‘I’m Inclined To Say It’s Going To Zero’: No Chance Bitcoin Replaces The Dollar
Just to be clear, I do not particularly enjoy commenting on Bitcoin. It isn't real, it's going to zero, and it has legions of fanatical adherents that are prone to losing their minds when anyone endeavors to explain the folly of betting on something that is highly susceptible to government intervention.
But over the past week, it's been difficult to stand idly by as the likes of Jamie Dimon (in characteristically abrasive fashion), Mohamed El-Erian (in a characteristically diplomatic fashion)
Being “badly designed” and small potatoes in the larger realm of currencies may be the only two things that keep it from being flung on the trash heap by those with real power..the nation states that this illusion of financial privacy and integrity is lightly butting up against.
Bitcoin exists solely at the discretion of the powers that be…any number of knock out punches can be thrown at it…many virtually impossible to defend against..money laundering..conspiracy to commit tax fraud..etc. Please remember that it is IRRELEVANT if any of those are true or true for more than a few of those using a cryptocurrency. A lever is a lever..and property seizures are…well..part of every Godzillas repertoire…Just ask Jeff Sessions.
It could go to zero. Of course I was buying oil stocks in the late 90’s. Held them too.
I kept telling myself back in January to buy one, just one. It was around $1,000.00. I didn’t.
Rode in a cab in Maui with a couple who’s son had invested everything he had a few years ago in Bitcoin.
That was right before the correction off $3k.
I can see it going either way. I don’t know. This could change society.
Kinda like betting on the Cubs to win it all. Who would’ve thought.
Just a hedge
Bitcoin will be zero
anybody thinking that post FOMC we get another bounce in S&P’s and smack down in Vol…BUT perhaps as soon as Friday it could be a good time to to go long Vol? (again)
I know month end/quarter end next week but maybe that mark-up is happening now as opposed to next week?
A great article with a strong analytical/quantitative basis for more realistic Bitcoin valuation projections. An approach totally avoided by cryptocurrency promoters.
In comparing cryptocurrency to gold as collapse hedge – there is no comparison and for a lot of reasons. Primarily, cryptocurrency depends on the electric grid and the internet remaining intact and fully operational. This is not a rational assumption in a global economy of “domino” national currencies, geo-poltical feuds, critical resource wars, and with the top major economies interlinked and dependent on each other. Any collapse of the big three economies US, Europe, and China – perhaps just the US or China will bring the global international monetary system down. In doing so it will also bring down the cash flows necessary to operate the internet and other critical commerce functions – including the electric grids with it. Cryptocurrencies are the epitome of the fragility of the internet and electrical grids and the economies that depend on them.
“It helps that history holds plenty of examples of currencies losing all their value to hyperinflation while gold could still be bartered for food and shelter.” This is the view of some one who has not well studied either historic national collapses and or used the extensions of them to project a global collapse realities. Paper gold ceases to exist along with cryptocurrencies once national currencies collapse because the infrastructure necessary to exchange them – ceases to exist.
Physical gold only serves as a barter item as long as their are sufficient critical resources to barter. In the past when nations were isolated and one went down, the other nations surrounding it remained functional and sources of critical resources and so bartering with gold did indeed work. When critical resources (food, water, shelter, medicine, energy, security, etc.) become in short supply globally, no amount of gold will replace them. Consider that most if not all developed country’s citizens today live with less than a ten day supply of food on hand. The national food and material warehousing systems that serve their local stores have only a few months of stocks. Pandemics and economic collapses threaten an abrupt supply chain end to our national life support and distribution systems. Worse as major components of our supply distributions supply systems go down, they have a domino effect disrupting others. We have yet to experience a global economic/supply chain collapse. It could happen far quicker than most of us realize.
In a global collapse barter exchange priority is solely based on critical resources and their extensions. Consequently, there is no priority to barter for gold as a barter currency, because as Buffett says – “Gold has no utility.” In a true collapse considering the civil breakdown and chaos that follows – there would be extremely limited opportunity to barter safely. Security of some kind of “market” place is necessary for even basic barter to occur practically. Until some level of civil security is resumed after a major collapse, barter will be difficult to impossible.
Once barter does return and there are ample levels of critical resources, history says physical gold may once again be attractive enough for barter – though it will still have no more utility than it ever did. Even then more utilitarian pragmatic small units of critical resources are likely to have a higher priority for most barter activity than gold. Units of food, bullets and or other portable life support resources are projected to be the post collapse coinage. As many “Preppers” project it will be a “beans and bullets” based barter economy for some period of time – from many months to many years – before people can not only barter for gold, but before they can secure, store and defend it.
All in all I find that when it comes to economic security and or collapse hedging – both cryptocurrency and gold hedging proponents share several things in common. A general lack of both historic and present economic knowledge, a real understanding of how fragile and necessary a functional technology/electronic/digitally based “market” economy is for a market economy and finally the realization and implications of the total lack of real utility value for both cryptocurrency and gold as a substitute for critical resources.
The reichsmark collapse didn’t result in complete social collapse. The dollar collapse won’t result in the end of electricity and the internet. Complete social collapse is not worth planning for, it’s practically impossible outside of the realm of billionaires. Disaster planning should be for maybe a few weeks without power and water at most and neither gold nor crypto serve that purpose, you need to have the goods on hand in a disaster prior to the disaster.
Crypto if a hedge for anything is a hedge against a sovereign currency collapse such as the Yuan or USD. The reason it is likely to survive that scenario is how many of the wealthy will find it very useful in that scenario as the poor and middle class will catch on later when it’s value is much higher. The government needn’t police it at all aside from normal taxation purposes such as other FOREX trading income and whatever digital USD 2.0 is launched to replace the dollar can be freely exchanged to from crypto after the fact. There is no scenario where the government loses, but there are ones where crypto coexists. Gold isn’t banned and it isn’t valueless yet it does compete with the dollar as a store of value just like land and fine art but most people don’t bother.
I would be very surprised if post Yuan collapse China doesn’t open back up the exchanges and allow the wealthy in China to bring back their wealth. The trouble is always in letting the masses participate.
Real Money, a term of art I define on the BetterMoney blog (and which, of course, encompasses all government-issued currencies), entails an Issuer for which all Base Money issued and outstanding constitutes a liability, against which earmarked assets are held giving it the wherewithal to buy back all the money.
With unbacked play money, such as Bitcoin, Ripple or Ethereum, there is no such issuer and no concept of monetary liability. As a result, with a drop in demand, as with a panic situation, no entity can commit to make an orderly market for exchange as, for instance, a Primary Dealer could (in certain settings that I detail). With Real Money, a drop in demand for that particular brand has little or no impact on its exchange rate (depending on whether mechanisms for on-demand redemption exist). With unbacked play money, a drop in demand can only be adjusted for via a drop in exchange rates, with no floor but zero.
Granted, the current situation with central banks unable to significantly shrink their balance sheets impedes such adjustment. [A particularly weird case is the Bundesbank, with over 50% of its assets in the form of TARGET2 obligations owed by other Eurosystem NCBs – an asset for which no market exists].
In relation to this topic of Bitcoin valuation, a NYT Dealbook piece today recycles the particularly sloppy meme that governments are no different, describing them as creating money “out of thin air”. But this is not an accurate or useful characterization. Governments create money out of valuable assets (via OMO), most of which – such as government securities – trade on highly liquid markets. Only the discretionary nature of their policies could be likened to thin air.
So nobody is going to explain use in Japan, the place
It makes the most sense. Brian Kelly’s thesis blows anything here away.