Head Over Heels For Bitcoin

When I sit down to write something about Bitcoin, I often find myself staring at a blinking cursor for the first couple of minutes, unable to start typing.

That only happens to me on Bitcoin posts. And the reason it happens is because more often than not, it takes me a minute to figure out the right way to express my incredulity at something that has become the very definition of absurd.

Bitcoin was all over the place on Wednesday, exploding to almost $7,900 only to careen lower by $800 over the space of just 90 minutes:

Bitcoin

And see this is where the absurdity starts and where this becomes difficult to write about because while it is clearly ridiculous, the crypto crowd will claim that it’s not because they are steeped in this culture and, like Star Wars fans, have lost perspective on how objectively crazy it is. Just read these excerpts from Bloomberg, explaining today’s action:

The lack of consensus meant the upgrade couldn’t be implemented without breaking the chain. The main proponents of SegWit2x said in a statement Wednesday they decided to call off the hard fork because of this reason.

SegWit2x’s goal was to double bitcoin’s blocksize to two megabytes, which in practice increases speed and reduces fees. While most miners and many businesses supported the change, many of bitcoin’s core developers opposed it, leading to bitter and public fights, including a high-stakes bet of 1,000 bitcoin between Roger Ver, an early investor in bitcoin who is known as “Bitcoin Jesus,” and Charlie Lee, the founder of the fifth-largest digital coin, Litecoin.

Now again, I understand that all of that makes “sense” to the Bitcoin crowd. I also understand that there is an underlying market structure here that is some semblance of “real.” So please don’t accuse me of trying to belittle this, because that’s not what I’m doing. I’m just asking you to step back from the mania for a second and take stock of what’s crammed into those four sentences. We’ve got:

  1. an “upgrade”
  2. a “chain”
  3. a “hard fork”
  4. a doubling of the “blocksize to two megabytes”
  5. some “miners”
  6. some developers
  7. some “bitter debates and public fights” about something that isn’t real
  8. and a “high stakes bet” between “Jesus” and another cryptocurrency founder

It’s absurd. It’s like something out of a science fiction book written by a 12-year-old. And this thing now has a “market cap” (a term which doesn’t even make sense in this context, I don’t care what anyone says) that exceeds that of Morgan Stanley.

I am telling you unequivocally that this is not going to work. This thing is going to zero. And when people look back at this in however many years it takes for it to collapse, it is going to appear so laughable that the prominent folks who have come out in support of it are going to suffer irreparable damage to their reputations.

And here’s the thing about Heisenberg and Bitcoin: I do not begrudge anyone the money they made or might make off of this piece of shit. Not one little bit do I begrudge anyone their money. But there are innumerable common sense reasons why this is destined to fail, not the least of which is that – and I’m really sorry to have to say this for the thousandth time – Jamie Dimon is right. If this doesn’t fail by virtue of being inherently ridiculous, it will fail by government decree.

Plus, don’t forget that cryptocurrencies do not possess either of the two characteristics of currencies. Recall this from UBS:

The first and most important role of a currency is to act as a widely accepted medium of exchange. Currencies only have value when they can buy things that are useful. In this regard, government backed currencies carry a huge advantage. Governments set taxes, and tax is the largest single payment in almost any economy. In developed economies over a third of all economic activity that takes place in a year is paid to the government as tax. As such, people will always demand government-backed currencies because they are useful for paying taxes.

The second role of a currency is to act as a store of value. People need to believe that what their cash can buy today, their cash will buy tomorrow. In order to maintain the store of value, central banks take a lot of trouble to keep a currency’s value roughly stable (i.e. control inflation). This is done by making sure that the supply of currency generally matches the demand for a currency. If the balance is maintained the currency will broadly keep its store of value. An individual crypto-currency cannot achieve this balance, which explains their volatility. Crypto-currency supply cannot go downA fall in demand for a specific crypto-currency will therefore cause that crypto-currency’s value to collapse as supply outstrips demand. For context, Bitcoin’s collapse in value in early September was worse than the collapse in the value of the German mark at the start of the Weimar hyperinflation.

But none of the above is going to deter Millennials. A new survey conducted by Blockchain Capital reveals the following:

Today, venture capital firm Blockchain Capital released the results of a survey which found that awareness, sentiment and conviction in Bitcoin was most prevalent in younger demographics. Millennials (age 18-34)—and male millennials in particular—seem to have the most positive impression of Bitcoin and its future.

When given a choice between $1,000 worth of Bitcoin and $1,000 worth of a traditional financial asset, 27 percent of millennials chose Bitcoin over an equivalent amount of stocks, 30 percent chose Bitcoin over government bonds, 22 percent chose Bitcoin over real estate, and 19 percent chose Bitcoin over gold. 

What the actual fuck? 22% of Millennials would rather own Bitcoin than a piece of land.

And it gets better, have a look at this from Google Trends:

BitcoinGold

More people are trying to figure out how to buy Bitcoin than gold. Which is fine, because we here at HR are no fans of gold either, but give me a break. There is no rational explanation for that chart, which pretty much by default means the explanation has to be irrational.

As usual, we would very gently suggest that anyone who is buying into this as an “investment” (as opposed to a trade) think long and hard about that decision, because this is going to be an unmitigated disaster.

 

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20 thoughts on “Head Over Heels For Bitcoin

  1. For a guy I think is right about so much, it’s hard to accept your position on Bitcoin. This thing is headed to the moon because when juxtaposed to the current order, it unequivocally shows itself to be the superior technology. It’s not perfect and stands a good chance of being knocked off its perch by something that does the job better. Or not. Maybe the community of developers responsible for improving it will succeed so that it remains the dominant store of value in the crypto space.
    As for governments shutting it down, where I ask, is there a contemporary example of governments succeeding at anything, let alone squashing demand for a highly desirable product? And where there is demand we can surely agree there is a market. Chaos and upheaval are on the rise. The center is all but collapsed. Decentralized solutions are clearly the way forward. Millennials know this and as we increasingly live in their world, shaped to meet their needs, the value of Bitcoin and other decentralized applications will rise. And this is a good thing. You’re too smart to be on Dimon’s side. And I think you still believe in democratic principles strongly enough to see all the good that will come from these technologies.
    Love your posts. Wish I didn’t scratch my head every time you write about Bitcoin. Although, I do think “fake space money going to zero’ is hilarious.

    • you are letting high-minded ideals get in the way of common sense. Jamie Dimon is exercising common sense. you are saying things like “it’s going to the moon.”

      think about what you are saying. you are saying that the government is going to give up their monopoly on printing the official means of exchange. that is so wildly far-fetched that the English language is an insufficient tool when it comes to explaining to you why it’s such an absurd proposition.

      this isn’t like “you make drugs illegal but people still by drugs.” you’re drawing a false equivalency.

      you are suggesting that the United States of America is going to cede its authority over the actual money supply to anonymous people on the internet with names like “Bitcoin Jesus.”

      think about that for a minute and then put that together with your “going to the moon” comment.

      now step back and honestly ask yourself who is the one deluding themselves.

      is it you or is it the most successful banker in modern history?

      • I’m not as concerned about government unwillingness to give up its currency monopoly as you. I don’t believe they’ll be all that effective at maintaining that monopoly in the end. Short of turning off the internet (almost certainly impossible) there is no way for them to stop this thing. They can outlaw it but I’m not sure that will have the desired effect. History says it probably won’t. Let’s remember how little institutional money has moved this market to where it is.

        If “going to the moon” is so bothersome let’s reimagine that as experiencing a tremendous increase in value or you can put your own words in. Rather than attacking the tone or people’s internet handles, therealheisenberg, why don’t you spend some time dissecting the technology and its applications.

        Jamie Dimon is perhaps the most successful banker in modern history, but that doesn’t make him infallible. In fact we already know he’s made some bad calls over the years. I’m saying this is one of them. You’re saying he’s right and that you are exercising common sense. Fine. Let history decide.

        But Blankfein’s no slouch either.
        https://www.youtube.com/watch?time_continue=4&v=YIMWLOSRZ_A

        And that seems to me to be an infinitely wiser position to put oneself in. Maybe even smells a little like common sense.

          • Absolutely. This thing is making a mess, as all new technologies are wont to do. And its been bloody at times and we’re both sure we haven’t seen the half of it yet. But there’s no stopping it. Its here. Its working. As in, increasing numbers of people all over the world are exchanging value and expanding function. Powerful shit. This is beyond becoming a millionaire. This is about changing the way all digital information is exchanged. I just wish you wouldn’t dismiss it so quickly. I’m still gonna read your stuff and like most of it and still gonna scratch my head about your position on this and that’s totally fine.

        • Perhaps you should do the same – “why don’t you spend some time dissecting the technology and its applications. ” BitCoin is a singular application of blockchain technology. Its application has no protectable or bankable IP value as a derivation of open blockchain technology. It’s entire value is perspective based and has actually less real value than a Cabbage Patch Doll. Neither does private crytpocurrency applications probably represent even a fraction of the applications or application value that blockchain may bring about in the near term – especially in the management of national fiat currencies. What you are doing is conflating crytocurrency applications with blockchain technology as an inseparable whole – and that is where your error in analysis lies and why you don’t see its absurdity.

          There are already companies using blockchain technology to trace point of origin in food sources. That’s a practical application, and it has nothing to do with faith based value. It actually has a bookable service market value and has nothing to do with whether any of us “believes” in it, or not.

          • and a couple of things I would add to Durwood’s comment…

            there is no “lack of time spent dissecting” on my part. readers can very fairly call me a lot of things (arrogant, rude, etc.), but “intellectually lazy” ain’t one of them.

            so if i’m calling something “absurd” it’s because i’ve looked at it, read about it, and decided it’s absurd.

            people keep saying that no one on wall street understands cryptocurrencies and/or blockchain. and my response to those folks is always this: can you actually say you’ve read any of the analyst notes? and if the answer to that question is no, well then the follow up question is: ok, so how do you know they don’t understand it?

          • Gentlemen,
            I’m saying maybe its time to check your lense. Heisenberg, for a guy who spends a great deal of the day cataloguing the many small implosions of the existing world order, you seem a bit stuck on defending its vitality in the face of overwhelming technological change and social upheaval.
            The way we’ve been doing things is over. It just doesn’t know it yet.

            Sure, governments can create competing digital currencies and tie them to fiat but that’s like chaining your car to a bridge that is structurally unsound, moments from collapse, and then hanging a for sale sign on it. If nobody’s buying you can’t sell.

            I spend a great deal of time reading analysis and I keep seeing the same thing, an immutable impulse to measure the future through today’s lense. It seems you spend a great deal of time illustrating this very thing in every other corner of the market, just not crypto. AOK. You kicked tires and you’re not buying it. I won’t bring it up again. You do realize that for a crypto believer hearing all the trusty arguments against is an equal inverse.

            Durwood, I’m aware there is a growing effort to privatize the technology. I’m sure some of that will be successful and some not so much. What specifically that will look like we’ll just have to wait and see. Doesn’t mean Bitcoin or some other decentralized apps are going away. If they offer something in demand that gov crypto can not then they will obviously continue to flourish. As for physical gold, good luck hauling that over the mountain to the next watering hole if this whole thing goes up in smoke. Barter, dude. I’ll give you 3 shiny paperweights for all your potable water, food, sleeping bag, bullets, medicine and I’ll even throw in this Lamborghini I found with the keys in it.

        • Good video. Regarding Jamie Dimon’s uninvited public opinion on trading BTC, here’s a tweet from venture capitalist Alex Gurevich, former JPM head of global macro, on Sept 13 (when BTC traded at 3200, having doubled since then):

          “Jamie you’re a great boss and bank CEO. You’re not a trader or tech entrepreneur. Please, STFU about trading BTC.”

          But of course, because the firm Gurevich works with is involved with venture capital in tech, there’s possibly an ulterior motive for his tweet. You decide.

          • well, Jamie Dimon is like Godzilla. he doesn’t need an “invite” to appear in “public.”

            he just shows up when he wants to, stomps on whatever he wants to stomp on, and then walks off.

            and there isn’t really much you can do about it except try and pick up the pieces after he leaves.

      • quote “the government is going to give up their monopoly on printing the official means of exchange”
        I don’t think people are giving proper weight to that sentence.

        I don’t think your point about taxes is being fully appreciated either.

        For me the single surest sign of a bubble is the ‘this time is different’ defense.
        In this instance; this time is different because ‘insert reason here’ the government will give over its power to the people. Governments don’t do that (without a loaded gun to their heads) and this time will be no different.

        Can we start a pool as to what the government will use to justify the action? I want ‘it’s a conduit for terrorists financing’.

      • You could argue that in failing to adequately regulate the financial markets and such items as derivatives that anything resembling control of the money supply was lost a while back and even after it almost collapsed the economy there was no will to rein it in or let the offending parties fail. Maybe the Trump deregulation train will bring it under control?

        • I think the root of that problem is moral hazard, courtesy of the state. How can anyone expect the TBTF’s and SIFI’s to resist a setup like heads we win, tails the taxpayers lose… Rinse and repeat. End all the Central Banks puts, bailouts, sweetheart deals/loans/buybacks, TARPs, ESMs, etc.

          • The repeal of Glass Steagall was one of the worst moves ever.

            Other than that, what good is more regulation when even current regulation isn’t fully complied with and enforced due to:

            1) Insufficient regulatory enforcement staff;

            2) The regulators are in a conflict of interest because they all wanna go work in better jobss at the firms they regulate.

            Fucked up, it is. Greed is at the root. I get it, cuz I’m a greedy bitch too. So carry on as usual.

            Let’s start a pool….. How many weeks until the next big financial crisis?

          • Right, which is hard not to reconcile as the ceding of control of the money supply to for profit industry. Wallstreet invents a new form of financial asset backed by fancy maths, sells it as a high quality asset despite the reality for real money. Then when that “asset” evaporates into nothing the Fed has to step in and buy it at face value or at a minor haircut creating those new dollars from thin air.

            I fail to see how Bitcoin is likely to get the clamps while derivatives run free. It may happen but I see the state as having laid down at the altar of business so unless business decides to try to kill Bitcoin… I doubt the state will. Too many businesses are starting to see the appeal and if GS jumps on the Crypto train I fully expect the government to give it a pass.

          • Yeah, good point about GS… thanks. But I guess the thing to wonder about GS and bitcoin is, what’s their angle.

  2. What the BitCoin and the younger (ignorant and less experienced) cryptocurrency crowd doesn’t get is that when governments adopt blockchain technology (already underway) into existing government national currency management – they will have the same advantages of current private cryptocurrency plus the exchange utility and value of fiat currency – and none of the risks of private cryptocurrency. No one has a patent on blockchain technology and just the scale of major governments make them an overwhelming force when it comes to cryptocurrency technology development and implementation. On global scale economies – private cryptocurrencies make as much sense as private armies.

    Additionally cryptocurrencies represent non-existent hedges against fiat currency collapse because most assuredly the grid, the internet and cryptocurrencies will collapse together with the fiat currencies.. Cryptocurrencies are essentially about as good a hedge against an economic collapse as paper gold traded on an electronic exchange – also disappearing with a fiat currency collapse. Physical gold is at least psychologically better than any electronically dependent financial asset – in that you at least can physically hold on to it. Well, until someone forcibly takes it away from you. The risk of trading and or bartering physical gold after a fiat currency collapse and the civil chaos that historically follows such collapses – is equivalent to the most irresistible of death wishes.

  3. just to be 100% clear: i am not anti-Bitcoin. I don’t own any and I do think it’s going to zero. but i don’t have anything against it. I mean hell, there are dozens of stocks that i don’t own and think are going to zero too.

    and to be clear, I don’t think much of fiat money either. but the thing i do like about government money is not that i think it has intrinsic value (it doesn’t), but rather that everyone accepts it when i want to buy something with it. so you know, for me, that’s a big plus. lol

    🙂

    • For now. But fiat money requires confidence in the government. Such confidence comes and goes. Fiat currencies come and go.

      Currently that confidence is slowly waning. We witnessed a similar episode in 2011 during the first sovereign debt crisis in the Eurozone and US, culminating with the US Treasury bond downgrade and blow-out of yields in Eurozone periphery sovereign bonds. That was solved, or actually kicked down the road, by central banks’ interventions.

      During the 2011 wave of the sovereign debt crisis, gold & silver and commodities spiked. Perhaps the next wave has already started (sov bond yields appear to have begun a new uptrend channel).

      And this time the top beneficiaries of the cash flows are stocks and BTC, instead of gold and silver like last time. History doesn’t exactly repeat but it echoes. Technically, we’d expect this next wave to exhibit stronger price action than last.

      So that’s my brief backdrop on the sov debt crisis and assets including BTC. Plus as a trader (techs & fundies), I know BTC is a fuckin bubble, per one of my first posts here months ago after I bailed and then, like a mope, re-entered later at a higher price.

      Bubbles attract money like teenage girls attract boys (and middle-aged liberal democrats).

      Bubbles pop and then take a long time to recover but don’t usually go to zero. IMHO nothing short of fraud is likely to send BTC to zero. I don’t understand enough about BTC to really judge that nor therefore BTC’s absolute long term prospect.

      A scary thought is that financial peaks and manias usually accompany fraud somehow, but that’s no evidence that BTC is a fraud.

  4. Morning! Question for the no coiners… So, of the hundreds (yes, hundreds) in Saudi who’ve reportedly now had all their financials frozen around the world, how many do you suppose wish they’d had some bitcoin?

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