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.
Thursday, March 29, 2018
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.
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