coined by Krugman, derived from "Golden fetters," a term used to criticize the gold standard between 1919 and 1939. Many economists believe that the gold standard caused the Great Depression of the 1930s. You might remember the image from textbooks of milk being dumped down the drain during that time. It's complex, but you only need to remember that the gold standard led to the Great Depression, and that was very bad. Here, Bitcoin is compared to digital gold because it has a limited supply of only 21 million coins, implying that Bitcoin could also lead to deflation and economic depression. The reason is simple: the limited supply of Bitcoin would encourage hoarding. Bitcoin is a new, digital-age gold standard, which will ultimately lead to "hoarding, deflation, and depression."

So to the extent that the experiment tells us anything about monetary regimes, it reinforces the case against anything like a new gold standard—because it shows just how vulnerable such a standard would be to money-hoarding, deflation, and depression.

However, Krugman separated theory from practice. Although he wasn't optimistic about Bitcoin's future, he didn't dismiss it outright. He simply acknowledged Bitcoin's volatility and noted that "so far, buying Bitcoin has been a good investment."

So how's it going? The dollar value of that cybercurrency has fluctuated sharply, but overall it has soared. So buying into Bitcoin has, at least so far, been a good investment.

On a related note, Krugman also made another point in that blog: the monetary system we want should not make people rich just by holding money; it should facilitate transactions and enrich the economy as a whole. He believes Bitcoin enriches its holders, which isn't right. But is that really the case? This isn't the topic of this article, but it's interesting and worth discussing another time.

What we want from a monetary system isn't to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich.

Back to the main point. You might say, "Wait, I wouldn't have caught this opportunity because my English isn't good enough." Don't worry; we have Zhihu. On November 22, 2013, the Nobel laureate Krugman's recommendation of Bitcoin was first brought into the Chinese world by @Busch on Zhihu in a Q&A format. How cool is that? Zhihu rocks. Moreover, @Busch shared a story to illustrate the point. Even more impressively, this answer garnered 12,000 likes.

The question was: "What is the view of the economics community on Bitcoin?" The respondent, @Busch, has received 12,805 likes to date. A story that powerful deserves attention. Let's put aside our practical considerations for a moment and appreciate the story.

The story, which is true, is about the "Capitol Hill Babysitting Cooperative." A group of young parents working on Capitol Hill formed this co-op to address the issue of having no one to look after their children while they socialized. Upon joining, each person received 20 hours of babysitting coupons, with each coupon representing a certain amount of babysitting time. Parents providing the service would earn coupons, which they could use later when they needed someone to babysit their children. Of course, there were more management details, and they had considered many issues.

But the reality was harsh. The co-op was on the brink of collapse shortly after it started because people were reluctant to use their coupons to hire babysitters, preferring to hoard them for a rainy day. @Busch argued that the recession was caused by insufficient output, due to a lack of babysitting coupons.

"If we view the babysitting co-op as an economy and babysitting services as its output (GDP), this is a classic definition of recession. And the recession was caused by deflation within the economy, i.e., an insufficient number of babysitting coupons."

@Busch used this story to first criticize Bitcoin's anti-inflation feature, arguing that it would lead to hoarding, deflation, and eventually economic depression. This was also the core idea of Krugman's "Golden Cyberfetters." You should know that Bitcoin's limited supply of 21 million is its most easily attacked point, and the first to be attacked.

If Bitcoin becomes "the currency of the future" or "the global currency," as some fanatical speculators claim, the global economy will end up like the Capitol Hill babysitting co-op.

In fact, the conclusion is quite the opposite. The recession wasn't caused by a lack of babysitting coupons, nor by insufficient output, but by a lack of demand. This has been clearly articulated in economic papers. @Busch drew a parallel between the finite number of babysitting coupons and Bitcoin's limited supply, making it easy for people to understand complex economic principles. The conclusion is simple: if Bitcoin becomes an international currency, it will lead to deflation, making it hard for the co-op (and the economy) to sustain itself, leading to an economic depression. Indeed, the explanation is concise, vivid, and clear, deserving of its 12,000 likes.

However, this story was misused. The shortcomings of @Busch's answer are beyond the scope of this article, and we'll discuss them another day. You can check it out on our WeChat public account.

Now, let's get to what you're most interested in. Don't assume that @Busch was trying to dissuade people from buying Bitcoin with his Q&A. In reality, he did the opposite. He specifically quoted Krugman's statement, "so far, buying Bitcoin has been a good investment," in full, and even highlighted it to draw attention.

Alright, let's focus on two key dates, representing potential opportunities to buy Bitcoin. One is the date Krugman’s article was published, September 7, 2011; the other is the date @Busch quoted his article on Zhihu, around November 22, 2013.

A Nobel laureate recommending people buy Bitcoin is a rare signal. But even if you had the chance to see this signal, you still might not have bought it. Why is that? That's what this article aims to explore. Let's analyze it point by point.

Why wouldn't you have bought it?

If you were lucky enough to see Krugman’s recommendation on September 7, 2011, you still might not have bought it. Looking at the price trend at that time, you would understand why. The price of Bitcoin was $7.025, having just dropped from an all-time high of $29 a month earlier. Note that the chart below doesn't show a cliff-like drop because it's on a logarithmic scale, a scale that emphasizes trends. For more on logarithmic scales, please refer to the previous article, "Beware! Don't Be Fooled! Bitcoin Has Never Had a Bull Market!" I'm not repeating this article for no reason; many people believe we're in a bull market now, and I don't want my readers to be fooled.

Looking at the next chart, which uses a regular scale, you're even less likely to buy. The steepness of the drop is far greater than that on the logarithmic scale above. It's more direct, more frightening—a classic bear market. As the saying goes, "In a bear market, never try to find the bottom." You decide to wait. As you expected, the price continued to drop. By November 11, 2011, Bitcoin was only $2.1. At this point, you'd be more convinced by Krugman’s prediction that Bitcoin wouldn't succeed. You'd feel lucky that you didn't follow his advice; otherwise, you would have lost big. But looking back today, you actually missed an opportunity.

Let's talk about the second time point, November 22, 2013, which is the most likely time for Chinese readers like you to see Krugman’s recommendation through Zhihu. Would you buy then? Still uncertain. As the chart shows, Bitcoin's price had increased nearly 100 times in two years, from $7 to $675. This was unprecedented, and if that wasn't a bubble, what was? Even more alarming was that the price was still rising, reaching a new all-time high of $1,052 on November 30, just 20 days later. The extreme price volatility made you doubt Krugman’s statement even more. The risk seemed too great. You might have decided to let it go, thinking there are plenty of opportunities out there, so why bother with Bitcoin? Thus, the second opportunity to buy Bitcoin was missed.

To give you a sense of how rare it is for a Nobel Prize-winning economist to recommend buying Bitcoin, let's look at the mainstream views on Bitcoin at the time. This will also show you how precious these two opportunities were.

Bitcoin is a bubble?

Economists are common, but recommendations are rare. Nobel laureates recommending Bitcoin are even rarer. That recommendation can be seen as a fluke, and it hasn't happened since. On the contrary, Krugman began to denounce Bitcoin.

After September 7, 2011, Krugman’s attitude toward Bitcoin became unequivocal, and he began to oppose it vehemently. The list below shows his New York Times articles related to Bitcoin. The titles alone show how firmly he opposed Bitcoin. "The Anti-Social Network" on April 14, 2013; "Bubble, Bubble, Fraud and Trouble" on January 29, 2018; and "Why I'm a Crypto Skeptic" on July 31, 2018.

Especially in the January 29, 2018, article, he mentioned that his barber asked him whether he should buy Bitcoin. Krugman was so upset that he wrote an article titled "Bubble, Bubble, Fraud and Trouble." The conclusion vividly shows his frustration with Bitcoin: "So no, my barber shouldn't buy Bitcoin. This will end badly, and the sooner it does, the better."

"So no, my barber shouldn't buy Bitcoin. This will end badly, and the sooner it does, the better."

I guess that on January 29, 2018, Bitcoin's price was over $11,000, a drop of over $8,000 from the all-time high of over $19,000 a month earlier. Maybe Krugman got caught up in it himself, hence his anger. Just kidding, don't take it seriously, though it might be true.

Bitcoin isn't going to stop being sold just because economists are generally against it. There's an anonymous forum where American economics graduates, teachers, and job seekers often chat anonymously. You might hear the truth or falsehoods because it's anonymous. This forum is called "Economics Job Market Rumors" (EJMR), and its website is econjobrumors.com. The forum had a post three years ago with a bold title: "Not buying Bitcoin now is the biggest mistake of my life." Again, this is just gossip, so don't take it as evidence of economists buying Bitcoin.

Back in China, successful entrepreneur Jack Ma also joined the chorus against Bitcoin. He seriously stated that Bitcoin was a bubble. This was at the 2nd World Intelligence Congress on May 16, 2018. This conference is a big deal, co-hosted by the National Development and Reform Commission, Ministry of Science and Technology, Ministry of Industry and Information Technology, Cyberspace Administration of China, Chinese Academy of Sciences, Chinese Academy of Engineering, China Association for Science and Technology, and Tianjin Municipal Government.

Jack Ma's exact words were, "Blockchain is a hot word right now. First of all, blockchain is not a bubble, but Bitcoin is a bubble today. Bitcoin is just a small application of blockchain." The key issue is that Bitcoin's price had just fallen from a peak of over $19,000 to $8,200, another $3,000 drop from when Krugman wrote his angry column "Bubble, Bubble, Fraud and Trouble." This seemed to prove Ma right, that Bitcoin was indeed a bubble that was bursting.

If you think about it, whether you didn't buy Bitcoin or whether Krugman and Ma say Bitcoin is a bubble, it's all reasonable and the result of rational decision-making.

But 11 years have passed, and our rationality makes our eyes hurt (watching the price rise), and our pockets hurt (not making money). We can't keep fooling ourselves every day that Bitcoin is still a bubble and that it will eventually disappear. Are we becoming the modern-day Mrs. Xianglin (a tragic figure in Chinese literature)? We have to ask ourselves: is it rationality that's wrong? Should we be as crazy as gamblers to get the benefits of Bitcoin? No, it's not that rationality is wrong, but that we may have done something wrong.

What did we do wrong?

Rationality isn't wrong. The mistake is that we've been applying rationality in the wrong place. Our survival instinct urges us to prioritize safety and avoid risks. We're quick to dismiss new things because new things mean immaturity and risk.

Ultimately, it's our lack of openness toward new things. Often, we're filled with fear. Think about how scary it must have been for the first person to eat a crab, otherwise, we wouldn't use "the first person to eat crab" to praise those who dare to take the lead. Eating crab is a personal choice, but when it comes to societal issues, things get more complicated.

Look at the "Red Flag Act" in 19th-century Britain, and you'll understand that the opposition to early cars was no less than the opposition to Bitcoin today. When cars were first invented, they were generally inferior to horse-drawn carriages. Or rather, the carriages were opposed. Of course, carriages can't speak; it was us humans who opposed them. Cars were initially uncomfortable and unstable. The prototype car from 1678 was quite the "ugly duckling." But these were minor issues. The key problem was the noise; a car suddenly passing by could startle you. In 1865, the British enacted the "Red Flag Act" to "regulate" driving. At the time, the greatest advantage of cars was their speed.

The 1865 "Red Flag Act" stipulated that cars couldn't exceed 4 mph (about 6 km/h), and in urban areas, this limit was halved. Each time you exceeded the speed limit, you were fined £10. Even more stringent was the requirement that each car must have at least three people: one person walking 60 yards (about 55 meters) ahead of the car to guide traffic, warn pedestrians, and assist with the passage of horses and carriages. This person had to carry a small red flag, hence the name "Red Flag Act."

"Stipulated that self-propelled vehicles should be accompanied by a crew of three; if the vehicle was attached to two or more vehicles an additional person was to accompany the vehicles; a man with a red flag was to walk at least 60 yd (55 m) ahead of each vehicle, who was also required to assist with the passage of horses and carriages. The vehicle was required to stop at the signal of the flagbearer. (Section 3)

Additionally vehicles were also required to have functional lights, and not sound whistles or blow off steam whilst on the road. (Section 3)

A speed limit of 4 mph (2 mph in towns) was imposed for road locomotives, with a fine of £10 for contravention. (Section 4)"

You might not fully grasp the speed restrictions from the text alone. But if you think about it, you'll realize just how restrictive and even "malicious" these rules were. Cars could move, but there had to be someone walking ahead of them, and this person had to walk. Just think about how fast the car could go.

The photo above was taken in 1896, the year the "Red Flag Act" was repealed after 31 years of enforcement. The driver is Charles Rolls, one of the co-founders of Rolls-Royce. This photo was likely taken to document the era, showing the standard configuration for driving a car: three people, one walking ahead with a red flag. If you're interested in this piece of history, check out "When Cars Came, Carriages Were Opposed."

Science fiction writer Liu Cixin, in "The Three-Body Problem," said: "Weakness and ignorance are not barriers to survival, but arrogance is." Our lack of openness may seem arrogant to other species. Arrogance is a social gene of humanity. Because we do indeed have wisdom that towers over other earth species. Arrogance isn't something we deliberately pursue; sometimes it's our meanness. More often, it's expressed through our lack of openness to new things.

The "Red Flag Act" is history, but "Bitcoin is a bubble" continues...

Conclusion

It's encouraging that the old economic publication "The Economist," established in 1843, has set aside its arrogance. On October 29, 2020, they published an article that received praise. The title was "Getting down with the cool kids on bitcoin," with a subtitle "How investors might learn to stop worrying and love crypto," and the article included a Bitcoin symbol. The "cool kids" refer to the "Blitz Kids," who in 1979-80 frequently attended Tuesday club nights at Covent Garden in London. They are celebrated for launching the New Romantic subcultural movement. This might be clearer to those familiar with British cultural history. You just need to know that these cool kids aren't simple; they contributed significantly to British culture, and many became famous.

The article said: "Bitcoin is a pretty tiny club. Beside it, gold looks as capacious as Wembley Stadium. The market value of all bitcoin is just 1-2% of the value of all the gold above ground. Scarcity is a trait of many things that are perceived to have value."

"Bitcoin is a pretty tiny club. Beside it, gold looks as capacious as Wembley Stadium. The market value of all bitcoin is just 1-2% of the value of all the gold above ground. Scarcity is a trait of many things that are perceived to have value."

The article concludes with a quote from "cool kid" Steve Strange: "The best move I ever made was turning Mick Jagger away at the door."

"Steve Strange, who sadly died in 2015, understood this fully. 'The best move I ever made was turning Mick Jagger away at the door,' he said."

Mick Jagger, who was turned away, is a famous British rock singer, and at the time, the cool kid Steve Strange was unknown. The author seems to suggest that we should not be left out by the current Bitcoin-playing cool kids; we should actively join in, as the Bitcoin club will not disappear just because we don't join.

Indeed, cars have become our friends, and carriages are a thing of the past. We've almost forgotten the arrogance of the "Red Flag Act." Now, Bitcoin is here. Because of past arrogance, we've missed opportunity after opportunity to reap the benefits of Bitcoin.

Profits are always temporary. If we can't learn to set aside our arrogance when facing new things, we'll miss more "Bitcoin-level" opportunities. In this sense, remembering the missed Bitcoin opportunities will keep us humble, make us more open, and help us seize new opportunities.

Bitcoin should become our "mirror of thought."