Okay, let's be real. We’re all experiencing it right now—Bitcoin on the front page every day with new highs. Solana and Ethereum are on the rise…and one school in the UK is now accepting Bitcoin for tuition! Sounds like a party, right? But beneath the surface of this crypto carnival lies a harsh truth: this boom isn't lifting all boats. In truth, it’s deepening the digital divide between those with access and those without.
Crypto's Wealth Concentrates at the Top
Yet, while everyone could technically purchase Bitcoin, the reality is quite different. As you can see here, the large majority of Bitcoin is controlled by a very small number of wallets. Think about Michael Saylor and MicroStrategy. They are acquiring tens of thousands of these coins, financed from an IPO stock sale. The typical individual cannot drop multiple millions into Bitcoin with the click of a button. Her concentration of wealth greatly magnifies the positive effects of Bitcoin’s boom. Those who are already positioned to make the capital investments are the ones benefiting, which further exacerbates the income and wealth inequality. It’s the digital version of the getting rich quick scheme. Are we okay with that?
Early Adopters Reap Immense Rewards
Here’s the rub—the early birds still get the worm and the Bitcoin. Those who invested in Bitcoin when it was just a few cents are now multi-millionaires. It’s important to acknowledge their vision and risk-taking. The huge leaps they’ve made, particularly alongside someone who’s new to the game, drive home how much advantage timing gives. It's a bit like winning the lottery, but instead of luck, it's based on early access to a nascent technology. The result has been that the early adopters of this system have gotten exponentially richer. At the same time, everyone else is forced to scavenge for what’s left over.
Bitcoin's Volatility Hurts Vulnerable Most
Bitcoin is notorious for its volatility. We’ve had massive selloffs like this in the past—75% just four years ago—and the next one is coming. While professional, wealthy investors can absorb these shocks, less capitalized players are much more exposed. Now imagine you were about to put your life savings into Bitcoin and then it was cut in half while you slept. For the typical American, that would be catastrophic. For Microstrategy CEO Michael Saylor, it’s a terrible quarter—and a $6 billion unrealized loss. Bitcoin’s volatility asymmetrically impacts the most vulnerable among us, those least able to absorb value loss. For most, it turns out to be a low-reward, high-risk bet.
DAOs and DeFi, a False Promise?
Alright, so we’re being pitched DAOs (Decentralized Autonomous Organizations) and DeFi (Decentralized Finance) as the next big thing for social good. The concept of community-funded, local artists’ trailer projects and access to finance for the unbanked is obviously very appealing. Let's not get carried away. Most DAOs currently remain under the control of whales and early adopters. At the same time, DeFi platforms are still very complicated and inaccessible for individuals without technical acumen. This inequitable reality results in disproportionate access to all the benefits these technologies promise. In effect, the promise of financial inclusion has not been realized. While the optics of Trump repealing Biden-era DeFi regulations may seem like a dream come true, who is this really benefiting? Think about it.
Tax Evasion Undermines Social Safety Net
While the CryptoPunk NFT tax evasion case is an unusual example, it nevertheless illustrates an alarming trend. It demonstrates the lengths some people are going to exploit the lack of clear regulation in the crypto world to avoid paying taxes. This tax evasion undermines the social safety net, reducing the resources available for essential public services like education, healthcare, and infrastructure. While Lomond School accepting Bitcoin for tuition is a nice headline, it doesn't address the fundamental problem of tax evasion and its impact on society. If the rich continue to escape taxes on their new crypto windfalls, who’s going to fund the schools, roads, and other services enjoyed by all? You? Me? All the while, that burden is being placed on the backs of the middle class and working class, deepening inequality in the process.
To avoid another round of unjust enrichment, we require regulations with more teeth, making it less likely that crypto wealth redistributes upwards again. This could involve taxation of crypto gains, stricter enforcement of tax laws, and the promotion of more inclusive crypto projects that prioritize social impact over profit. We should be telling people that it’s risky to invest in crypto. It’s critical to their well-being, particularly for those most vulnerable to financial hardship. Finally, we need to hold those in power accountable for ensuring that the benefits of technological innovation are shared by all, not just a select few. The JPMorgan's Kinexys project is great, but how can we make sure it's helping everyone, not just big corporations?
The Bitcoin boom may be a cause for celebration, but we shouldn’t let the enthusiasm distract us from the perilous inequality that lies beneath. It's time for a reality check.
