Bitcoin The False God.

Some folks did not take Jack Bogle’s advice.

On Tuesday, the father of indexing delivered a pretty straightforward assessment of Bitcoin. “There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it,” Bogle said, in response to a question at at a Council on Foreign Relations event in New York. In case that was in anyway unclear, he continued: “Avoid bitcoin like the plague. Did I make myself clear?”

Well actually, no Jack. No, you did not “make yourself clear.” Because this (block)chain of fools not only drove Bitcoin through $10,000 late Tuesday, but actually “succeeded” in furiously buying a post-10,000 dip (which you’ll note took it right back to the edge of the “magic” number) on the way to pushing it up near $11,000 by early Wednesday morning:

In short, greater fools abound.

As usual, skeptics abound as well. Take Nobel Prize-winning economist Joseph Stiglitz, for instance, who told Bloomberg TV that “Bitcoin is successful only because of its potential for circumvention [and] lack of oversight.” That, he says, means “it ought to be outlawed” as it “doesn’t serve any socially useful function.”

Of course that’s not entirely true. There’s some social utility in minting millionaires which this is clearly doing, the only problem is that it seems like most of them don’t realize the irony there. Inherent in the idea of “a millionaire” is the idea that Bitcoin can be converted into fiat money. So if you are rich thanks to Bitcoin, it is only in the context of how many dollars, euros, etc. that Bitcoin can be converted to. Without that conversion, you don’t have anything. As Jack Bogle correctly notes, this isn’t backed by coupon payments or dividends or a history of serving as a store of value and as far as being a “currency”, it’s not backed by tax revenues or a government backstop and there’s no lender of last resort.

In short, it’s not real. The only sense in which this is real is in the context of the very thing it’s supposed to be supplanting – i.e. fiat money. There’s an inherent contradiction there that a lot of people don’t seem to fully grasp.

Meanwhile, this is becoming something akin to a religion. And I’ll show you what I mean.

So this is Andreessen Horowitz board partner, CEO of Earn.com, and guy who you wish would quit smiling at you like that, Balaji Srinivasan:

Have a look at this cult-ish series of tweets he unleashed over the past 15 or so hours following Bitcoin’s ascent above the $10,000 mark:

Ok, so a couple of things there. What he says about “the point” not being to “make money” but rather being to “prove them wrong” is a classic sign of a bubble. If I’ve said this once, I’ve said it 100 times: when the thesis becomes more important to people than the trade, it usually spells trouble. At this point, it does not matter who is “right” and who is “wrong” about the future of Bitcoin if you’ve been riding this thing up. Relatedly, you are not conceding that the skeptics are “right” if you cash out a millionaire. In that scenario, the person who is “right” is you, because you are now rich and assuming you go ahead and convert that digital currency to actual currency, no one can take it away from you. So maybe Balaji stays in and becomes a trillionaire thus making you a pauper by comparison, but who cares, right? Who’s going to see your Ferrari at the gas station and say “that’s nice and all, but Balaji just bought a skyscraper”?

And then there’s Balaji’s contention that somehow the price of Bitcoin is not really a “price” as much as it is some kind of real-time momentum indicator for the “strength of an ideological movement.” That’s just fucking crazy. Sorry. If the price of Bitcoin “quantifies the strength” of something, it’s the strength of the speculative mania. How many of the people trading this thing do you really think are concerned about “the ideological movement?” In the same vein, how many of the 100,000 accounts that were opened on Coinbase between Wednesday and Friday of last week do you think were opened by people for whom the price of Bitcoin is just a secondary concern? That is, if you polled those people, what percentage of them would say they got in because they are interested in expressing their support for the “ideological movement”?

Also note the creeping tendency for proponents of this to characterize everything in terms of “us” versus “them”. Who exactly is “them”? I mean I get that this to a certain extent represents a rebellion against “the system”, but because “them” can shut this down overnight if they choose to, it’s not entirely accurate to describe this in “us versus them” terms. I hate to burst the bubble (figuratively in this context) but this is only continuing because “them” allows it to. So in that respect, “them” is in on it.

Finally, that bit where Balaji imagines that blockchain magnates are going to band together and form some kind of modern day Vienna Circle comprised entirely of crypto trillionaires is so ridiculous as to be laughable.

Meanwhile, as I wrote this, Bitcoin took another sharp leg higher to hit $11,200:

Let me just leave you with one more quote from Joseph Stiglitz:

It’s a bubble that’s going to give a lot of people a lot of exciting times as it rides up and then goes down.