Wednesday, April 11, 2018
Monday, April 9, 2018
Taxes and bitcoin
I am a little surprised at myself for not thinking through the tax implications of last year's massive increase in the bitcoin price. They are massive, and they have almost certainly put more downward pressure on the bitcoin price than my lone gunman theory.
In this article, bitcoin bull Tom Lee estimates that U.S. investors are on the hook for about $25 billion in taxes for their crypto gains last year.
This is an enormous amount of pressure to be placed on the rather illiquid market and it has certainly impacted price. Yes, we will still have to deal with the Mt. Gox trustee and his overhang, but if tax selling has been the main contributor to the bitcoin bear market, we should know relatively soon as April, 17th is tax filing day in the U.S.
Notice: This is not to be taken as investment advice.
In this article, bitcoin bull Tom Lee estimates that U.S. investors are on the hook for about $25 billion in taxes for their crypto gains last year.
This is an enormous amount of pressure to be placed on the rather illiquid market and it has certainly impacted price. Yes, we will still have to deal with the Mt. Gox trustee and his overhang, but if tax selling has been the main contributor to the bitcoin bear market, we should know relatively soon as April, 17th is tax filing day in the U.S.
Notice: This is not to be taken as investment advice.
Friday, April 6, 2018
Institutional Investors on the Way?
There are reports out this morning that George Soros' family office is ready to start trading digital currencies. This may be a sign that there is enough confidence in the institutional custody arrangements on offer for the institutional community to wade into the sector. This is Soros' family office however, and they may not be required to have the strong custody arrangements required of hedge funds given that they do not manage money for outsiders. My guess is that Soros isn't going to let some underling run around with a bunch of his money on a Trezor, so he must be satisfied with the custody issues.
Nevertheless, the bear market began due to the emergence of our lone gunman and the delay in the expected wave of institutional money. Progress on the institutional custody front should help to turn the tide.
Notice: This does not constitute investment advice.
Nevertheless, the bear market began due to the emergence of our lone gunman and the delay in the expected wave of institutional money. Progress on the institutional custody front should help to turn the tide.
Notice: This does not constitute investment advice.
Thursday, April 5, 2018
The Lone Gunman of 2014
Trace Mayer, an early bitcoin convert, developed a ratio that he has used to describe frothiness or lack of interest in the bitcoin market. It is a simple ratio, the current price divided by bitcoin's 200 day moving average price.
Currently, the 200 day moving average (DMA) is $9455 and the current Mayer Multiple is 0.73 (source: https://twitter.com/tipmayermultple?lang=en). The Mayer Multiple has historically been higher more than 90% of the time throughout bitcoin's history.
An asset that appreciates in dollar terms over time will, on average, trade above the 200 DMA. For those who believe that bitcoin's monetary properties are vastly superior to those of fiat and the dollar, today's price seems like quite the bargain.
While bitcoin's history is relatively brief, it is worth our time to look at the only other extended period of time when the Mayer Multiple was at current levels.
Bitcoin sprang into existence in January of 2009 and never had a price above $1 until early in 2011. The 200 DMA then didn't really start to have any meaning then until 2012. The following graph hasn't been updated since February 5, 2018:
source: https://www.theinvestorspodcast.com/bitcoin-mayer-multiple/
Currently, the 200 day moving average (DMA) is $9455 and the current Mayer Multiple is 0.73 (source: https://twitter.com/tipmayermultple?lang=en). The Mayer Multiple has historically been higher more than 90% of the time throughout bitcoin's history.
An asset that appreciates in dollar terms over time will, on average, trade above the 200 DMA. For those who believe that bitcoin's monetary properties are vastly superior to those of fiat and the dollar, today's price seems like quite the bargain.
While bitcoin's history is relatively brief, it is worth our time to look at the only other extended period of time when the Mayer Multiple was at current levels.
Bitcoin sprang into existence in January of 2009 and never had a price above $1 until early in 2011. The 200 DMA then didn't really start to have any meaning then until 2012. The following graph hasn't been updated since February 5, 2018:
source: https://www.theinvestorspodcast.com/bitcoin-mayer-multiple/
Since publication, the Mayer Multiple has continued to fall. We can also see that the Mayer Multiple traded below 1.0 between early 2014 and the middle of 2015.
So, what was happening in the bitcoin world back then? In short, it seemed like the end of bitcoin to many. Silk Road, the online drug emporium, had been seized by the US government and its operator arrested. Also, Mt. Gox, at one time the largest bitcoin exchange went bankrupt.
Bitcoin skeptics claimed bitcoin was only good for illicit purposes and the Mt.Gox' collapse made it difficult to establish a real bitcoin price. The real problem for bitcoin however, was the overhang of coins for sale. The US government confiscated 144,000 bitcoins in the Silk Road case and auctioned them off between June of 2014 and November of 2015.
The government then had for sale about one percent of all bitcoins in circulation. Given that prices are set at the margin and bitcoin holders are very short term in nature, bitcoin's price was under pressure while the overhang existed.
Today, the Mt. Gox trustee has sold 40k bitcoins and currently has a little less than one percent of all bitcoins available for liquidation. To me, the parallel of today's price pressure to the Silk Road case is obvious.
What is different however, is that bitcoin is far more entrenched today than in 2014 and its main use case, an escape from central banker dishonesty, is now well established. 2014-15 was an opportune time to acquire bitcoin and I suspect history will repeat itself in time.
Notice: This does not constitute investment advice. I cannot know your financial situation and whether these discussions are therefore, relevant.
Wednesday, April 4, 2018
Lone Gunman Fires Off a Couple More Rounds
Early in the morning in the U.S., Mark Karpeles, former head of Mt.Gox the now bankrupt bitcoin exchange, started posting on Reddit. He was there answering questions and we saw his response to a question about the Mt. Gox liquidation:
Question: According to Japanese law, to be able to process the Mt. Gox bankruptcy, trustee Kobayashi has to sell assets (BTC, BCH, BCG) and convert them to Japanese yen. Is that correct?
Karpeles: Yes, this is correct. Actually, this applies to most jurisdictions, bankruptcy means a liquidator is appointed to investigate assets and liquidate them, ie. sell everything.
With that, bitcoin headed down nine percent for the day. Perhaps there had been hope that the trustee would distribute bitcoins to the creditors instead of liquidating them for yen.
Since I posted my lone gunman theory, I have believed that the Mt. Gox bankruptcy liquidation has been the key driver of the bitcoin correction. This morning's price action didn't get me to change my mind.
It is true that bitcoin ran very hard in December on the belief that institutional money was going to come into the bitcoin trade in 2018. This has not happened due to the lack of infrastructure in place for these investors and this has also been part of the problem. Finally, the average holding period for bitcoin is only about ten days. That is, most investors who trade bitcoin do not care about its growing dominance in the field, its decentralized nature, its immutability or its capabilities as the best ledger and accounting system for value. They only care about direction and momentum, and the massive Mt. Gox seller has flipped momentum to the downside.
Cleaning up the Gox trustee here is the key, in my opinion, for the next leg of the bitcoin bull market. The institutional market is coming along, just more slowly than anticipated. If one looks at the depth of the bids in the market now, the bids are starting to massively outweigh the offers. Hopefully, bitcoin finds its bottom down here in the same range as we saw with the early February drop.
Nevertheless, I don't believe that bitcoin's price decline has been fundamentally driven.
Notice: This does not represent investment advice. These are only my opinions and I have no idea if bitcoin will work as an investment.
Question: According to Japanese law, to be able to process the Mt. Gox bankruptcy, trustee Kobayashi has to sell assets (BTC, BCH, BCG) and convert them to Japanese yen. Is that correct?
Karpeles: Yes, this is correct. Actually, this applies to most jurisdictions, bankruptcy means a liquidator is appointed to investigate assets and liquidate them, ie. sell everything.
With that, bitcoin headed down nine percent for the day. Perhaps there had been hope that the trustee would distribute bitcoins to the creditors instead of liquidating them for yen.
Since I posted my lone gunman theory, I have believed that the Mt. Gox bankruptcy liquidation has been the key driver of the bitcoin correction. This morning's price action didn't get me to change my mind.
It is true that bitcoin ran very hard in December on the belief that institutional money was going to come into the bitcoin trade in 2018. This has not happened due to the lack of infrastructure in place for these investors and this has also been part of the problem. Finally, the average holding period for bitcoin is only about ten days. That is, most investors who trade bitcoin do not care about its growing dominance in the field, its decentralized nature, its immutability or its capabilities as the best ledger and accounting system for value. They only care about direction and momentum, and the massive Mt. Gox seller has flipped momentum to the downside.
Cleaning up the Gox trustee here is the key, in my opinion, for the next leg of the bitcoin bull market. The institutional market is coming along, just more slowly than anticipated. If one looks at the depth of the bids in the market now, the bids are starting to massively outweigh the offers. Hopefully, bitcoin finds its bottom down here in the same range as we saw with the early February drop.
Nevertheless, I don't believe that bitcoin's price decline has been fundamentally driven.
Notice: This does not represent investment advice. These are only my opinions and I have no idea if bitcoin will work as an investment.
Tuesday, April 3, 2018
Crashing US Savings Rate Portends End of Dollar as Reserve Currency
I have documented the relationship between savings, growth and household net worth here and here. I bring this up because the latest net national savings rate for the U.S. shows a savings rate of just 1.3% of gross national income (GNI is just slightly different from GDP). Savings is the driver of both growth and wealth creation. If one judges by the increase in US household net worth over the past couple of decades, it would seem as if the U.S. is creating wealth like crazy, maybe amounting to 25% of GDP per year over the period. This figure hit 35% last year.
The problem is that GDP growth and savings amount to only a small fraction of the wealth creation numbers, and over time these must be equal. Perhaps just one fifth of wealth creation in the US has been backed up with savings and output growth over the past two decades. In short, the dollar isn't backed up by enough goods and services.
There is a paradox that results from one country issuing the reserve currency, it will become overvalued. This happens because people outside the country that issues the reserve currency will want to hold some, driving up its value. This will make businesses in the reserve issuing country uncompetitive. Recession will follow. To fight this, the Fed always prints new money and drives down interest rates. This has the perverse effect of pushing the savings rate down even further while driving up asset prices. We can see by looking at the graphs showing the secular crash in savings versus the massive levitation of net worth. This makes no sense. The gap between savings + growth and net worth gets ever larger. The dollar is a bad bet as there are few resources to back up all of the claims that dollar holders possess.
It has been clear to me for years (see here) that the Ponzi type structure of the dollar combined with the weaponization of money would lead China and Russia to attack the dollar's reserve status. Well, China isn't even couching their language any longer. Zerohedge reports:
The Global Times, the unofficial mouthpiece of the Chinese government, printed a remarkable story from one of its editors highlighting the petroyuan and its potential to topple the US dollar as the global reserve currency.
The ledger associated with the dollar is completely broken, and China and Russia understand this. Bitcoin (and to a lesser extent gold) is a better ledger of value (money) than the dollar and other fiat currencies and should benefit.
Notice: This is not investment advice. These are solely my opinions and they may be wrong.
The problem is that GDP growth and savings amount to only a small fraction of the wealth creation numbers, and over time these must be equal. Perhaps just one fifth of wealth creation in the US has been backed up with savings and output growth over the past two decades. In short, the dollar isn't backed up by enough goods and services.
There is a paradox that results from one country issuing the reserve currency, it will become overvalued. This happens because people outside the country that issues the reserve currency will want to hold some, driving up its value. This will make businesses in the reserve issuing country uncompetitive. Recession will follow. To fight this, the Fed always prints new money and drives down interest rates. This has the perverse effect of pushing the savings rate down even further while driving up asset prices. We can see by looking at the graphs showing the secular crash in savings versus the massive levitation of net worth. This makes no sense. The gap between savings + growth and net worth gets ever larger. The dollar is a bad bet as there are few resources to back up all of the claims that dollar holders possess.
It has been clear to me for years (see here) that the Ponzi type structure of the dollar combined with the weaponization of money would lead China and Russia to attack the dollar's reserve status. Well, China isn't even couching their language any longer. Zerohedge reports:
The Global Times, the unofficial mouthpiece of the Chinese government, printed a remarkable story from one of its editors highlighting the petroyuan and its potential to topple the US dollar as the global reserve currency.
The ledger associated with the dollar is completely broken, and China and Russia understand this. Bitcoin (and to a lesser extent gold) is a better ledger of value (money) than the dollar and other fiat currencies and should benefit.
Notice: This is not investment advice. These are solely my opinions and they may be wrong.
Sunday, April 1, 2018
If it's Centralized, it's Probably Corrupted
Watching the Facebook saga play out over the past few weeks highlights all of my previous posts about the centralization of information. Facebook rose to the the top of the social networking space by offering itself as the "trusted" network where only your vetted friends were allowed access. Facebook, like nearly everything that is centralized, was not to be trusted.
Now there are demands to regulate Facebook and other social media, but whom to trust as the regulator? I certainly don't want government in charge. I am not sure how the giant information silos will adapt to the new environment, but I am sure that blockchain, tokens and cryptography will provide entrepreneurs the tools required to offer people a better way to control and share their information.
With government, information and money and banking we should assume that centralization means corruption in some form.
Thursday, March 29, 2018
The Pit in Your Stomach
Bitcoin is down 15% in the last 24 hours to $6786. It is should be nerve shattering to a bitcoin bull, but this isn't.
This is not going to be a post about anything rational, it is a post about a feeling.
I have not led a life out of the ordinary. I am middle-aged, married, two adult children. There have been no events in my life that Steven Spielberg would want to shoot as a feature film. Nothing that I have done would anyone describe as heroic. No great tragedy has befallen me that required a herculean effort at recovery.
I have made some tough and very good secular calls as an investor. Long tech in the early 1990s. Exiting tech in 1999. Buying gold in 2000.
There has also been the pain of being very long gold for the past six years.
Again, nothing too out of the ordinary. What I want to talk about here are the biggest decisions of my life and how unsettling they may have been at the time, but how awesome they were as I look back at them. I am talking about getting married and having kids.
If you were lucky, you grew up inside a great family and with parents who set a good example, but nothing can really prepare you for having to play out the events yourself. If anyone really knew beforehand what it took to make a marriage work, or what you would sacrifice for your kids, then I am sure that there would be fewer marriages and fewer kids.
The leap into that unknown was, for me, completely worth it, however. Somehow, we as humans instinctively know this. We know there are risks, but do it anyway, and it is awesome....even the scary parts.
This is how I feel now about bitcoin. Sure, my wife will hate reading this, comparing her to a bunch of code written by some pseudonymous programmer may not make her feel too great, but I hope she sees it as I see her and bitcoin...as miracles.
Bitcoin is one of the great achievements of man in my opinion. A true miracle. Something that can solve many of the problems of economics and justice that have bothered me for years. Yes, like my wife, bitcoin is a miracle, perhaps even a gift from God.
Yes, I feel bitcoin is that important. No, I am not going to assure you that bitcoin will work out. It may not. There are plenty of powerful forces arrayed against it, and they may yet win out.
I am saying that I don't care, I just want to be a part of it. Like meeting my wife for the first time, I wasn't quite sure where it was going, I just knew that I wanted to be partnered with her. Many marriages don't work out, but people still get married because what may happen is too wonderful miss out on.
That is bitcoin to me. The best ledger, the best unit of account, the best accounting system for value the world has ever seen. This is the one investment that I am willing to fight for because I think it is the one thing that I have seen in all my years that should make the world a better place. It is a revolution in money, morality and opportunity. Maybe the best investments should generate that same spark that befalls you when you meet your spouse. Perhaps we humans should instinctively know these things about investing. Perhaps we get too caught up in the fear, uncertainty and doubt and let ourselves be frightened away from the great opportunities we see. Bitcoin, if it works, would be too wonderful to miss out on.
I just feel I need to be partnered up with this one for the duration.
Disclosure: This does not represent investment or marriage advice. I can't possibly know what is the right thing for you to do.
This is not going to be a post about anything rational, it is a post about a feeling.
I have not led a life out of the ordinary. I am middle-aged, married, two adult children. There have been no events in my life that Steven Spielberg would want to shoot as a feature film. Nothing that I have done would anyone describe as heroic. No great tragedy has befallen me that required a herculean effort at recovery.
I have made some tough and very good secular calls as an investor. Long tech in the early 1990s. Exiting tech in 1999. Buying gold in 2000.
There has also been the pain of being very long gold for the past six years.
Again, nothing too out of the ordinary. What I want to talk about here are the biggest decisions of my life and how unsettling they may have been at the time, but how awesome they were as I look back at them. I am talking about getting married and having kids.
If you were lucky, you grew up inside a great family and with parents who set a good example, but nothing can really prepare you for having to play out the events yourself. If anyone really knew beforehand what it took to make a marriage work, or what you would sacrifice for your kids, then I am sure that there would be fewer marriages and fewer kids.
The leap into that unknown was, for me, completely worth it, however. Somehow, we as humans instinctively know this. We know there are risks, but do it anyway, and it is awesome....even the scary parts.
This is how I feel now about bitcoin. Sure, my wife will hate reading this, comparing her to a bunch of code written by some pseudonymous programmer may not make her feel too great, but I hope she sees it as I see her and bitcoin...as miracles.
Bitcoin is one of the great achievements of man in my opinion. A true miracle. Something that can solve many of the problems of economics and justice that have bothered me for years. Yes, like my wife, bitcoin is a miracle, perhaps even a gift from God.
Yes, I feel bitcoin is that important. No, I am not going to assure you that bitcoin will work out. It may not. There are plenty of powerful forces arrayed against it, and they may yet win out.
I am saying that I don't care, I just want to be a part of it. Like meeting my wife for the first time, I wasn't quite sure where it was going, I just knew that I wanted to be partnered with her. Many marriages don't work out, but people still get married because what may happen is too wonderful miss out on.
That is bitcoin to me. The best ledger, the best unit of account, the best accounting system for value the world has ever seen. This is the one investment that I am willing to fight for because I think it is the one thing that I have seen in all my years that should make the world a better place. It is a revolution in money, morality and opportunity. Maybe the best investments should generate that same spark that befalls you when you meet your spouse. Perhaps we humans should instinctively know these things about investing. Perhaps we get too caught up in the fear, uncertainty and doubt and let ourselves be frightened away from the great opportunities we see. Bitcoin, if it works, would be too wonderful to miss out on.
I just feel I need to be partnered up with this one for the duration.
Disclosure: This does not represent investment or marriage advice. I can't possibly know what is the right thing for you to do.
Tuesday, March 27, 2018
CBOE Recommends SEC Approve bitcoin ETFs
We are going to revisit the Lone Gunman Theory of bitcoin where I posited that, given the delayed uptake on the part of institutional investors in the crypto space and the very short term trading nature of most holders, that the Mt. Gox seller was largely responsible for the decline in bitcoin's price.
My hope is that he can be cleaned up quickly. One option would be to have a small number of Silicon Valley based buyers buy the coins. The other option would be a rapid increase institutional investors in bitcoin.
The latter option will eventually happen. Wall Street is coming, we just have to await the infrastructure they need to be put into place. There was some movement on that front yesterday as the CBOE recommends that the SEC allow bitcoin ETFs.
When ETFs happen in this space, it will be a major game changer as it will allow trillions of dollars at investment firms to buy bitcoin for the first time. Timing is still uncertain, but we are moving in that direction. The Bitcoin Investment Trust (GBTC) trades at more than a 50% premium to the underlying value of the bitcoins held by the trust. I think that most people assume that the premium will disappear upon the announcement of an approval of a real bitcoin ETF. I would also assume that the premium disappears because bitcoin rises in price and not because GBTC will collapse.
Notice: This is not investment advice.
My hope is that he can be cleaned up quickly. One option would be to have a small number of Silicon Valley based buyers buy the coins. The other option would be a rapid increase institutional investors in bitcoin.
The latter option will eventually happen. Wall Street is coming, we just have to await the infrastructure they need to be put into place. There was some movement on that front yesterday as the CBOE recommends that the SEC allow bitcoin ETFs.
When ETFs happen in this space, it will be a major game changer as it will allow trillions of dollars at investment firms to buy bitcoin for the first time. Timing is still uncertain, but we are moving in that direction. The Bitcoin Investment Trust (GBTC) trades at more than a 50% premium to the underlying value of the bitcoins held by the trust. I think that most people assume that the premium will disappear upon the announcement of an approval of a real bitcoin ETF. I would also assume that the premium disappears because bitcoin rises in price and not because GBTC will collapse.
Notice: This is not investment advice.
Wednesday, March 21, 2018
More News From Silicon Valley
It is no secret that that the vast centralized information silos of Google and Facebook have scooped up a very large share of all of the net value that has so far accrued to internet companies. There is real pushback developing against this, however. Recently, Edward Snowden said that Facebook wasn't a social media company, but a surveillance company. The Cambridge Analytica scandal is making this observation widely known. Centralization of information is a major problem.
In what I take to be a very astonishing development, the cofounder of WhatsApp, a messaging service that was sold to Facebook for $19 billion, has told his Twitter followers to delete Facebook.
The centralization of so much personal data and the incentive this gives to Facebook to exploit that data highlights the risk of centralization. Perhaps we are reaching a tipping point on this front. The embrace of decentralization is coming. ASICS, cryptography, software and blockchain make real decentralization possible for the first time. I doubt that will be bad for bitcoin.
Disclosure: This is not investment advice.
In what I take to be a very astonishing development, the cofounder of WhatsApp, a messaging service that was sold to Facebook for $19 billion, has told his Twitter followers to delete Facebook.
The centralization of so much personal data and the incentive this gives to Facebook to exploit that data highlights the risk of centralization. Perhaps we are reaching a tipping point on this front. The embrace of decentralization is coming. ASICS, cryptography, software and blockchain make real decentralization possible for the first time. I doubt that will be bad for bitcoin.
Disclosure: This is not investment advice.
Silicon Valley Going All in on BTC
Jack Dorsey, founder of Twitter and Square:
https://twitter.com/TuurDemeester/status/976504382719176706
Disclosure: This is not investment advice.
https://twitter.com/TuurDemeester/status/976504382719176706
Disclosure: This is not investment advice.
Was There a Bubble in bitcoin?
Bitcoin peaked in December at nearly $20,000, but by early February its price had fallen 70% to around $6,000. Bitcoin skeptics were quick to claim that they had been correct about calling bitcoin a bubble, even if they had been doing so since before it had reached $1000. Yes, Paul Krugman, I am speaking about you.
So, was bitcoin in bubble territory?
There have been many articles on the topic, but one of the more interesting ones appeared yesterday at Coindesk. Their conclusion, it was a bubble, but that the bubble was a good thing. Bubbles, you see, lead to technological progress and the build out of infrastructure that eventually leads us to the promised land. From Coindesk:
One way to look at the current bubble is through the lens of Carlota Perez, the Venezuelan theorist who wrote about the interplay between technology and capital markets in an influential book called "Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages." She concluded that bubbles - and their inevitable collapse - are an integral, in fact necessary, part of the economic dynamics through which transformational technologies take root in society.
This view means that technological progress requires a bubble.
Perhaps this is true to some degree for most technologies. As an Austrian however, I view the scale of the bubbles of recent decades very differently than the enthusiasm for a new technology of which Perez speaks. These recent and enormous bubbles have been driven by excessive central bank money printing and the socialization of losses (bailouts). We need to be careful to recognize the difference.
It is clear that Satoshi meant to point the dagger of bitcoin directly at the heart of central bank and government fostered bubbles and theft. In fact, the bitcoin genesis block contained the following message:
03/Jan/2009 Chancellor on brink of second bailout for banks
It is clear that bitcoin's deployment into the financial wild on that day was a response to the interference of governments in finance and economics and the boom-bust cycle that they have caused. That is, bitcoin is intended as medicine for Bubble Disease, a potential cure. As such, bitcoin's price represents its effectiveness in this effort and cannot itself be a bubble. The medicine is either working at a particular point in time (bitcoin's price is rising), or its effect on the disease is weakening (bitcoin's price is falling).
I recall a line that was popular a few months ago, bitcoin isn't the bubble, it's the pin. I agree with this. There have been plenty of other periods when bitcoin's medicine seemed to be losing its potency, but it has always reemerged more efficacious than ever. I expect a repeat of this.
Disclaimer: This is not investment advice, solely the opinion of someone who is currently losing money.
So, was bitcoin in bubble territory?
There have been many articles on the topic, but one of the more interesting ones appeared yesterday at Coindesk. Their conclusion, it was a bubble, but that the bubble was a good thing. Bubbles, you see, lead to technological progress and the build out of infrastructure that eventually leads us to the promised land. From Coindesk:
One way to look at the current bubble is through the lens of Carlota Perez, the Venezuelan theorist who wrote about the interplay between technology and capital markets in an influential book called "Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages." She concluded that bubbles - and their inevitable collapse - are an integral, in fact necessary, part of the economic dynamics through which transformational technologies take root in society.
This view means that technological progress requires a bubble.
Perhaps this is true to some degree for most technologies. As an Austrian however, I view the scale of the bubbles of recent decades very differently than the enthusiasm for a new technology of which Perez speaks. These recent and enormous bubbles have been driven by excessive central bank money printing and the socialization of losses (bailouts). We need to be careful to recognize the difference.
It is clear that Satoshi meant to point the dagger of bitcoin directly at the heart of central bank and government fostered bubbles and theft. In fact, the bitcoin genesis block contained the following message:
03/Jan/2009 Chancellor on brink of second bailout for banks
It is clear that bitcoin's deployment into the financial wild on that day was a response to the interference of governments in finance and economics and the boom-bust cycle that they have caused. That is, bitcoin is intended as medicine for Bubble Disease, a potential cure. As such, bitcoin's price represents its effectiveness in this effort and cannot itself be a bubble. The medicine is either working at a particular point in time (bitcoin's price is rising), or its effect on the disease is weakening (bitcoin's price is falling).
I recall a line that was popular a few months ago, bitcoin isn't the bubble, it's the pin. I agree with this. There have been plenty of other periods when bitcoin's medicine seemed to be losing its potency, but it has always reemerged more efficacious than ever. I expect a repeat of this.
Disclaimer: This is not investment advice, solely the opinion of someone who is currently losing money.
More on Bloomberg's Excellent Point
Bloomberg hit upon a very important point here which I posted in my last article and needs to be expanded upon:
The fact that Bitcoin was designed to confound human decision-making is a feature, not a flaw. The core protocol is tasked with enforcing the single rule most crucial to the cryptocurrency’s value: no counterfeit spending. By contrast, the U.S. dollar is burdened with effecting monetary policy, enforcing sanctions, fighting crime and much more. The more functions a currency has, the more things there are to argue over, and the more likely the community will be to fracture. Bitcoin’s uncompromising focus allows it to serve a broader user base.
TAI: It really is quite amazing what the U.S. expects to be able to do with the dollar. Yes, monetary policy, spying on people, fighting (supposed) crime and enforcing sanctions, but also bailing out banks, propping up financial markets, reducing unemployment and funding budget deficits.
Weaponized money has already pushed China and Russia to build an alternative to SWIFT and has fostered a fair amount of gold buying by these two. Asking the dollar to do so much compromises its ability to function as a trusted store of value, a trusted medium of exchange and a trusted unit of account.
Gold and bitcoin have no such obligations and are therefore, far more trustworthy as money.
Disclosure: This does not represent any form of investment advice.
The fact that Bitcoin was designed to confound human decision-making is a feature, not a flaw. The core protocol is tasked with enforcing the single rule most crucial to the cryptocurrency’s value: no counterfeit spending. By contrast, the U.S. dollar is burdened with effecting monetary policy, enforcing sanctions, fighting crime and much more. The more functions a currency has, the more things there are to argue over, and the more likely the community will be to fracture. Bitcoin’s uncompromising focus allows it to serve a broader user base.
TAI: It really is quite amazing what the U.S. expects to be able to do with the dollar. Yes, monetary policy, spying on people, fighting (supposed) crime and enforcing sanctions, but also bailing out banks, propping up financial markets, reducing unemployment and funding budget deficits.
Weaponized money has already pushed China and Russia to build an alternative to SWIFT and has fostered a fair amount of gold buying by these two. Asking the dollar to do so much compromises its ability to function as a trusted store of value, a trusted medium of exchange and a trusted unit of account.
Gold and bitcoin have no such obligations and are therefore, far more trustworthy as money.
Disclosure: This does not represent any form of investment advice.
Wednesday, March 14, 2018
Excellent Point in Bloomberg Article
The fact that Bitcoin was designed to confound human decision-making is a feature, not a flaw. The core protocol is tasked with enforcing the single rule most crucial to the cryptocurrency’s value: no counterfeit spending. By contrast, the U.S. dollar is burdened with effecting monetary policy, enforcing sanctions, fighting crime and much more. The more functions a currency has, the more things there are to argue over, and the more likely the community will be to fracture. Bitcoin’s uncompromising focus allows it to serve a broader user base.
https://www.bloomberg.com/view/articles/2018-03-14/bitcoin-blockchain-demonstrates-the-value-of-anarchy
Disclaimer: This is not investment advice.
https://www.bloomberg.com/view/articles/2018-03-14/bitcoin-blockchain-demonstrates-the-value-of-anarchy
Disclaimer: This is not investment advice.
Find the Inconsistency
"Economist" Larry Kudlow joins the Trump Administration.
White House Looks to Slash China Trade Surplus by $100 billion: Wall Street Journal
Kudlow favors strong dollar, has no reason to believe Trump isn't for one either: CNBC
My only response is that they are really screwing with us now. No one in DC even tries to make any sense.
Disclaimer: This is not investment advice.
White House Looks to Slash China Trade Surplus by $100 billion: Wall Street Journal
Kudlow favors strong dollar, has no reason to believe Trump isn't for one either: CNBC
My only response is that they are really screwing with us now. No one in DC even tries to make any sense.
Disclaimer: This is not investment advice.
Google Ad Ban Rocks Bitcoin, Proves Need for Bitcoin
Within a few hours of Google banning ads for crypto-currencies this morning, the group was down about 10% across the board. While this would have no impact on bitcoin, there is no bitcoin company to authorize any advertising, the market sees it as symptomatic of problems for the sector.
The way the market should see it is as a problem of centralization. Central authorities possess incredible power and can restrict freedom and privacy at their whim. This ad ban, much like Twitter's banning thousands of posters recently, shows how desperate our world is for decentralized systems, systems where speech is free and privacy protected. Google's ad ban highlights the need for decentralized networks like bitcoin.
Disclaimer: This is not investment advice.
Friday, March 9, 2018
Bitcoin and the Lone Gunman Theory
Endless speculation has swirled around the assassination of President John Kennedy. Did Oswald act alone or was he part of a larger conspiracy? It looks like the debate will never end. More than five decades later people debate the facts and the fiction surrounding JFK's death, but no real answer emerges.
Today's post will be much like debating the JFK assassination, lots of speculation, but with no real definitive outcome.
My theory, bitcoin's price fall since its peak in December has been caused by one man, the Lee Harvey Oswald of bitcoin.
The basic plot line follows the story of Mt. Gox. Mt. Gox was the largest bitcoin exchange in the world, responsible for more than 70% of all bitcoin volume several years ago. The exchange lost one million bitcoins and filed for bankruptcy. Subsequently, 200,000 coins were found. Now, years later, the bankruptcy trustee in Japan has begun selling these coins. The revelation of the selling occurred in the past couple of days.
To this point, it appears that the trustee has sold 40,000 coins. Below we can see the dates and quantity of coins moved to an exchange for sale.
It is no coincidence that bitcoin peaked just as he started to sell, and bottomed at around $6000 as he sold his final tranche of 18,000 bitcoins. Graphically, it looks like this:
Source: https://twitter.com/matt_odell/status/971432146656202752
It might seem strange that one of the great technological innovations of our time can be moved down 70% on less than $2 billion of bitcoin overhang, but this is very much part of bitcoin's trading character.
By my estimation, half of all bitcoins never trade. This includes Satoshi's one million coins and the 3-4 million coins that have been estimated to have been lost. This means that nearly all trading occurs among about 8 million bitcoins. Shockingly, given the amount of daily trading volume in bitcoin, these coins turn over every ten days. That is, most investors hold bitcoin for a very short period of time. Much of bitcoin's price momentum is determined by these people. They are not so much interested in the technology as they are in price momentum.
The other thing that drives near-term price is new investors. Last year they came for bitcoin in spades. Now that the upside momentum has been broken, they are standing on the sidelines.
The scary part for investors now is that the trustee has been willing to sell down to the $6000 level and he has only sold one fifth of his available coins. The trustee has been a horrible seller of bitcoin, especially as he knew that he would have to disclose his actions long before he completed his sales. These coins should never have been placed on an exchange for sale. He should have approached Circle or one of the other OTC firms and moved them all at once. Given the short-term nature of so many bitcoin traders, he has now advertised his book, the price at which he is willing to sell and is being front run.
I think it is now clear that one reckless man and very poor trader has tipped bitcoin into a severe bear market.
There is some good news in this, however. We now know what is going on, and while it may appear that he will be able to exert downward pressure on the market for some time, the trustee only has about $1.3 billion in bitcoin left to sell. I expect that bitcoin fans in Silicon Valley and at the larger OTC firms are now working feverishly to put together a group to buy them all.
Personally, I think that Amazon should buy them. As Jeff Bezos says, "Your margin is my opportunity." There is no better way to negotiate with Visa and Mastercard than while holding $1+ billion in bitcoin, the technology that will crush Visa and Mastercard's exorbitant fees. Additionally, Amazon's buying of the last of the Mt. Gox bitcoin would, in my opinion, double bitcoin's price.
This is all rank speculation on my part, but it isn't too hard to connect the dots. Bitcoin's technology continues to advance as Segwit adoption moves ahead and there are now nearly 1000 Lightning Network nodes active. Bitcoin's network has never appeared stronger, while the game theory aspect has pushed Germany to declare bitcoin exempt from capital gains taxes if used to purchase things. As such, bitcoin's most recent bear market may end very soon if we can clean up the sloppy seller.
Disclaimer: This is not to be construed as investment advice.
Today's post will be much like debating the JFK assassination, lots of speculation, but with no real definitive outcome.
My theory, bitcoin's price fall since its peak in December has been caused by one man, the Lee Harvey Oswald of bitcoin.
The basic plot line follows the story of Mt. Gox. Mt. Gox was the largest bitcoin exchange in the world, responsible for more than 70% of all bitcoin volume several years ago. The exchange lost one million bitcoins and filed for bankruptcy. Subsequently, 200,000 coins were found. Now, years later, the bankruptcy trustee in Japan has begun selling these coins. The revelation of the selling occurred in the past couple of days.
To this point, it appears that the trustee has sold 40,000 coins. Below we can see the dates and quantity of coins moved to an exchange for sale.
It is no coincidence that bitcoin peaked just as he started to sell, and bottomed at around $6000 as he sold his final tranche of 18,000 bitcoins. Graphically, it looks like this:
Source: https://twitter.com/matt_odell/status/971432146656202752
It might seem strange that one of the great technological innovations of our time can be moved down 70% on less than $2 billion of bitcoin overhang, but this is very much part of bitcoin's trading character.
By my estimation, half of all bitcoins never trade. This includes Satoshi's one million coins and the 3-4 million coins that have been estimated to have been lost. This means that nearly all trading occurs among about 8 million bitcoins. Shockingly, given the amount of daily trading volume in bitcoin, these coins turn over every ten days. That is, most investors hold bitcoin for a very short period of time. Much of bitcoin's price momentum is determined by these people. They are not so much interested in the technology as they are in price momentum.
The other thing that drives near-term price is new investors. Last year they came for bitcoin in spades. Now that the upside momentum has been broken, they are standing on the sidelines.
The scary part for investors now is that the trustee has been willing to sell down to the $6000 level and he has only sold one fifth of his available coins. The trustee has been a horrible seller of bitcoin, especially as he knew that he would have to disclose his actions long before he completed his sales. These coins should never have been placed on an exchange for sale. He should have approached Circle or one of the other OTC firms and moved them all at once. Given the short-term nature of so many bitcoin traders, he has now advertised his book, the price at which he is willing to sell and is being front run.
I think it is now clear that one reckless man and very poor trader has tipped bitcoin into a severe bear market.
There is some good news in this, however. We now know what is going on, and while it may appear that he will be able to exert downward pressure on the market for some time, the trustee only has about $1.3 billion in bitcoin left to sell. I expect that bitcoin fans in Silicon Valley and at the larger OTC firms are now working feverishly to put together a group to buy them all.
Personally, I think that Amazon should buy them. As Jeff Bezos says, "Your margin is my opportunity." There is no better way to negotiate with Visa and Mastercard than while holding $1+ billion in bitcoin, the technology that will crush Visa and Mastercard's exorbitant fees. Additionally, Amazon's buying of the last of the Mt. Gox bitcoin would, in my opinion, double bitcoin's price.
This is all rank speculation on my part, but it isn't too hard to connect the dots. Bitcoin's technology continues to advance as Segwit adoption moves ahead and there are now nearly 1000 Lightning Network nodes active. Bitcoin's network has never appeared stronger, while the game theory aspect has pushed Germany to declare bitcoin exempt from capital gains taxes if used to purchase things. As such, bitcoin's most recent bear market may end very soon if we can clean up the sloppy seller.
Disclaimer: This is not to be construed as investment advice.
Wednesday, February 28, 2018
Most Bullish Bitcoin and Gold Item in Decades
In what is the biggest news I have seen in my 18 years of looking for an alternative to fiat, Germany has decided they won't place a capital gains tax on purchases made with crypto. This eliminates the double taxation of alternate currencies that is created from the debasement of fiat that I wrote about last week. This should benefit crypto gold as well. This should force other countries to move on this matter as well.
I Want to Like Gold, but.....
The world is short an honest money. Gold and bitcoin both offer better options than the current failing system, it is just that crypto keeps chipping away at some of what were gold's best attributes in ways that keep surprising me.
Let's take the ICO market. I have been skeptical here. It in many ways seems like an incredibly good deal for the issuer....free money upfront in exchange for a service that the customer may never redeem. In a way, it almost seems like the peak of the fiat bubble.
There is another, more positive, view of tokens. Let's examine Facebook as what may be possible here. Facebook could easily issue coins to their most important contributors to keep them loyal to the service. Facebook could then say to advertisers that 50% of their ad buys on the platform must be paid for with the tokens. This would create a giant market for FB tokens.
Believe it or not, this is a problem for gold. For those of us who believe that the system will rebalance through CPI type inflation (to rebalance the lopsided financial asset inflation of the past few decades), gold historically offered us the best way to protect ourselves from this. After all, if CPI inflation took hold, the rush would be on to build inventory of things you use before the price rose. Since it is generally difficult to inventory services (you can't get two haircuts this month just because you think the price will rise), you had to inventory things. Gold was what you inventoried because it was liquid and would rise in price faster than most other things since it provided you with the most flexibility (it is hard to resell canned peas if you decide you don't want them).
ICO's change all of this. Services, like advertising, or a coffee that can be paid for with a Starbuck's coin will allow you to inventory services fairly cheaply. Bitcoin will act as the new form of gold in this world, the most flexible asset. There will be a plethora of ways for one to inventory services in the future. One could almost think of these tokens as inflation etf's (depending on the structure of the coin). You pick the form of inflation you most want to protect yourself from.
Gold does retain one advantage that tokens lack however, gold cannot default. Nevertheless, long-term, tokens are a problem for gold.
Let's take the ICO market. I have been skeptical here. It in many ways seems like an incredibly good deal for the issuer....free money upfront in exchange for a service that the customer may never redeem. In a way, it almost seems like the peak of the fiat bubble.
There is another, more positive, view of tokens. Let's examine Facebook as what may be possible here. Facebook could easily issue coins to their most important contributors to keep them loyal to the service. Facebook could then say to advertisers that 50% of their ad buys on the platform must be paid for with the tokens. This would create a giant market for FB tokens.
Believe it or not, this is a problem for gold. For those of us who believe that the system will rebalance through CPI type inflation (to rebalance the lopsided financial asset inflation of the past few decades), gold historically offered us the best way to protect ourselves from this. After all, if CPI inflation took hold, the rush would be on to build inventory of things you use before the price rose. Since it is generally difficult to inventory services (you can't get two haircuts this month just because you think the price will rise), you had to inventory things. Gold was what you inventoried because it was liquid and would rise in price faster than most other things since it provided you with the most flexibility (it is hard to resell canned peas if you decide you don't want them).
ICO's change all of this. Services, like advertising, or a coffee that can be paid for with a Starbuck's coin will allow you to inventory services fairly cheaply. Bitcoin will act as the new form of gold in this world, the most flexible asset. There will be a plethora of ways for one to inventory services in the future. One could almost think of these tokens as inflation etf's (depending on the structure of the coin). You pick the form of inflation you most want to protect yourself from.
Gold does retain one advantage that tokens lack however, gold cannot default. Nevertheless, long-term, tokens are a problem for gold.
Wednesday, February 21, 2018
The Problem with Centralization
Twitter has shut down thousands of accounts. The reason is unimportant, but the fact is that when a system is centralized those with views that are in opposition with those views of the central authority are at risk of being cutoff. This is very true in a system where money is centralized. Bitcoin's success is extremely important to those who do not want to see themselves arbitrarily removed from the financial system by some central authority. Just as Twitter and Facebook may remove your ability to speak on their platform for any reason, governments and central banks can do this on their centralized financial platform. Bitcoin is the answer.
Disclaimer: This is not financial advice.
Disclaimer: This is not financial advice.
A Big Reason to Trust Bitcoin Over Central Bankers
https://twitter.com/charliebilello/status/966325031189057537
Disclaimer: This is not investment advice.
Disclaimer: This is not investment advice.
Taxes and bitcoin
Central bankers and those cronies who sit close to them are mighty quick to dismiss bitcoin. Nevertheless, bitcoin's price rises. Impressively, it does so while fighting with one arm tied behind its back.
Bitcoin and gold, in the U.S. anyway, are taxed. That is, if you buy either of these assets and the price goes up due to central bank debasement of the currency, you must give up a portion of your holding to the government. It isn't that bitcoin or gold has changed, it is that government debasement of the currency lets the government steal from you twice: first when they print and someone (not you) gets something for nothing and then again when they point a gun at you and demand a tax payment. It is insane that people put up with this. The good thing is that it will change.
The game theory aspect of this will be interesting. Somewhere in the world, a country will want to establish itself as the place to be for bitcoin and blockchain. They will stop taxing it. Bill Tai thinks Japan is heading in this direction. Let's hope. The dominoes will then fall nearly everywhere.
Bitcoin and gold, in the U.S. anyway, are taxed. That is, if you buy either of these assets and the price goes up due to central bank debasement of the currency, you must give up a portion of your holding to the government. It isn't that bitcoin or gold has changed, it is that government debasement of the currency lets the government steal from you twice: first when they print and someone (not you) gets something for nothing and then again when they point a gun at you and demand a tax payment. It is insane that people put up with this. The good thing is that it will change.
The game theory aspect of this will be interesting. Somewhere in the world, a country will want to establish itself as the place to be for bitcoin and blockchain. They will stop taxing it. Bill Tai thinks Japan is heading in this direction. Let's hope. The dominoes will then fall nearly everywhere.
Trust and bitcoin
Bitcoin is a horrible name. Trustnet would be better.
Andreas Antonopoulos
If we lived in a dystopian world without trust, bitcoin might dominate existing payment methods. But in this world, where people do tend to trust financial institutions to handle payments and central banks to maintain the value of the money it seems unlikely that bitcoin could ever be as convenient as existing payment methods.
New York Fed
Bitcoin is about trusting provable math versus the human frailty of central bankers.
A bitcoin investor
In the end, the success or failure of bitcoin versus fiat will come down to the issue of trust. Which currency and payment method will allow you to speak the most freely, to have your voice be heard? As I have already said, money and its use is a form of speech. Central bank debasement of fiat drowns out the speech of those who do not sit close to the central bank's free money spigot. Your voice is not heard. Your needs, desires and time preferences are ignored. Free fiat money gives a greater voice to the Buffett's and Munger's, the Dimon's and Singer's. Of course these people want bitcoin to fail.
Bitcoin's rise over the past nine years is a vote of distrust in central banking. As an Austrian, I have always known that artificially dropping interest rates created malinvestment. What the world is figuring out is that those who are cronies of the central banks do not have to worry about living with the failure of their malinvestments. Central banks will bail them out via debasement. This is creating serial investment bubbles, lowered savings, less real growth, and income and asset distribution distortions that would never be seen in a free market. This has led to a collapse in trust in the fiat system.
Bitcoin's price rise over the years is a referendum on the current state of the fraudulent financial system. The New York Fed has it wrong about bitcoin and the trust people have in the system. They are in denial. They are really worried that bitcoin exposes the fact that everything everyone at the Fed has been a part of has been wrong and corrupt. It is a difficult thing to admit. But for those central bankers, politicians and judges who refuse to admit it, the bitcoin world will grow and move on without you. Your attacks and denunciations may wound the community for a time, but bitcoin is, unlike fiat, anti-fragile and it will emerge stronger for its challenges. Fiat's day is already over. It has completely failed. We are only waiting on recognition of this event. The fiat world is not to be trusted and there is no stopping that. Meanwhile, bitcoin is a system without central control where debasement won't exist and your voice can be heard.
Disclaimer: This is not investment advice.
Andreas Antonopoulos
If we lived in a dystopian world without trust, bitcoin might dominate existing payment methods. But in this world, where people do tend to trust financial institutions to handle payments and central banks to maintain the value of the money it seems unlikely that bitcoin could ever be as convenient as existing payment methods.
New York Fed
Bitcoin is about trusting provable math versus the human frailty of central bankers.
A bitcoin investor
In the end, the success or failure of bitcoin versus fiat will come down to the issue of trust. Which currency and payment method will allow you to speak the most freely, to have your voice be heard? As I have already said, money and its use is a form of speech. Central bank debasement of fiat drowns out the speech of those who do not sit close to the central bank's free money spigot. Your voice is not heard. Your needs, desires and time preferences are ignored. Free fiat money gives a greater voice to the Buffett's and Munger's, the Dimon's and Singer's. Of course these people want bitcoin to fail.
Bitcoin's rise over the past nine years is a vote of distrust in central banking. As an Austrian, I have always known that artificially dropping interest rates created malinvestment. What the world is figuring out is that those who are cronies of the central banks do not have to worry about living with the failure of their malinvestments. Central banks will bail them out via debasement. This is creating serial investment bubbles, lowered savings, less real growth, and income and asset distribution distortions that would never be seen in a free market. This has led to a collapse in trust in the fiat system.
Bitcoin's price rise over the years is a referendum on the current state of the fraudulent financial system. The New York Fed has it wrong about bitcoin and the trust people have in the system. They are in denial. They are really worried that bitcoin exposes the fact that everything everyone at the Fed has been a part of has been wrong and corrupt. It is a difficult thing to admit. But for those central bankers, politicians and judges who refuse to admit it, the bitcoin world will grow and move on without you. Your attacks and denunciations may wound the community for a time, but bitcoin is, unlike fiat, anti-fragile and it will emerge stronger for its challenges. Fiat's day is already over. It has completely failed. We are only waiting on recognition of this event. The fiat world is not to be trusted and there is no stopping that. Meanwhile, bitcoin is a system without central control where debasement won't exist and your voice can be heard.
Disclaimer: This is not investment advice.
Monday, February 19, 2018
Game Theory and Rebalancing the System
Over the years I have had discussions about gold and the price required to rebalance the system. I think that I, and many others, have used this argument to quiet those who say there isn't enough gold out there to return to a system where gold is money. "Ridiculous," was the response. Just slap another zero onto the price (now maybe we need a 20 bagger) and voila, problem solved.
It is interesting to see this argument creeping into the bitcoin world. Foolish or not, Bill Tai at a recent Milken Institute conference proffered the theory that the Japanese government's rapid move to push bitcoin into use there is being done along these lines. He finds it amazing that a culture built on consensus where change happens slowly has pushed so rapidly and so hard on the bitcoin front. He considers the possibility a good one that the government knows there is almost no way out of their financial mess, and they hope that by being a first mover on crypto that its rapid appreciation will bail them out. Interesting.
You can see his comments here at about the 55:00 mark:
Cointelegraph also ran a story on the Polish central bank paying to run anti-crypto ads that was picked up at Zero Hedge. As I wrote last week, central bankers bashing bitcoin reminds me of the Max Planck argument about science progressing one funeral at a time. Planck understood that those in the scientific world who had operated their entire adult lives under certain assumptions about how the world worked were loath to accept new theories that rendered their life's work moot. Planck knew that it was almost impossible to convince these older folks that the new theory was correct. Only after they had all died was it possible for the new theory to be broadly accepted.
Many central bankers, I think, are like this with regard to bitcoin. It isn't that they don't understand bitcoin, they do. What the really fear is that bitcoin renders them and their life's work of fiat promotion moot.
Where the Planck Theory that I proposed above goes awry is that there may be a big game theory aspect to the acceptance and rejection of bitcoin and crypto. It will be interesting to watch. Poland and China are at one end of the spectrum with Japan and Switzerland at the other. There may come a time where wide scale bitcoin acceptance pushes even the most reluctant into bitcoin acceptance. It may even have already happened.
Disclaimer: This doesn't constitute investment advice.
Saturday, February 17, 2018
What Happened to Bitcoin in 2017
By all accounts, bitcoin's rise in 2017 was meteoric. What does this mean? Why did it happen?
One of the principle tenets of this blog is that fiat money has been abused through endless rounds of central bank debasement and this has created many problems. Those of us who hold fast to the ideas of Austrian Business Cycle Theory have very different ideas than do most economists as to what impact this debasement has on the economy. Austrians believe that printing money distorts interest rates and time preferences and these things will impact the very structure of the economy in a way that the market doesn't appreciate. That is, people do stupid things when the information (interest rates) they are given is distorted. The economic result is malinvestment.
In this sense, money is a subset of speech. Money, and the way we use it, tells the world what we like, what interests us and what our time preferences are. Money and its use contains extremely important information. To get at truth, speech needs to be free, and this is also true for money. It should never be distorted so that the information is skewed in a way that only benefits those in power or those who sit closest to the central banks. There will be no truth or justice there. Central banks have skewed the fiat money system in a way that truth, justice and free speech are denied to most. Bitcoin's dramatic rise in 2017 is a recognition of this.
Since the Great Financial Crisis of 2008, I think that people have had an underlying sense that the financial system has been skewed against them and in favor of the one percent. The individual has seen his free speech silenced by Ben Bernanke, Janet Yellen, Draghi and Kuroda with their distortion of money and interest rates. People are yearning to speak freely, to speak truthfully and to have their voices heard. That is what happened to bitcoin in 2017. People have found their voice again through the purchase of bitcoin and this time I pray that they won't let it be silenced.
Disclaimer: This does not constitute investment advice.
One of the principle tenets of this blog is that fiat money has been abused through endless rounds of central bank debasement and this has created many problems. Those of us who hold fast to the ideas of Austrian Business Cycle Theory have very different ideas than do most economists as to what impact this debasement has on the economy. Austrians believe that printing money distorts interest rates and time preferences and these things will impact the very structure of the economy in a way that the market doesn't appreciate. That is, people do stupid things when the information (interest rates) they are given is distorted. The economic result is malinvestment.
In this sense, money is a subset of speech. Money, and the way we use it, tells the world what we like, what interests us and what our time preferences are. Money and its use contains extremely important information. To get at truth, speech needs to be free, and this is also true for money. It should never be distorted so that the information is skewed in a way that only benefits those in power or those who sit closest to the central banks. There will be no truth or justice there. Central banks have skewed the fiat money system in a way that truth, justice and free speech are denied to most. Bitcoin's dramatic rise in 2017 is a recognition of this.
Since the Great Financial Crisis of 2008, I think that people have had an underlying sense that the financial system has been skewed against them and in favor of the one percent. The individual has seen his free speech silenced by Ben Bernanke, Janet Yellen, Draghi and Kuroda with their distortion of money and interest rates. People are yearning to speak freely, to speak truthfully and to have their voices heard. That is what happened to bitcoin in 2017. People have found their voice again through the purchase of bitcoin and this time I pray that they won't let it be silenced.
Disclaimer: This does not constitute investment advice.
Thursday, February 15, 2018
A Couple of Random Observations
Charlie Munger of Berkshire Hathaway called bitcoin "noxious poison" the other day. Well, to a guy whose business depends on an endless supply of easy money from central banks that transfers wealth from savers to leveraged hedge funds like Berkshire Hathaway, I am certain bitcoin is noxious poison. Good thing, too.
Munger then went on to say that regulators should let up on Wells Fargo, a firm that deliberately set out to open fake accounts and enroll customers in programs that they didn't want and weren't told that they would be charged for. That is, they flat out stole from their customers.
Munger couldn't be more socially tone deaf if he had slapped a couple of female underlings on their backsides and told them they should like it. I think someone needs to keep the 93 year old Munger from embarrassing himself any further.
Finally, noted VC Bill Gurley said that everyone is nauseous from talking so often about crypto and that he wished it would stop. Sorry Bill, the market potential is too big and bitcoin's implications for our freedom and liberty are too important. Did Thomas Jefferson talk too much about man's natural rights in the Declaration of Independence? Should Galileo have stopped talking about the sun being at the center of the universe?
Important ideas will not suffer from too much discussion. Take some Pepto and tough it out.
Disclaimer: This does not represent investment advice.
Munger then went on to say that regulators should let up on Wells Fargo, a firm that deliberately set out to open fake accounts and enroll customers in programs that they didn't want and weren't told that they would be charged for. That is, they flat out stole from their customers.
Munger couldn't be more socially tone deaf if he had slapped a couple of female underlings on their backsides and told them they should like it. I think someone needs to keep the 93 year old Munger from embarrassing himself any further.
Finally, noted VC Bill Gurley said that everyone is nauseous from talking so often about crypto and that he wished it would stop. Sorry Bill, the market potential is too big and bitcoin's implications for our freedom and liberty are too important. Did Thomas Jefferson talk too much about man's natural rights in the Declaration of Independence? Should Galileo have stopped talking about the sun being at the center of the universe?
Important ideas will not suffer from too much discussion. Take some Pepto and tough it out.
Disclaimer: This does not represent investment advice.
Suppression
A decade ago my daughter started competitive swimming. I was impressed by how much work went into the sport. She trained 18 hours per week and went to school. Her dedication also had me paying attention to other developments in the sport.
At about that time USA Swimming, the national organizing body, was undergoing harsh criticism for its having swept many sexual abuse allegations under the rug over the years. The pressure grew and USA Swimming was forced to change its ways and its attitude toward sexual abuse of swimmers by their coaches. A tsunami of charges were unleashed as young women felt that they would now get a fair hearing. The result, there are now 149 people, mostly men, banned by USA Swimming. It has been quite shocking that this level of abuse existed in a sport for children.
Then came Harvey Weinstein. The sad thing here is that it seemed like almost everyone knew what was going on, yet they allowed it to happen anyway. People were willing to look the other way for a chance to get their film made, to get the part or to become a screenwriter (sounds just like the financial markets to me).
Finally, Oprah (who needs no last name) gave an incredibly powerful speech at the recent Golden Globes about the abuse and suppression of women. The reception to her words resulted in there being much talk about her running for president in 2020.
The suppression and abuse of women has exploded into what may be the dominant social issue of the day. I am pretty certain this is not going to blow over.
This brings me to the many other avenues of suppression over a long period of time where anger will build over the scale of the abuse. From the perspective of a blog on economics, the massive suppression of interest rates, volatility and gold prices have harmed millions and will be exposed. This type of suppression is always impossible to hide forever in the economic world. There will be a reckoning. Judgment is coming for the world's irresponsible central bankers.
Disclaimer: This doesn't represent investment advice.
At about that time USA Swimming, the national organizing body, was undergoing harsh criticism for its having swept many sexual abuse allegations under the rug over the years. The pressure grew and USA Swimming was forced to change its ways and its attitude toward sexual abuse of swimmers by their coaches. A tsunami of charges were unleashed as young women felt that they would now get a fair hearing. The result, there are now 149 people, mostly men, banned by USA Swimming. It has been quite shocking that this level of abuse existed in a sport for children.
Then came Harvey Weinstein. The sad thing here is that it seemed like almost everyone knew what was going on, yet they allowed it to happen anyway. People were willing to look the other way for a chance to get their film made, to get the part or to become a screenwriter (sounds just like the financial markets to me).
Finally, Oprah (who needs no last name) gave an incredibly powerful speech at the recent Golden Globes about the abuse and suppression of women. The reception to her words resulted in there being much talk about her running for president in 2020.
The suppression and abuse of women has exploded into what may be the dominant social issue of the day. I am pretty certain this is not going to blow over.
This brings me to the many other avenues of suppression over a long period of time where anger will build over the scale of the abuse. From the perspective of a blog on economics, the massive suppression of interest rates, volatility and gold prices have harmed millions and will be exposed. This type of suppression is always impossible to hide forever in the economic world. There will be a reckoning. Judgment is coming for the world's irresponsible central bankers.
Disclaimer: This doesn't represent investment advice.
Friday, February 9, 2018
Max Planck and Bitcoin
Max Planck understood that many scientists who had spent their entire lives operating under a certain set of assumptions about how the world worked would recoil in horror at new theories that rendered their life's work moot. The old guard was always reluctant to accept a new theory, no matter what the evidence:
A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.
Max Planck
As we see central bankers throw out disparaging remarks concerning bitcoin, I would encourage you to think about Planck's insight. I believe that our children, and our children's children, will laugh at the concept of trusting central bankers with their money. It is these old guard central bankers who refuse to accept the new reality. It isn't that they don't understand bitcoin, I believe they do. It is that bitcoin forces them to realize that they have wasted their lives promoting a world that runs on fiat money. This is what they really hate.
Disclaimer: This is not investment advice.
A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.
Max Planck
As we see central bankers throw out disparaging remarks concerning bitcoin, I would encourage you to think about Planck's insight. I believe that our children, and our children's children, will laugh at the concept of trusting central bankers with their money. It is these old guard central bankers who refuse to accept the new reality. It isn't that they don't understand bitcoin, I believe they do. It is that bitcoin forces them to realize that they have wasted their lives promoting a world that runs on fiat money. This is what they really hate.
Disclaimer: This is not investment advice.
Weaponizing Money
He probably won't be mentioned in the same breath as the cypherpunks or other early bitcoin pioneers, but my guess is that his influence on the bitcoin movement will prove to have been a powerful one. He is Juan Zarate, former deputy national security advisor for combating terrorism.
His contribution was the weaponizing of the dollar via the use of draconian financial embargoes against entire countries. He now worries that bitcoin and other cryptocurrencies may allow countries that the U.S. labels as bad actors a way around these embargoes.
The reality is that such draconian actions will force not only bad actors to think about using alternatives to the dollar in international trade, but it will force many legitimate companies and individuals to explore alternatives as well. China and Russia have already built an alternative to SWIFT payment platform. No doubt that legitimate individuals and companies worldwide are exploring bitcoin in case the U.S. targets their country or their suppliers or customers. The U.S. is proving itself to be a less than reliable partner on the monetary front, and this extends well beyond the debasement argument.
As Nick Szabo, one of the early cypherpunks explains:
The historically recent growth of centralized digital money has resulted in the transformation of money from being a medium of exchange, to many officials viewing it as primarily a medium of law enforcement. This is increasingly making such money more local and less trustworthy.
The U.S. certainly seems intent on destroying the dollar.
Disclaimer: This does not represent investment advice.
His contribution was the weaponizing of the dollar via the use of draconian financial embargoes against entire countries. He now worries that bitcoin and other cryptocurrencies may allow countries that the U.S. labels as bad actors a way around these embargoes.
The reality is that such draconian actions will force not only bad actors to think about using alternatives to the dollar in international trade, but it will force many legitimate companies and individuals to explore alternatives as well. China and Russia have already built an alternative to SWIFT payment platform. No doubt that legitimate individuals and companies worldwide are exploring bitcoin in case the U.S. targets their country or their suppliers or customers. The U.S. is proving itself to be a less than reliable partner on the monetary front, and this extends well beyond the debasement argument.
As Nick Szabo, one of the early cypherpunks explains:
The historically recent growth of centralized digital money has resulted in the transformation of money from being a medium of exchange, to many officials viewing it as primarily a medium of law enforcement. This is increasingly making such money more local and less trustworthy.
The U.S. certainly seems intent on destroying the dollar.
Disclaimer: This does not represent investment advice.
Monday, February 5, 2018
Software is Eating the World
The title here is courtesy of Marc Andreesen, the Founder of both Netscape and VC firm Andreesen, Horowitz. You can read about his reasoning in this 2011 Wall Street Journal editorial.
He is right, software is eating the world. The editorial runs through a laundry list of industries being upended by software. Today, there is little surprise about this. The one industry Andreesen failed to mention in that early article that would be upended by software was money. This was just a momentary oversight on his part as he and his firm have become vocal proponents of bitcoin, blockchain and crypto.
Andreesen ends the editorial with the following:
Instead of constantly questioning their valuations, let's seek to understand how the new generation of technology companies are doing what they do, what the broader consequences are for businesses and the economy and what we can collectively do to expand the number of innovative software companies created in the U.S. and around the world.
That's the big opportunity. I know where I am putting my money.
Wise advice, and there is no bigger opportunity for software to attack than the industry known as money.
He is right, software is eating the world. The editorial runs through a laundry list of industries being upended by software. Today, there is little surprise about this. The one industry Andreesen failed to mention in that early article that would be upended by software was money. This was just a momentary oversight on his part as he and his firm have become vocal proponents of bitcoin, blockchain and crypto.
Andreesen ends the editorial with the following:
Instead of constantly questioning their valuations, let's seek to understand how the new generation of technology companies are doing what they do, what the broader consequences are for businesses and the economy and what we can collectively do to expand the number of innovative software companies created in the U.S. and around the world.
That's the big opportunity. I know where I am putting my money.
Wise advice, and there is no bigger opportunity for software to attack than the industry known as money.
Disclaimer: This isn't investment advice. In fact, I discourage most from investing in gold and bitcoin because most do not have the tensile strength to take on the existing players and governments. It is very risky.
It is Going to be a Bloodbath
There was a time when I scoffed at bitcoin and some of the lofty price predictions people threw around. No longer.
Central bank debasement has forced financial asset prices to ridiculous extremes and destroyed fiat currency's legitimacy. This is creating multiple effects that will continue for years:
1) Silicon Valley cannot ignore the magnitude of the financial markets. In rough numbers, the tech world believes they now have the tools in bitcoin and crypto to go after markets that dwarf anything they have ever seen. Perhaps as much as $10 trillion in negative yielding bonds, $8 trillion in gold, $20 trillion in fiat paper and as much as $50-70 trillion in M2. They will never go away, they will not flag and they will not tire in pursuit of such monumental sums. The current financial system has a giant bullseye painted on it courtesy of irresponsible central bank debasement.
2) The existing financial system made a deal with the devil and is now destined to lose to Silicon Valley. They bet everything on government. They trusted central banks who, via an out of control policy of debasement, forced the existing financial system to make poor decisions regarding deployment of their capital. Bubbles followed by massive losses culminating in a soft government takeover of the financial system followed by more bubbles were the result. They are hamstrung and must now play the game against far more entrepreneurial and motivated players from the West Coast. It is the existing financial system run by the government vs. ASICS, bitcoin, bandwidth, crypto and programming talent....It is going to be a bloodbath.
The financial establishment will beg the government for help via more regulations on bitcoin, on that there can be little doubt. It won't matter because the existing players made their deal with the devil. They must play the game with the coin of the realm, fiat. There will be no escaping that. It is also their death warrant. Debasement is now permanent, the cost of operating in the fiat realm will now always increase. This will weaken the financial establishment while bitcoin's army from Silicon Valley will grow stronger by the day. Time is on bitcoin's side.
Central bank debasement has forced financial asset prices to ridiculous extremes and destroyed fiat currency's legitimacy. This is creating multiple effects that will continue for years:
1) Silicon Valley cannot ignore the magnitude of the financial markets. In rough numbers, the tech world believes they now have the tools in bitcoin and crypto to go after markets that dwarf anything they have ever seen. Perhaps as much as $10 trillion in negative yielding bonds, $8 trillion in gold, $20 trillion in fiat paper and as much as $50-70 trillion in M2. They will never go away, they will not flag and they will not tire in pursuit of such monumental sums. The current financial system has a giant bullseye painted on it courtesy of irresponsible central bank debasement.
2) The existing financial system made a deal with the devil and is now destined to lose to Silicon Valley. They bet everything on government. They trusted central banks who, via an out of control policy of debasement, forced the existing financial system to make poor decisions regarding deployment of their capital. Bubbles followed by massive losses culminating in a soft government takeover of the financial system followed by more bubbles were the result. They are hamstrung and must now play the game against far more entrepreneurial and motivated players from the West Coast. It is the existing financial system run by the government vs. ASICS, bitcoin, bandwidth, crypto and programming talent....It is going to be a bloodbath.
The financial establishment will beg the government for help via more regulations on bitcoin, on that there can be little doubt. It won't matter because the existing players made their deal with the devil. They must play the game with the coin of the realm, fiat. There will be no escaping that. It is also their death warrant. Debasement is now permanent, the cost of operating in the fiat realm will now always increase. This will weaken the financial establishment while bitcoin's army from Silicon Valley will grow stronger by the day. Time is on bitcoin's side.
Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets for others. You have to do your own homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!
Eagles Beat Patriots
It was a great Super Bowl as the upstart Eagles took down the dynastic New England Patriots and their 40 year old quarterback, Tom Brady. Sure, Brady had another typical year and Super Bowl where he displayed why he is one of the greatest players in NFL history, but time marches on.
The Pats may win a few more Super Bowls before the Brady-Bellichick era is done, but it will end. Pats fans know it, and the rest of the NFL can't wait for it to happen. We can revel in what they have accomplished and be awed by their achievement of staying at the top for so long, but we will someday have to say goodbye.
The same is true for the dollar as the world's reserve currency. The Fed and the rest of the world's central banks have inflicted too much damage on fiat currencies for them to be able to continue their run as the base of the global financial system. Fiat debasement is now a requirement. Regardless of recent price action, the dollar will weaken into the future while bitcoin strengthens. There is no way around this. Like the Pats and Tom Brady, there will still be occasional glimpses of the old glory, but fiat's decline and fall is on the way.
The Pats may win a few more Super Bowls before the Brady-Bellichick era is done, but it will end. Pats fans know it, and the rest of the NFL can't wait for it to happen. We can revel in what they have accomplished and be awed by their achievement of staying at the top for so long, but we will someday have to say goodbye.
The same is true for the dollar as the world's reserve currency. The Fed and the rest of the world's central banks have inflicted too much damage on fiat currencies for them to be able to continue their run as the base of the global financial system. Fiat debasement is now a requirement. Regardless of recent price action, the dollar will weaken into the future while bitcoin strengthens. There is no way around this. Like the Pats and Tom Brady, there will still be occasional glimpses of the old glory, but fiat's decline and fall is on the way.
Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets for others. You have to do your own homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!
Friday, February 2, 2018
The Fiat Building is on Fire!
A couple of days ago I bashed Nobel laureate Paul Krugman for his silly view that the blockchain, as yet, wasn't good for anything. Additionally, he thought that cold fusion was likely to happen before a real use case emerged.
The counterpoint is that the bitcoin use case allows us to avoid having to deal with the never ending debasement of fiat currencies. This morning, the head of the Bank of Japan said that he would buy an unlimited amount of ten year bonds at 11 basis points. At 11 basis points the head of the BOJ is so terrified about the state of the Japanese financial system that he is willing to unleash an infinite amount of newly created yen to keep ten year rates at stupidly low levels. This is suicidal. If this doesn't convince you that there is no way out of this mess, then nothing will.
Bitcoin isn't just the most elegant, decentralized and immutable accounting system for value that has ever emerged, it has emerged at precisely that moment in time that the world's central bankers are trapped. They must either incinerate their currencies, or incinerate their financial markets. The building built by fiat money is on fire and they want to trap us all inside. Bitcoin is the way out.
The counterpoint is that the bitcoin use case allows us to avoid having to deal with the never ending debasement of fiat currencies. This morning, the head of the Bank of Japan said that he would buy an unlimited amount of ten year bonds at 11 basis points. At 11 basis points the head of the BOJ is so terrified about the state of the Japanese financial system that he is willing to unleash an infinite amount of newly created yen to keep ten year rates at stupidly low levels. This is suicidal. If this doesn't convince you that there is no way out of this mess, then nothing will.
Bitcoin isn't just the most elegant, decentralized and immutable accounting system for value that has ever emerged, it has emerged at precisely that moment in time that the world's central bankers are trapped. They must either incinerate their currencies, or incinerate their financial markets. The building built by fiat money is on fire and they want to trap us all inside. Bitcoin is the way out.
Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets for others. You have to do your own homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!
Wednesday, January 31, 2018
Fear, Uncertainty and Doubt
The Wall Street Journal ran a story this morning about the fact that bitcoin is having its worst month in three years. The price has fallen 50% in USD since its peak in December and the FUD is everywhere. This is the Journal"s list:
1) SEC halts $600 million ICO.
2) Facebook bans bitcoin and ICO ads.
3) Threat of South Korean legislation.
4) The hacking of Coincheck and theft of $500 million in cryptocurrencies.
5) Tether (a cryptocurrency issued by a company of the same name) and Bitfinex were issued a subpoena in December.
Yep, that all looks bad. Do you want to know something? It always looks bad for bitcoin, and somehow bitcoin rebounds from every problem and it emerges stronger because of the battle testing it has gone through. In the words of Nassim Nicholas Taleb, bitcoin is antifragile.
The history of bitcoin is littered with crises, none bigger than the scandals that followed the arrest of the operator of the Silk Road website and the collapse of Mt. Gox, the bitcoin exchange that was responsible for 70% of the trading volume of bitcoin. Here is a prescient comment from an article titled Don't Panic issued by a prominent bitcoin backer in 2014 as the Mt. Gox storm swirled around bitcoin:
Daniel Krawisz (2014)
Disclaimer: This is not investment advice.
1) SEC halts $600 million ICO.
2) Facebook bans bitcoin and ICO ads.
3) Threat of South Korean legislation.
4) The hacking of Coincheck and theft of $500 million in cryptocurrencies.
5) Tether (a cryptocurrency issued by a company of the same name) and Bitfinex were issued a subpoena in December.
Yep, that all looks bad. Do you want to know something? It always looks bad for bitcoin, and somehow bitcoin rebounds from every problem and it emerges stronger because of the battle testing it has gone through. In the words of Nassim Nicholas Taleb, bitcoin is antifragile.
The history of bitcoin is littered with crises, none bigger than the scandals that followed the arrest of the operator of the Silk Road website and the collapse of Mt. Gox, the bitcoin exchange that was responsible for 70% of the trading volume of bitcoin. Here is a prescient comment from an article titled Don't Panic issued by a prominent bitcoin backer in 2014 as the Mt. Gox storm swirled around bitcoin:
Every month or two, a new crisis emerges. Mt Gox dies and it’s going to destroy Bitcoin. China bans Bitcoin and it’s going to destroy Bitcoin. A mining pool gets too much hashing power and it’s going to destroy Bitcoin! Every so often a new supervillain jumps up from under a rock. Not long ago, Mike Hearn was going to destroy Bitcoin. with redlists and Then there was the legion of evil behind CoinValidation, who wants to track all Bitcoin users. Recently Ben Lawsky has emerged as the latest moustache-twirler out to destroy Bitcoin with his bitlicense superweapon.
The idea that anyone could ban Bitcoin is a joke.....
You know what’s going to destroy Bitcoin? Nothing, that’s what. Maybe a nuclear war or a giant meteor could do it, but not much else. The problem with Bitcoiners is that they think Bitcoin is fragile when it is really antifragile. It is no coincidence that Bitcoin keeps surviving every crisis. It survives because it is immortal.Daniel Krawisz (2014)
Disclaimer: This is not investment advice.
Bitcoin's Killer App
So the blockchain is interesting, but not yet clear whether it is useful for anything. And investing in bitcoin still looks a lot less reasonable than investing in cold fusion.
Paul Krugman
The root problem with conventional currency is all the trust required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currency is full of breaches of that trust.
Satoshi Nakamoto
The first quote above comes from a Nobel laureate in economics while the second quote comes from the creator of bitcoin and the only one of the two who deserves a Nobel in economics.
Krugman thinks the blockchain does not yet serve any useful purpose. Satoshi understands that bitcoin's killer app is that it allows you to free yourself from the morally corrupt central bankers who can only be trusted to completely debase fiat currency. It really is that simple.
Sure, gold the metal cannot be debased, but it is still controlled by central banks and leaves you exposed to their machinations. The only thing that one can be sure of in the world of economics is that fiat currencies will fail. It is too easy to create them and central bankers just cannot help themselves. This constant printing of money from thin air creates incredible economic distortions, bubbles and inequality. Central bankers are therefore, deliberately burning down our economic house. The goal now of the governments of the world is to lock people inside this burning building of fiat. Bitcoin is your way out. Heed Satoshi, not Krugman.
Paul Krugman
The root problem with conventional currency is all the trust required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currency is full of breaches of that trust.
Satoshi Nakamoto
The first quote above comes from a Nobel laureate in economics while the second quote comes from the creator of bitcoin and the only one of the two who deserves a Nobel in economics.
Krugman thinks the blockchain does not yet serve any useful purpose. Satoshi understands that bitcoin's killer app is that it allows you to free yourself from the morally corrupt central bankers who can only be trusted to completely debase fiat currency. It really is that simple.
Sure, gold the metal cannot be debased, but it is still controlled by central banks and leaves you exposed to their machinations. The only thing that one can be sure of in the world of economics is that fiat currencies will fail. It is too easy to create them and central bankers just cannot help themselves. This constant printing of money from thin air creates incredible economic distortions, bubbles and inequality. Central bankers are therefore, deliberately burning down our economic house. The goal now of the governments of the world is to lock people inside this burning building of fiat. Bitcoin is your way out. Heed Satoshi, not Krugman.
Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets for others. You have to do your own homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!
Monday, January 29, 2018
Censorship Resistance
The internet enabled the free flow of information, terrifying those who wanted to control communication. Bitcoin enables the free flow of value, terrifying those who want to control your money.
Andreas Antonopoulous
It is no secret that free speech is under attack by western governments. Therefore, no one should be surprised that the U.S. government is contemplating nationalizing the 5G network, and shutting out the telecom companies.
It isn't as if the telecom companies haven't been giving the government everything it wants, but nationalization of an important network is more than a little disturbing. The ability to turn off the service of someone whose speech the government disapproves of is a rather serious threat to liberty. Of course, they claim that their involvement is to protect us from Chinese interlopers. I doubt they have much interest in protecting me. The bigger threat comes from the possibility that the government would use their control over the network to spy on their own citizens and squash speech they find offensive.
Here is what I love about the bitcoin community; censorship resistance is a driving force of the movement. We are not just talking about how secure the blockchain is or how distributed is the network of nodes, but these guys are launching and leasing satellites in case the terrestrial networks go down or become inaccessible. Famed VC and bitcoin proponent Tim Draper is launching a blockchain based satellite network, while Blockstream is working on leasing satellites to support bitcoin.
The bitcoin community is making massive investments in censorship resistance on many levels.
Andreas Antonopoulous
It is no secret that free speech is under attack by western governments. Therefore, no one should be surprised that the U.S. government is contemplating nationalizing the 5G network, and shutting out the telecom companies.
It isn't as if the telecom companies haven't been giving the government everything it wants, but nationalization of an important network is more than a little disturbing. The ability to turn off the service of someone whose speech the government disapproves of is a rather serious threat to liberty. Of course, they claim that their involvement is to protect us from Chinese interlopers. I doubt they have much interest in protecting me. The bigger threat comes from the possibility that the government would use their control over the network to spy on their own citizens and squash speech they find offensive.
Here is what I love about the bitcoin community; censorship resistance is a driving force of the movement. We are not just talking about how secure the blockchain is or how distributed is the network of nodes, but these guys are launching and leasing satellites in case the terrestrial networks go down or become inaccessible. Famed VC and bitcoin proponent Tim Draper is launching a blockchain based satellite network, while Blockstream is working on leasing satellites to support bitcoin.
The bitcoin community is making massive investments in censorship resistance on many levels.
Disclaimer: Nothing here should be construed as investment advice. These
are nothing but my rambling thoughts. I do own gold and bitcoin, but do
not recommend these assets for others. You have to do your own homework
and know what you are getting into. Governments hate these two assets
and will try to make sure no one who owns these things wins. You have
been warned to stay away!
Sunday, January 28, 2018
What Shocked Me Regarding Bitcoin
The most shocking thing about my deep dive into bitcoin was how much it changed my view of gold as money.
My initial thought regarding bitcoin is that it represented an inferior form of money relative to gold. Gold was immutable. Bitcoin was not. I didn't think that you could be sure of what bitcoin was going to be in ten years. In fact, bitcoin is a monetary construct created by man, and all manmade monetary constructs have been abused. Gold must be a better form of money than bitcoin.
I was wrong.
The discussion of money generally centers around three properties:
1) It is a unit of account. This means it is an accounting system for value.
2) Store of value (SOV)
3) Medium of Exchange (MOE)
I am going to drop in an excerpt from an email that I sent to some friends regarding an article that tried to make the point that gold was a better form of money than bitcoin because gold is immutable. From the email:
----------------------------------------------------------------------------------------------
gold is not just good money, it is the only form of money completely resistant to financial entropy. (author's emphasis)
My initial thought regarding bitcoin is that it represented an inferior form of money relative to gold. Gold was immutable. Bitcoin was not. I didn't think that you could be sure of what bitcoin was going to be in ten years. In fact, bitcoin is a monetary construct created by man, and all manmade monetary constructs have been abused. Gold must be a better form of money than bitcoin.
I was wrong.
The discussion of money generally centers around three properties:
1) It is a unit of account. This means it is an accounting system for value.
2) Store of value (SOV)
3) Medium of Exchange (MOE)
I am going to drop in an excerpt from an email that I sent to some friends regarding an article that tried to make the point that gold was a better form of money than bitcoin because gold is immutable. From the email:
----------------------------------------------------------------------------------------------
Down the page we come to a paragraph where the author defines money in the way that just about everyone accepts as truth, but that I now believe is incorrect (I will italicize the author's words):
What is money? Going back to basic economics textbooks, money is a few different things — a medium of exchange, a unit of measure, and a store of value.
The author answers his question:
I would suggest that being a medium of exchange is not the foremost utility value of money, a store of value is.
IMO, this approach is incorrect. Money is a unit of account, an accounting system for value. SOV and MOE are how we use money. The accounting system is the thing and SOV and MOE are uses in the same way that a car is the thing and transportation is how we use it.
This distinction is important.
We all know gold's impressive characteristics:
Inert
Jewelry usage initially
Only product (until bitcoin) produced not to be consumed
Rare
Difficult to debase because of the above two items
These characteristics helped to make gold money. However, the real reason gold became money is that it made the accounting system for value more difficult to defraud and easier to trust. Because gold has the above characteristics, we trusted it as the basis of the accounting system for value more than anything else that we could come up with....until now. The controversial leap that I am going to make here is that money didn't have value because it was backed by gold, but that gold was given great value (beyond its use as ornamentation) because it was chosen as the unit of account.
The author knocks out a couple of more points that most probably agree with, and they are points I have used to rationalize my own investment in gold:
Gold stores energy in a form that is indestructible. That is the key, right there, in a nutshell.
It is the only element with properties that make it completely immune to the forces of entropy. (author's emphasis)
gold is not just good money, it is the only form of money completely resistant to financial entropy. (author's emphasis)
Here is where the author errs. He confuses gold the metal and the accounting system for value that is based on gold. Gold the metal is not subject to entropy and decay, gold the accounting system for value is.
Bitcoin's accounting system for value blows away the accounting system based on gold because it has completely done away with centralization (this is why the recent block size debate was so important) and it is audited real time. We always know where all of the bitcoins are.
Gold is massively centralized and has been since the US accumulated 45% of all of the gold ever mined by 1945. Since that time, the world's central banks have worked overtime to destroy gold as an accounting system for value. They have done this through things like the London Gold Pool, the European central banks disgorging huge amounts of physical gold in the late 1990s through the early 2000s. Today, most gold is still held by banks as custodians (which are regulated and controlled by governments). We also see regular, massive, instantaneous liquidations of paper gold in the futures markets by central banks or their banking agents. This centralization of the gold market and the lack of trustworthiness of those at the center of the gold market has served to make investors fearful of using gold as money.
Gold was important and initially chosen as money because it allowed people to trust the books better than the alternatives of the day. To the extent you trust bitcoin's distributed nature and the cryptography, then bitcoin is a vastly superior accounting system for value and its use as a SOV and MOE will increase based on this superior accounting system. It will become money.
After I wrote the email above, I read the book Digital Gold by Nathanial Popper. It is an account of the early days of bitcoin. In the book, he profiles an Argentine entrepreneur by the name of Wences Casares who is now the CEO of Xapo, a cryptocurrency storage firm. The book recounts Casares' realization that the accounting system for value was the thing:
He saw that bitcoin's lack of any transparent intrinsic value didn't matter when looked at against the history of money. The reason gold itself had been used as money was not that it was valuable; it had become valuable because it was used as money. And it was used as money because it did what all good money did: it served as a sort of physical ledger on which society could keep track of who was owed what. Each piece of gold represented a slot on the ledger of all outstanding gold, which anyone could verify by checking the mass and the volume of the gold....
"What is value?" he would ask. "It is that it is the ledger."
This is the only other explanation that I have seen that frames bitcoin's primacy as money in terms of its superiority as a unit of account.
I think that most people who become bitcoin fans have an aha! moment. The above was mine.
Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets for others. You have to do your own homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!
Friday, January 26, 2018
Theresa May Bashes bitcoin!
Those who sell influence and those who pay the big graft bills have convened in Switzerland for their annual soiree where they can dine on $40 hot dogs and listen to stories about poor immigrants. They have also decided that it is time to take off the gloves and start bashing bitcoin.
While they have been busy terrorizing the financial world with free money printed from thin air that enriches them at the expense of savers, bitcoin quietly emerged and in 2017 exploded onto the scene. They now recognize it as the threat that it is to central banking and the governments who feed off it.
No surprise then that we get British PM Theresa May coming out with this:
While they have been busy terrorizing the financial world with free money printed from thin air that enriches them at the expense of savers, bitcoin quietly emerged and in 2017 exploded onto the scene. They now recognize it as the threat that it is to central banking and the governments who feed off it.
No surprise then that we get British PM Theresa May coming out with this:
Theresa May says she will look at bitcoin and other digital currencies “very seriously”. The Prime Minister is considering taking action against them, because she’s concerned about their popularity amongst criminals. (Source: The Independent)
This is the standard "bitcoin is just used by criminals and we need to keep everyone safe so we will make it difficult to use bitcoin." Part of the way that they will do this is through KYC/AML laws.
Now, some believe that this is a reasonable step for the government to take. It isn't. Nothing about KY/AML laws makes people safer. My guess is that it makes us much less safe.
These rules requiring identity papers keep billions around the world from accessing financial services. This makes it impossible for them to escape poverty. This type of injustice creates the terrorists they say they want to protect us from. As usual, governments have it backwards.
Actually, bitcoin isn't used by criminals so much as it is used by ordinary people to escape the criminal central bank system.
Disclaimer: Nothing here should be construed as investment advice. These are nothing but my rambling thoughts. I do own gold and bitcoin, but do not recommend these assets. You have to do your homework and know what you are getting into. Governments hate these two assets and will try to make sure no one who owns these things wins. You have been warned to stay away!
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