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:

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:

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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