December 13, 2017

"What Conversations About Bitcoin Sound Like to Me."

Yeah.

Me too!

The linked article is by Ethan Kuperberg at The New Yorker. Full disclosure: He also wrote (last April) "What I Have in Common with Trump."

111 comments:

Nonapod said...

The change in the types of people who are buzzing about it indicate to me that Bitcoin has reached critical mindshare. Although listening to certain sorts of people use words like "blockchain" seems not unlike a group of rhesus monkey's talking about partial differential equations or various theories of quantum gravity.

rehajm said...

Q: Marcy buys seventeen bitcoin. She gives three bitcoin away to her sister Judy, and she gives five bitcoin away to her sister Debbie. If Marcy takes one bitcoin from her brother Joel, and she splits the rest of her bitcoin with her brother Danny, how many bitcoin does Marcy have left?
A: Marcy has five bitcoin left.


Marcy has 7.38584907 bitcoin left because the price had appreciated over 40 percent by the time we finished reading the question. (and because bitcoin is divisibe to eight decimal places).

Fernandistein said...

The Devil is more intelligent than mere mortals and should never argued with about Bitcoin, Pope Francis has warned, according to our embedded Keebler Elves.

"Satan is not a metaphor or a nebulous concept but a real person armed with dark powers," the Pope said in forthright remarks made during a television interview.

rehajm said...

Bitcoin and Bubbles

Expat(ish) said...

I'm not so interested in bitcoin as I have all my money invested in Tulip futures.

_XC

Ron Winkleheimer said...

Bitcoin is Tulip Bulb Mania, only you don't end up with any tulip bulbs. Bitcoin is not money, no matter how badly the investors want it to be. Bitcoin is less money than the money in MMORPGs. They have a reasonable exchange rate. Any "currency" that is running $14,000+ for 1 is obviously and inherently worthless.

Ron Winkleheimer said...

Damn it! Expat(ish) beat me to it.

rehajm said...

The IRS on virtual currencies:

For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

IOW, for US citizens it's useful as a currency the way pigs and chickens are useful as a currency.

mockturtle said...

My younger daughter wants to invest in bitcoin and I advised against it. But I suppose a small investment could withstand a bubble burst.

Ron Winkleheimer said...

@rejham

Interesting essay, thanks. Instapundit has a link to a WSJ article.

https://www.wsj.com/articles/the-force-behind-bitcoins-meteoric-rise-millions-of-asian-investors-1513074750

Behind a paywall. Apparently its Asian investors behind the inflation of Bitcoin. Chinese investors probably are trying to get money out of China. Should be interesting when their investment evaporates.

JAORE said...

Get thee hence to Las Vegas. Go to the nearest no-limit roulette table. Place all your money on red.

A 100% (potential) profit is mere seconds!

john said...

My sentiments/understanding, exactly.

goo goo goo joob

Paul J said...

Winkleheimer is angry he missed his chance.

I bought three when they were $249.

Mostly liquidated a couple weeks ago at $11,500.

Keeping half of one bitcoin just for fun though.

buwaya said...

"Chinese investors probably are trying to get money out of China. Should be interesting when their investment evaporates."

The secret to this.
I suspect there will not be THAT many caught holding Bitcoin, come the crash, as the more typical case is that it is a temporary repository for avoiding controls on capital transfers. There may not be enough bitcoin for the traffic.

Part of the thing also may be fallout from the Xi ascendancy in China.

Plenty will get caught of course. Economic consequences in the non-virtual world too.

Left Bank of the Charles said...

Bitcoin is Trump, the bubble will inevitably burst, unless it doesn't. It's the perfect currency for the age of bullshit, a pure play.

Ron Winkleheimer said...

@mockturtle

The question is, when will it burst. I wish I had bought some when it first came out, a few years ago. Though I probably would have sold it long before it got to where it is now.

https://www.coindesk.com/price/

It opened at $17,000 + today and dropped over $500 so far. Could go up to $18,000+ over the next week, and you could make $1000+ profit. Or it could drop to pennies.

If you look at the 1 year view Bitcoin started at a few dollars in Dec 2016. Now we are looking at #$17,000+ with $500 dollar volatility in less than one day! For a completely fiat currency that doesn't even have anyone's full faith behind it and that merchants can refuse to accept. That market is gonna crash pretty soon.

Etienne said...

Bitcoin is the new Cabbage Patch doll.

The Cloud is the new Pet Rock.

Ron Winkleheimer said...

Winkleheimer is angry he missed his chance.

I'm not angry, I'm bemused. It wouldn't be the first time I missed out on an investment opportunity due to being risk adverse. I knew plenty of people who bought Healthsouth shares for pennies after Scrushy tanked the value, and they made out fine. But at the time there was no way to know if the company was going to survive. If I had bought Bitcoin, I probably would have sold it well before it reached what you bought it for.

Ron Winkleheimer said...

I'm just a dollar averaging kind of guy.

Paul J said...

I didn't buy as an investment, but because some vendors either only take bitcoin or else give a substantial discount for using bitcoin rather than a credit card.

Yes, we are talking about semi-shady to shady vendors. But with a good track record and solid customer service.

But I didn't use much of it for that, and it mostly sat unmolested and unlooked at for over a year, maybe two. Then a month or two ago I just happened to look at the exchange rate and it was like $5K per bitcoin. Holy shit!

buwaya said...

Also,
Anyone who knows anything about Chinese knows they are mad for gambling.
There are American/Euro mad gamblers, but the Chinese are a level above anyone else.

Yancey Ward said...

I did seriously consider buying about $1000 worth of Bitcoin when the price was still under $20 per coin (I still have the wallet I created for that purpose). However, the truth of the matter is that I can't really much regret not doing so since I know with almost complete certainty that I would have sold any such purchase long before today.

The Cracker Emcee Activist said...

"Bitcoin is Tulip Bulb Mania, only you don't end up with any tulip bulbs"

When it pops, as it must, yes. The ignorance of history these days is gobsmacking.

Ron Winkleheimer said...

@Yancey Ward

I would have sold when it hit $100. I would have been thinking that there was no way it was going to get much above that without crashing.

Ron Winkleheimer said...

Books will be written about the Bitcoin crash. Budding economists will write dissertations on it.

AllenS said...

I was interested in investing with Bitcoin, but then I received an email from a Prince in Nigeria. Sounds like I can make a lot more money with the Prince.

Ron Winkleheimer said...

Check out the "all" view. It looks like the infection point graphs that "singularity" types like to show.

https://www.coindesk.com/price/

Ron Winkleheimer said...

inflection point, damn it. Though infection point is kind of apropos.

Yancey Ward said...

I just checked the wallet I created for the Bitcoin I was going to buy- the file is from November 5th 2012. The price that day was under $11 per Bitcoin.

Yancey Ward said...

10 years from now, one of two things will be true about Bitcoin- it will either be worthless or each one will be over $1,000,000. I don't think there is a middle ground here.

AllenS said...

So, let's say that you were selling a car, and you wanted $15,000 for it. Then, someone shows up and says he'll buy it, and offers you 1 bitcoin. Do you sell?

Ron Winkleheimer said...

So, let's say that you were selling a car, and you wanted $15,000 for it. Then, someone shows up and says he'll buy it, and offers you 1 bitcoin. Do you sell?

If I could turn around and sell the Bitcoin that hour, maybe. But I would be hesitant. When Bitcoin crashes it won't be a slow deflation. Theoretically, it could become worthless in minutes.

buwaya said...

"So, let's say that you were selling a car, and you wanted $15,000 for it. Then, someone shows up and says he'll buy it, and offers you 1 bitcoin. Do you sell?"

Your odds are good. Your risk is only over a few minutes.

n.n said...

Backed by the full faith and credit...

Speaking of which, our government has taken great liberties.

Michael said...

AllenS

Suppose seven years ago you decided to sell a car and were offered $10,.000 in bitcoin. Suppose you took it. Suppose you held on to it. That little trade would be worth over $50 million today. Nice. It would be fun for you today to hear how it was just like the Tulip mania.



Michael said...

People trade gold every day. The value of gold goes up and it goes down and is often secured because it is viewed as a "hedge" against inflation. Most often no gold bars change hands and one is left with a statement on a piece of paper that says the investment has x value. You cannot call your broker and say you would like to have gold bars instead. Think deeply about the gold market before you sail off into smugville with your view that every "bubble" is like Tulip Mania or that every high price of something you do not fully understand is a "bubble." See the long term trading of Apple or Amazon, both of which sane people have called grossly overvalued: at levels 10% of where they are now.

The major money center banks are beginning to consider trading in this and other crypto-currencies. There is now a market in bitcoin futures so that there is, or will be, bets both for an against the currency, bringing some "stability" to the asset. I have no bitcoin in my portfolio but will likely add at some point in the near term. You can, by the way, invest in fractions of a single bit coin if you are willing to take a small flyer;.

Blockchain technology is another matter and one that I think has the big banks in something of a nervous fit. Blockchain, when fully baked (and I do not believe it is currently fully baked) will permit party A to transmit funds to party B across the world without going through a bank on either end, banks which dip their beaks in that simple transaction. Many other transactions will be able to eliminate the middle man with this technology.

rehajm said...

Check out the "all" view. It looks like the infection point graphs that "singularity" types like to show.

Asymptotal. Hockey stick if you like...

mockturtle said...

IMO, it's a little like a Ponzi scheme. The big holders will sell all at once leaving the small investors holding the bag.

Michael said...

rehajm

Check the max graphs on Apple and Amazon to see hockey sticks. Alphabet (Google) has 23+% compounded from IPO. Bubblebubbletoilandtrouble.

Michael said...

mockturtle

In a Ponzi scheme the money is leaked out by the sponsor. No sponsor involved here, just buyers and sellers. The big holders cannot all sell at once unless there are buyers. The price would have to drop and drop and drop but then the big holders would be a part of the total decline. No big winner as in a Ponzi scheme.

mockturtle said...

Michael, I get your point but consider that most people entering the bitcoin market today are the smaller investors [at least so far as I have heard]. They are the buyers and once the payoff reaches a certain level the bigger investors will get out [having sold all their bitcoin to smaller investors].

Expat(ish) said...

@Michael - Exactly - blockchain is really quite interesting.

It's the closest thing we have to the technology in Ian Bank's Culture novels. Transparent, anonymous, and distributed information storage. Wow.

-XC

AllenS said...

The prices of metals go up and down daily, and always will.

Does anyone remember the Hunt brothers?

Silver manipulation[edit]
Main article: Silver Thursday
Beginning in the early 1970s, Hunt and his brothers William Herbert and Lamar began accumulating large amounts of silver. By 1979, they had nearly cornered the global market.[8] In the last nine months of 1979, the brothers profited by an estimated $2 billion to $4 billion in silver speculation, with estimated silver holdings of 100 million troy ounces (3,100,000 kg).[9]

Primarily because of the Hunt brothers' accumulation of the precious metal, prices of silver futures contracts and silver bullion rose from $11 an ounce in September 1979 to $50 an ounce in January 1980. Silver prices ultimately collapsed to below $11 an ounce two months later.[10] The largest single day drop in the price of silver occurred on "Silver Thursday."[2] In February 1985 the Hunt brothers were charged "with manipulating and attempting to manipulate the prices of silver futures contracts and silver bullion during 1979 and 1980" by the United States Commodity Futures Trading Commission.[2]

In September 1988 the Hunt brothers filed for bankruptcy under Chapter 11 of the Federal Bankruptcy Code largely due to lawsuits incurred as a result of their silver speculation.[2]

In 1989, in a settlement with the CFTC, Nelson Bunker Hunt was fined US$10 million and banned from trading in the commodity markets as a result of civil charges of conspiring to manipulate the silver market.[2] This fine was in addition to a multimillion-dollar settlement to pay back taxes, fines and interest to the Internal Revenue Service for the same period. His brother made a similar settlement.[2]

Ron Winkleheimer said...

Nice. It would be fun for you today to hear how it was just like the Tulip mania.

I imagine quite a few people got rich in the Tulip Bulb Mania. Just like a lot of people got rich in the Housing Bubble and the Dotcom Bubble before that. Its still a bubble.

Ron Winkleheimer said...

Does anyone remember the Hunt brothers?

Yep. First thing I though of too when Gooollldddd was brought up.

The difference between Google and Apple and Bitcoin is that Google and Apple produce actual goods that can be sold in the marketplace. Though Google is probably overvalued relative to its earnings. A lot of people think Google's main value is to the government because it simplifies spying on US citizens. In any event, Bitcoin is supposed to be a currency. For what rational value can a Bitcoin be valued at $17,000?

Today you can buy 0.85 Euro for a Dollar. One dollar buys 6.62 Chinese Yuan. Why then should a Dollar only be able to buy 0.000060 of a Bitcoin? Because people are bidding them up in the hopes of selling it to someone else before it crashes. This is classic bubble behavior.

Michael said...

Mockturtle

Actually it is the opposite Price climbs of bitcoin have been attributable to the small individual investor. It is only very recently that institutional investors have begun to participate. They are buying from small investors.

Again, people holding big positions or small ones have to have buyers to get out.

Etienne said...
This comment has been removed by the author.
Michael said...

Ron Winkleheimer

Ah, so you can recognize a bubble, just like you did with housing and the dotcom? Perfect. Now you can triumph again by participating on the short side of the new futures market on the CBE. Give us a ride on your G-2 when you get it.

BTW, bitcoin is taken as currency by a growing marketplace of sellers. You should know that when you buy a candy bar using bitcoin you will not be paying $17,000 but rather the price of the candy bar with a minute bit of bitcoin.



Freeman Hunt said...

"He sold the Honda and got a bitcoin with four wheel drive."

"I was going to make dinner, but we went out for bitcoin instead."

"Have you heard the Good News about bitcoin?"

Michael said...

Expat(ish)

Blockchain is what the big banks really worry about. As should title companies, lawyers engaged in simple contracts. IBM is a good way to play with blockchain as is CME and a dozen other public companies that are spending big money on the technology. Lots of good stuff to come.

Ron Winkleheimer said...

Again, people holding big positions or small ones have to have buyers to get out.

And if everybody stops buying, then Bitcoins are worthless.

An ounce of gold is $1257.90 today.

It is only very recently that institutional investors have begun to participate. They are buying from small investors.

Therefore driving up the prices and concentrating Bitcoin into fewer hands. Those institutional investors are going to want to make a profit off their investment in Bitcoin. And since it is a currency, the only way to do that is to sell it for some other currency. The value of a currency is usually tied to the underlying robustness of the economy of the entity that issues the currency. That is why a Dollar buys 0.99 Swiss Francs and 1 Zambian Kwacha is worth 0.0000997590 US Dollars. What economy is Bitcoin associated with?

NSFW

https://www.bing.com/videos/search?q=robot+chicken+beanie+babies&view=detail&mid=B54E448362033E8651A8B54E448362033E8651A8&FORM=VIRE

Ron Winkleheimer said...

Ah, so you can recognize a bubble, just like you did with housing and the dotcom?

Actually, yes. Lots of people saw those coming. That's why I didn't lose any money in them. I do know people who were heavily invested in real estate that ended up bankrupt though.

Michael said...

RW
If everybody stops buying bitcoin then the value is determined by what sellers who take bitcoin do. If you cannot buy a car (as you can now) or a condo (as you can now) with bitcoin then the currency has indeterminate value, just as gold would have indeterminate value if nobody bought it. Or oil. Or rice.

Bitcoin can be purchased with any currency but is principally denominated in USD.

Ron Winkleheimer said...

I can't believe he thought that was a rejoinder. The financial press was full of warnings about them being bubbles for at least a couple of years before they popped.

Think said...

"For what rational value can a Bitcoin be valued at $17,000?"

If you genuinely have to ask that question, then do some research before investing in anything (including basic mutual funds). The answer is very simple - $17,000 is the value because offers to buy at that price exist on exchanges. It is no different than a stock in that regard. Sure, stocks can be tied to revenue, company assets, etc. But the only real value of stocks (and bitcoins) is what offers exist to buy the stock in the marketplace. Currently, buyers exist for that price because bitcoin has a good reputation and some major advantages over fiat currency.

I have a very modest holding in bitcoin. Is it a bubble right now? It certainly could be. It could drop significantly tomorrow. But it won't become worthless any time soon. Why? Because there are millions of investors, like me, who will buy a lot more as soon as the price drops significantly, driving it back up again. And although it may drop, the upside is also still extremely high. We may be at a pick right now, but we could also just be getting started. Anyone who tells you they know where it is going (including all these bubble-enthusiasts, are talking out of their behinds). I would be very surprised if it does not hit 100K per coin in the next few years, if not sooner. But I would also be surprised if we don't see some major dips along the way. But again, I, like everyone else, am talking out of my behind.

I would never invest money I couldn't afford to lose. Everything I put into it could be gone tomorrow and I wouldn't lose any sleep. But it is sure fun investing in it and riding the swings and dreaming of the upside potential.

Ron Winkleheimer said...

just as gold would have indeterminate value if nobody bought it. Or oil. Or rice.

If nobody is buying it, it has zero value.

Michael said...

RW
No, indeterminate because the oil or gold or rice (if it is grown, harvested and stored) still exist. You cannot assume that you can go to a gold seller and cart away his gold for free just because there is , temporarily, no demand. Nor can you raid the warehouse for the rice because it has no value.

mockturtle said...

But gold, oil and rice are intrinsically useful.

Michael said...

RW
"I can't believe he thought that was a rejoinder. The financial press was full of warnings about them being bubbles for at least a couple of years before they popped."

Ah, so the really smart people who read these warnings shorted those stocks and made a shit load of money. Others said "I told you so" to a yawning audience. Others, like me, waited for the collapse and bought great names very very cheaply because most bubbles are followed by panic selling. Most downturns present great opportunities for wealth creation.

Ron Winkleheimer said...

The answer is very simple - $17,000 is the value because offers to buy at that price exist on exchanges.

And people were paying huge sums of money for Tulip Bulbs.


Currently, buyers exist for that price because bitcoin has a good reputation

And if the good reputation was lost?

I saw the same arguments before the Dotcom and Housing Bubbles burst. Things are worth what they are worth because someone is willing to pay that much. Well duh! The question is, will they hold that value? And related to that is why is someone willing to pay that price? Must admit, things nobody is buying having an indeterminate value is new to me.

Michael said...

mockturtle

So are currencies but you cannot eat them or fuel your car with them. Though you could make them into ear rings!!

mockturtle said...

Currency has no intrinsic value.

Michael said...

RW

Actually you should read a bit more about the Tulip craze which was grossly overstated by Mackay.
"Must admit, things nobody is buying having an indeterminate value is new to me."

If nobody is buying a commodity it does not mean it has no value, only that the value has not been established by an offer to buy, what is known as a bid. The value is therefore indeterminate. If someone offers to buy the gold for a penny and the offer is accepted then that gold, at that moment, had a value of a penny. The moment before the trade there was an unknown, indeterminate, value. Not very difficult a concept.

Think said...

Ron - You could have made the same tulip-statement when bitcoin was .25 and you would have been correct, but so what? You still would have missed the chance to make serious money.

I don't disagree that market corrections will happen. Some will be huge. But, if you think you can say exactly when they will happen, then you are a genius. I am in it for a long term investment, so a drop, even for several years, wouldn't matter to me. In fact, I would welcome it right now because my dollar cost averaging would greatly improve.

All that said, I wouldn't put a penny in that I couldn't live without.

Investments with lots of upside potential almost universally also carry serious risk. That is just part of the deal. If investors don't understand that, then they shouldn't be investing.

Michael said...

mockturtle

Currency has no utility outside of being a medium of exchange. You cannot eat it or drink it or make watches out of it. But you need it to produce the food you eat, the drink you drink or the watches you tell time with.

Ron Winkleheimer said...

You cannot assume that you can go to a gold seller and cart away his gold for free just because there is , temporarily, no demand. Nor can you raid the warehouse for the rice because it has no value.

Your kidding me, right? If I want the gold or rice, then there is a market for it. That market is me. If I'm the only one who wants to buy it then I'll be able to get it pretty cheap. If more people want to buy it, then the price goes up. Price is related to how much of something there is and how many buyers want it. If nobody wants it, then it is worthless. Why would I want to haul off something that is worthless? This is pretty basic economics. I like how you snuck temporarily in there. Golds value is always known. Rices value is always known.

This month a metric ton of rice costs $402 in April of 2014 it was $395.

There is always a market for rice.

I remember going to a house with my wife after the housing crash. She was working for a bank. She would evaluate the house and advise the bank on how much it was worth. One of the houses had tubs of Benny Babies in it.

The nature of a bubble is that you can't predict exactly when it is going to bust. So, participating in one is pretty much playing chicken.

Ron Winkleheimer said...

http://www.indexmundi.com/commodities/?commodity=rice&months=60

Ron Winkleheimer said...

if you think you can say exactly when they will happen

That is exactly what I am not saying. Saying something is a bubble is not a prediction of when it will burst. It is a prediction that it will.

Michael said...

RW

Jeez. You are the one that made the point that if there are no buyers then there is no value to a commodity. You are now making points to support a position contrary to the one you made. See your comment at 2:51.

Richard said...

‪Paul J said...
Winkleheimer is angry he missed his chance.

I bought three when they were $249.

Mostly liquidated a couple weeks ago at $11,500.

Keeping half of one bitcoin just for fun though.


Big deal. Hillary made $100,000 profit in cattle futures. :)

Think said...

Ron - ok, so what value does that statement have? Isn't it like saying the sky is blue? All markets have corrections. So what? Bitcoin is particularly volatile, but any reasonable investor already knows that. I can't help but think the people crying "bubble" at every new high are just jealous they missed the climb. They will sure feel smug at the first major correction, whether it is tomorrow or years from now. But they weren't doing anything other than pointing out the ridiculously obvious.

Michael said...

RW

"Saying something is a bubble is not a prediction of when it will burst. It is a prediction that it will."

OK, agreed. But what is the meaning of "burst?" Go to zero like many of the dotcom non-companies? Or the price of JP Morgan? Or the B pieces on housing market bonds? That is the larger question. As Think notes above, it is highly unlikely at this point that bitcoin will disappear or go to zero or even back to its initial price.

But all predictions of downturns are ultimately correct. The issue is how down is down.

Ron Winkleheimer said...

Jeez. You are the one that made the point that if there are no buyers then there is no value to a commodity. You are now making points to support a position contrary to the one you made. See your comment at 2:51.

No, I said if nobody wants to buy something it has no value. You brought in commodities. Somebody always wants to buy commodities.

AllenS said...

I can take some dollars ($) to the convenience store and buy some beer. Can't do that with bitcoin. Same thing with groceries. I could go on.

AllenS said...

After I buy beer, I can drink it, and then crush the aluminum cans. Go to Gary's place with the crushed cans, have him weigh the cans and he can give me some money to buy more beer at the convenience store. Can't do that with the bitcoin.

Fritz said...

The trouble with bubbles is that while almost everybody recognizes a bubble, a lot of people think they're smart enough to sell before it bursts and aren't.

Think said...

"I can take some dollars ($) to the convenience store and buy some beer. Can't do that with bitcoin. Same thing with groceries."

Ok. Good luck doing that in the U.S. in Canadian dollars. But those Canadian dollars still have value and are still currency. There are some places that accept bitcoin as payment, just as there are some place that accept some currencies and not others. Bitcoin has some serious limitations for transactional purposes, but it has some major advantages over traditional currency which can be devalued by the issuing government on a whim and which must be cleared through a third party to be sent anywhere electronically.

Think said...

"The trouble with bubbles is that while almost everybody recognizes a bubble, a lot of people think they're smart enough to sell before it bursts and aren't."

If you are a long-term investor, there is usually no need to sell. Just ride out the bubble. The one exception of course is if something unique happens to bitcoin that makes it unusable, in which case the value will never return. But from my understanding of the technology, that isn't possible. Nonetheless, that is why nobody should put money in it that they can't walk away from. Don't mortgage the house to try and make it big.

Michael said...

RW

Jeez again. You just wrote the following: "No, I said if nobody wants to buy something it has no value. You brought in commodities. Somebody always wants to buy commodities."

Did you ever study rhetoric or logic? Read your three sentences again for meaning and you will see where I am having trouble.

AllenS said...

Think, think about this -- I live in a part of Wisconsin where floating down a river is a huge deal, and a lot of Canadians come down here to do it, plus drink beer. Every shop owner knows about the difference between our dollars and theirs. We don't stop exchanging because of it. A Canadian quarter is worth 25 cents.

Michael said...

Allen S

There are many places where you can buy beer with bitcoin. Ditto groceries. More places weekly. Just will take a while to get to rural Wisconsin. But I would bet it will.

AllenS said...

You run up a bill of $100+ at the grocery store, hardware store, auto parts store... and then tell them you'll pay in bitcoin, you'll get your ass kicked.

Ron Winkleheimer said...

But all predictions of downturns are ultimately correct. The issue is how down is down.

I agree with this statement. I think Bitcoin will at the very least fall precipitously in value, wiping out a lot of "wealth" and will never recover to anywhere near its current value. There is also this problem:

https://en.wikipedia.org/wiki/List_of_cryptocurrencies

Anyone can create a cryptocurrency. What would be the effect on gold prices if anyone could create gold? For less than what the current price of gold is? Pretty soon gold's worth would be pretty close to the cost of producing it.

Iceland has figured out a way to export its thermal and hydro power via producing aluminum.

http://articles.latimes.com/2011/mar/26/business/la-fi-iceland-economy-20110326

Producing aluminum requires a boatload of electricity. What happens when Iceland's government or some enterprising company figures out that that electricity could be used for Bitcoin mining?

https://en.wikipedia.org/wiki/Electricity_sector_in_Iceland

It might be more profitable for aluminum companies to start importing computers and set them up in their plants and quit producing aluminum altogether.

Michael said...

Allen S

Holy shit!! I am coming to your town with buckets of Canadian quarters. If I bring you a thousand Canadian dollars worth of Canadian quarters and you give me a thousand US Dollars in exchange I will give you $50. We can do that until someone gets the idea

AllenS said...

Michael, you come around here and try paying for something you bought with thousands of Canadian quarters, you'll get an ass kicking that you will never recover from.

Grow up.

Ron Winkleheimer said...

You just wrote the following: "No, I said if nobody wants to buy something it has no value. You brought in commodities. Somebody always wants to buy commodities."

You are correct. I wrote that. ?

You are trying to conflate a temporary market condition, I don't have a buyer right this second, with no buyers wanting your goods at all. Rice is not a Member's Only jacket.

Ron Winkleheimer said...

Or instead of Bitcoin, they could create a new cryptocurrency and sale it at close to the cost of producing it. What would that do to Bitcoin's value?

Michael said...

AllenS

Sorry, but I read your comment "Every shop owner knows about the difference between our dollars and theirs. We don't stop exchanging because of it. A Canadian quarter is worth 25 cents."

I took that to mean . Every shop owner knows about the difference between our dollars and theirs. We don't stop exchanging because of it. A Canadian quarter is worth 25 cents.

What am I missing?

Ron Winkleheimer said...

Also, when people tell me my logic is clearly wrong, but then ask me to figure out where, I become suspicious that perhaps it is there logic that is faulty.

AllenS said...

What are you missing? A Canadian quarter is worth 25 cents, not buckets full of Canadian quarters. We have banks around here. Canadians know the exchange difference and will go to the bank and get US $s to use in the bars and every other place that they will do business.

Ain't going to work with a bitcoin. No fucking way. That's what I'm saying.

rehajm said...

rehajm

Check the max graphs on Apple and Amazon to see hockey sticks.


Yes, I'm familiar. I was pre-IPO on one and have clients that were early round investors in both. There's also a former client who made large cash investments in Bitcoin (No mining) long before the recent appreciation so I have studied the price phenomenon a bit. I've been around for a few major asset bubbles as well...

One thing I do recognize about bubbles reaching a top: all the Michaels show to the message beards to try and refute anyone and everyone critical about valuations.

mockturtle said...

Michael argues [re currency]: But you need it to produce the food you eat, the drink you drink or the watches you tell time with.

And, like the Confederate greenback and the German mark after WWI, it can be devalued practically overnight. You can burn oil, you can eat rice but currency in and of itself is useless except maybe as toilet paper.

I used to work with an electron accelerator, the gaskets of which were solid gold because nothing else [at least at that time] worked. Gold, being highly malleable, has a lot of uses besides making jewelry.

Michael said...

RW

I will try one more time. You wrote that "if nobody wants to buy something it has no value." I opposed that statement by saying that it has indeterminate value, a concept which apparently is beyond you. You then write "you brought in commodities. Somebody always wants to buy commodities." But commodities are the "something" you wrote have no value in your first sentence. See where I am going with this? I am not conflating anything just refuting your statement that "if nobody wants to buy something it has no value." Which I think you now will admit is a wrong, even stupid, statement.

rehajm said...

There are many places where you can buy beer with bitcoin. Ditto groceries. More places weekly. Just will take a while to get to rural Wisconsin.

Could you name a few, Michael? The problem with using Bitcoin in the United States as a de facto currency for purchasing everyday items is that for tax purposes the IRS treats cryptocurrencies as property. What that means is you ned to keep track of the price when you acquired bitcoin, you need to mark to market on the day you sell it and you'll owe capital gains tax on any appreciation. In a consumer transaction that holds true for both the consumer and the vendor. A time consuming and inconvenient process for the consumer to say the least. How about a vendor with thousands of daily transactions? Near impossible...

Michael said...

Allen S

Not talking about bitcoin. Just thought it odd that people in your market take a Canadian quarter as of the same value as an American quarter. I was making the point that that was a very stupid trade since the Canadian quarter is worth twenty cents in US currency. Your merchants are giving Canadians a very nice discount.

Michael said...

rehajm
You are correct about the pitfalls of the currency for the sell and buyer. Here are grocery chains/stores that accept the crypto currency.http://spendbitcoins.com/places/c/grocery/

The fact that there are any is the surprise.

You have to go to Manhattan or Brooklyn to use bitcoin in a bar: problem is less one of tax record keeping than of the value of the currency at any given moment.

pacwest said...

The Hunt brothers came to my mind also. I was in on silver (in a relatively small way) at 5 and out at 45. The reason I bought was the rise looked inevitable after being regulated for so long. In other words I had a fundamental reason to buy. I sold because of the froth. You are looking at froth in the bitcoin market right now. You saw froth in the equities market in 2000. Best of luck to anyone buying bitcoin right now! You're gambling, not investing imo.

Investing strategies should change as you age. If I was 20 years old (and had the money;) I might consider some short (3 month or shorter) calls, or some long term puts (6 month or longer), assuming the spreads are reasonable. Ive never even bothered to look. On second thought, probably not. Grey hair = blue chips and bonds.



Michael K said...

Price climbs of bitcoin have been attributable to the small individual investor. It is only very recently that institutional investors have begun to participate.

This is what I understand. I was talking to a friend today who knows a waiter who bought bitcoin when it was less than a dollar. He was talking to him last weekend and asking what he planned to do.

He suggested he sell half. The waiter is still undecided.

Michael said...

mockturtle

You are right about the utility of gold other than for jewels. But if you need it then you are going to have to buy it and if you are going to buy it it will be with a currency that the seller is willing to take. Maybe USD, maybe Rubles, maybe bitcoin.

donald said...

How do you collect your 5000% profit? In cash.

Michael said...

donald
I believe all trades in the US are settled in USD.

rehajm said...

You are correct about the pitfalls of the currency for the sell and buyer. Here are grocery chains/stores that accept the crypto currency.http://spendbitcoins.com/places/c/grocery/

The fact that there are any is the surprise.

You have to go to Manhattan or Brooklyn to use bitcoin in a bar: problem is less one of tax record keeping than of the value of the currency at any given moment.


Thanks, Michael for the list. I'm genuinely interested in vendors trying to make a go of accepting Bitcoin. It's been my experience that there's rumor of this place or that accepts it only to learn well, no, they were thinking about it but decided against. BTW, your list of grocery stores shows exactly SIX locations in the continental US that say they accept Bitcoin. One of which is called 'Bitcoin.US'...

...Your observation that price volatility is a problem for using Bitcoin at POS is absolutely valid and a good one. I will still stand by my statement that the tax consequences for US consumers and vendors make using Bitcoin for POS purchases prohibitive.

Michael said...

rehajm

The tax implications for the users of bitcoin is the most worrisome. The seller who receives them receives them at a given value and is on his own from there. I would expect as the market matures most bitcoin will convert to USD asap. The seller, however, will have to keep track of his gains. LOL. Imagine if the tax code requires FIFO sales and so your purchase of a candy bar worth a dollar incurs a tax greater than the value of the candy bar!! Sorry, sir, your candy was purchased with bitcoin at a basis of $100. The current value is $17,000. Ergo your one dollar dandy bar is made with a gain of $170. Tax of 30%.

CERDIP said...

Whatsa "Venmo"? (something mentioned in the article)

Matthew Blaine said...

I don't understand BC, like, what is it backed by? I do understand that all the BC is valued at about $280 billion, or about 1/3 of AAPL, which makes it vulnerable to manipulation.

Matthew Blaine said...

People are mortgaging their homes to buy.

Bad Lieutenant said...

The Four Basic Functions of Money

Now, let's take a look at how economists view the basic functions of money. Money serves four basic functions: it is a unit of account, it's a store of value, it is a medium of exchange and finally, it is a standard of deferred payment.
The Four Basic Functions of Money - Video & Lesson Transcript | Study.com

Rusty said...

mockturtle said...
"But gold, oil and rice are intrinsically useful."

This.

Bitcoin. What is it backed by? What value does it represent?

Michael said...

Rusty
Scarcity. Unlike tulips there is a limited supply of bitcoin.

gadfly said...

Paraphrasing Kenny Rogers:

You got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run
You never count your bitcoin
When you're sittin' at the computer
There'll be time enough for countin'
When the deal is done

gadfly said...

Tyler Durden at Zero Hedge tells us who is driving the bitcoin market, at least according to Donald Trump's good friends at Deutsche Bank.

"Japanese men in their 30s and 40s who are engaged in leveraged FX [Foreign Exchange] trading (or who used to trade but have stopped) are driving the cryptocurrency market" and who according to DB [Deutsche Bank], happen to be more or less idiots, arguably because for the time being they are outperforming every other asset class... in history, to wit: "Japanese retail investors are less financially literate than their US peers across all age groups. Compared to the US, financial literacy is particularly poor among people 35-54 years of age. The poor literacy of Japanese retail investors also stands out beside UK and German investors."