Ken Sim’s Love of Bitcoin Makes Critics Nervous

As Vancouver Mayor Ken Sim continues to push for some of the city’s financial reserves to be invested in bitcoin, critics are warning his statements on the cryptocurrency show “a lack of understanding of economic principles.”

Ever since Sim introduced a motion in December asking city staff to look into investing taxpayer funds in the cryptocurrency, his political critics have questioned the risks.

But Sim — the owner of several businesses and a chartered professional accountant — has been undeterred. Between December and May, he’s made seven appearances on YouTube channels that promote investment in bitcoin, filming those videos from inside his wood-panelled mayor’s office at Vancouver City Hall.

According to Sim, bitcoin’s finite supply has the potential to end wars, reduce real estate speculation and prevent the city’s savings from losing value to inflation. It’s humanity’s greatest invention ever, he’s said repeatedly.

Sim also spoke at the Virgo Crypto Summit in Vancouver on April 4, the day before a byelection to fill two empty council seats. The two candidates who ran with the mayor’s ABC Vancouver party lost, although his party still holds a majority on council.

“Sim says bitcoin is the greatest invention in human history,” said Sean Orr, a city councillor with the Coalition of Progressive Electors who won a seat in the byelection. “He compares it to air travel, cars and the internet, and says that bitcoin is ‘more important than that.’” Orr sent The Tyee his comments by email.

“He calls conventional currency systems a ‘Ponzi scheme.’ He projects that housing prices, when priced in bitcoin, are ‘actually going down and they're going down significantly,’” Orr said.

Orr said Sim “posits that if this trend continues, bitcoin could offer a solution for housing affordability,” allowing future generations who have shifted part of their savings to bitcoin to buy homes as it increases in value.

“Overall the economic theories that Ken Sim shares in these videos are pretty out there and outside the economic consensus,” Orr said.

Werner Antweiler, an economist at the University of British Columbia, said that what Sim is promoting — bitcoins as a digital version of the gold standard — is not rooted in a sound understanding of how modern monetary systems actually work.

Antweiler said central banks need the ability to respond effectively to changing economic circumstances and sometimes rapid fluctuations in money demand — something that is impossible with bitcoin. The Bank of Canada, for example, can expand the money supply in response to changing economic conditions.

“This is not economics, this is — I don't know what to call it,” he observed during an interview with The Tyee. “The mayor is talking about economics and doesn't seem to understand what he's talking about.”

Critics are also concerned about the amount of time Sim is spending promoting bitcoin use. Sim has personal investments in Coinbase Global, a cryptocurrency exchange, according to his most recent financial disclosure. The mayor’s office has said that according to legal advice, Sim’s motion did not put him in a conflict of interest.

Pete Fry is a city councillor with the Green Party. He said that although Sim’s motion passed in December, provincial legislation currently prohibits cities from holding reserves in risky investments like bitcoin. Fry noted the government has said that legislation is not a priority for B.C. right now.

As far as Fry is concerned, the motion is dead in the water with little hope of being put into action any time soon.

The mayor’s office said that “staff are currently reviewing the issue, in line with council’s direction.” Although staff were supposed to report back to council this spring, no report has been released publicly.

“Why is the mayor still promoting this?” Fry told The Tyee. “It's clearly not city business — this is now personal business, if he's out there hustling bitcoin.”

Fry added it seems “inappropriate to be leveraging both his literal office and his figurative ceremonial office” to extol the benefits of the cryptocurrency.

The mayor’s office defends Sim’s focus on bitcoin, saying in a statement he's preparing the city “to stay ahead of shifting global trends related to currency volatility and inflation.” The statement said the mayor remains focused on the city’s most pressing problems of housing affordability and public safety. Sim was not available for an interview.

Hashim Mitha, the CEO of a Vancouver company that helps wealth managers invest in cryptocurrency, rejected the criticism that Sim doesn’t understand economics. Mitha’s firm gave a presentation to city staff following Sim’s December motion to help them understand crypto investment.

“I would look at Mr. Sim’s background as a [chartered professional accountant] and his experience as an investment banker to verify if he understands money,” Mitha told The Tyee. “It is perhaps the fact that he does understand money and the impacts of inflation that he is so passionate about bitcoin and asking the city to explore it as an investment.”

Mitha said Sim’s comments in the YouTube videos appear to be an attempt to educate people about bitcoin. He said bitcoin has been the “best-performing asset class” in his own portfolio and large investment firms are increasingly including cryptocurrency.

When The Tyee asked Mitha for his reaction to certain claims, such as Antweiler’s assessment that a finite money supply like bitcoin would cause both wages and prices to drop, he said he was not an economist and preferred not to comment. He said he doesn’t know enough about the city’s finances to assess whether it should transfer some of its reserves to the cryptocurrency.

Let’s take a closer look at the promises Ken Sim has been making about bitcoin and fact check those statements with how Canada’s monetary system works.

The finite supply of bitcoin

During Sim’s appearances on YouTube channels that promote bitcoin, he often extols its ability to maintain in the face of rising inflation, comparing it to gold.

Bitcoin is an alternative currency not issued by a country’s central bank. Transactions in it and most other cryptocurrencies take place in a decentralized, encrypted system and no governments are involved. Blockchain technologies allow the transactions to be tracked.

Bitcoin is the only cryptocurrency that limits the number of coins that can be created, and Sim says this limited supply is a key factor in making it more stable.

“Gold's a great store of value, but it's like comparing a fax machine to AI,” Sim told the host of a YouTube channel called Block Rewards.

“Bitcoin is just far superior on a bunch of levels, so when we add the stored value we all of a sudden protect ourselves from this racket of debasement and it sets us up so we can actually afford the services that we want to provide in the city, be it policing, fire and rescue services, sanitation, engineers.”

But UBC’s Antweiler said that rather than being a stable place to protect savings from inflation, bitcoin is a very volatile asset whose value fluctuates wildly. And a finite money supply would create a host of problems, including forcing down both wages and prices.

In the real world, Antweiler said, economies need growing money supplies to match the needs of a growing population hoping to start businesses, buy homes and invest wages.

Antweiler also rejected the idea that the Canadian economy is susceptible to out-of-control inflation and that bitcoin is a solution. Along with other economies around the world, Canada saw a sharp rise in inflation following the economic disruption caused by the COVID-19 pandemic, as governments increased spending to offset the economic slowdown. But Antweiler said inflation in Canada is generally well controlled by the Bank of Canada.

Hyperinflation is more of a problem in countries like Turkey or Argentina, where governments attempt to control monetary policies for their own short-term benefit, Antweiler said.

Bitcoin enthusiasts are often critics of “fiat currency” — the modern currency system that is no longer tied to the gold standard.

According to an explainer video made by the Federal Reserve Bank of St. Louis, “Critics of the fiat money system claimed that when more dollars are put into circulation, our currency becomes diluted and the value of each dollar drops, driving prices up. Meaning it takes more of these devalued dollars to buy the same amount of groceries, gas or whatever.

“In practice, however, the fiat system that has existed for the past 40 years is designed to avoid precisely this kind of price volatility.”

Antweiler said the modern fiat currency system allows a lot of flexibility to speed up or slow down the economy by changing interest rates or increases to the money supply.

If we didn’t have those tools, Antweiler said, governments would have to rely on fiscal policy only — taxation and government spending — to try to fix economic problems like recessions.

The price of a house — in gold

In one of the videos, Sim makes another analogy that Antweiler has a lot of trouble with.

In comparing the value of bitcoin to gold, Sim says, “The average house, in 1995 when priced in gold, cost 950 ounces. At the end of 2022, it cost 957 ounces.

“It remained flat, so the value of gold didn't go up, the house price didn't go up, the purchasing power of our dollars went down.” He then goes on to warn that the city could lose savings to inflation if it does not invest in bitcoin.

The problem with this statement about real estate and gold, Antweiler said, is that it’s “devoid of economics.” We don’t use gold as a currency, and Vancouver city residents don’t get paid in gold.

“It’s a completely false comparison — it’s like comparing apples to oranges. You probably can find any other asset that has gone up, like a certain stock, Nvidia or Apple or whatnot — you could make that argument for any asset that is correlated with the housing price in Vancouver. But that doesn't mean anything, because it's not income.”

The environmental cost

Orr questioned whether Sim is using the City of Vancouver brand as a “bully pulpit to induce demand” in bitcoin. Although it’s unlikely the province will step in to change laws to allow the city to invest in the volatile cryptocurrency, the various websites and YouTube channels that exist to promote bitcoin have jumped on the story that Vancouver will become a bitcoin-friendly city.

Antweiler said he thinks it’s a problem for the mayor of a major Canadian city to promote a specific industry.

“Elected officials shouldn't be in the pockets of a particular industry but instead should be rather neutral and only look after the best interests of the city and the interests that he's been elected to represent,” he said. “And that is not the bitcoin industry, that is the city hall and all the affairs that the city has to manage.”

But the mayor’s office said Sim’s activities benefit Vancouver’s tech industry as a whole.

“Vancouver is the tech capital of Canada and has long been recognized as a hub for emerging technologies such as blockchain,” press secretary Taylor Verrall wrote to The Tyee. “By engaging in conversations about emerging technologies, the mayor is helping to position Vancouver as a modern, forward-looking city that welcomes innovation, talent and investment.”

Antweiler said he also wants people to be aware of the enormous environmental cost of bitcoin in particular. Because each bitcoin requires increasingly more complex computational effort to create, more and more electricity is needed to power the effort to mine bitcoins.

Much of that electricity is produced in countries that burn fossil fuels like coal to make electricity. As British Columbia continues to experience the effects of climate change, Antweiler said the environmental impact of bitcoin in particular shouldn’t be ignored.

“Crypto mining for bitcoins has a footprint that is the size of various countries, like Poland,” he said. “It is unsustainable.”