Bitcoin, The $28,000 Derivative Of Netizens’ Collective Imagination
I suppose I'd be remiss not to mention Bitcoin coming off a Christmas rally that saw the digital token hit $28,300 by the end of the holiday weekend.
If that makes you chuckle, you're not alone. Anyone engaged on the long side is probably giggling like a schoolgirl after watching the value of their make-believe holdings skyrocket -- laughing straight to the bank, as it were.
Meanwhile, traditional investors and traders unwilling to dabble in what, at the end of the day, is just an amorphous de
Like most investors, I have done my best to ignore the temptations of Bitcoin. Thanks for your support.
Again, though, note that I’m not necessarily saying that everyone should avoid it. In fact, I’m saying the opposite. For certain subsets of people, it makes sense. But the issue, from my perspective anyway, is that the number of people who think they fall into those subsets is much larger than the number of people who actually do. Mistaking yourself for one of the people for whom Bitcoin is appropriate can lead to huge, giddy gains, but if it wasn’t appropriate for you in the first place (i.e., if you misjudged yourself initially), the volatility could cause severe psychological distress, especially considering it trades around the clock and there’s nobody there to step in (i.e., a circuit breaker) if it just decides, out of the blue, to plunge 50%.
Ironically, I’m far better positioned than most people to dabble in it, but I don’t, because I don’t need that in my life. There are activities that are capable of producing similarly large monetary gains (in % terms), but they too come with considerable amounts of stress, and are not generally appropriate for the vast majority of people. 🙂
… which is why I’m professionally invested in BTC but not personally. I’m yet to build the real estate portfolio exposure I think I need (to replace fixed income) so my equity allocation is tiny and my BTC allocation is zero.
Professionally, I work for people far richer and the calculus is noticeably different.
just allocated 1-5% of your liquid net worth to it based on your risk tolerance and cash flow needs and be done with it. Thats my approach anyway. If it goes to zero that sucks but not a huge deal. If it goes to 100k, I’m plenty happy.
I’d be even less happy, if every dollar I had was worth 0.00001 bitcoin.
Exactly. Just allocate 1% of NAV, or less, or whatever.
For those who go in and don’t have the nerve, take out your original capital when, or if, it doubles. Pay your taxes, and just let the rest ride.
I see it as an opportunity. Speculations with the asymmetry present in this trade don’t come around often, speaking as someone who doesn’t use options. (Yes, shares of OXY I can buy in my brokerage account might be a 5x from here.)
Re regulation, it’s a good thing. The scrutiny of Ripple is a good thing. KYC is welcomed. The recent release of FinCen intentions about 10 days ago (with a 15-day comment period!) is rushed and all do hope Treasury gets it right.
…clean out a “bad actor” or two, send a message, regulate the space, make reporting to the IRS by exchanges required, approve the ETF, launch the ETF.
I’m with H …..on this one…. Doesn’t much matter about outcomes I just don’t like being herded by artificial circumstances that create the likes of Bitcoin and you can include Tesla and a half dozen recent startups.
I used to think of markets as an intellectual pursuit but things change from time to time and euphoria surfaces it’s head.. Gotta’ learn to duck when the s–t is flying .. On the sarcastic note …’you want a bear market in some of this I can accommodate you all by changing my mind and buying LOL !!!
Why doesn’t anyone seem to notice that bitcoin and its mini-mes only have substance when their value is expressed in dollar terms? I’ll take the dollars; others can take the air.
The ballooning supply of USD indicates that modern currencies float completely on air.
If you spend a few hundred dollars on a Bitcoin ASIC, you can create bitcoins for about 4-7 thousand dollars per coin in electricity depending on where you live. Most of the big mines are in China and the mining consumes a large percentage of worldwide power generation. The longer the price remains substantially above $10K, the more people that will be enticed to start mining bitcoins.
As someone who has a pathological distaste for inefficiency and waste, that fact about bitcoin and its ilk has always gotten under my skin more than any other: it demands massive power dissipation to provide a service that goldsmiths and governments have delivered for millennia for peanuts.
There’s a crypto-geek answer to that problem, of course: proof-of-stake algorithms, where the network votes on how to move forward based on who owns how much, instead of who’s willing to throw away CPU cycles to solve meaningless hard problems (aka proof-of-work). However, proof-of-stake has had a rocky start because it is a kind of distributed consensus, and it turns out that secure voting at scale without central authority is HARD.
Goldsmiths and governments have never delivered anything for peanuts.
Pyramid scheme in the Emperor’s new clothes.
Many people make money on pyramid schemes, far more lose.
The thing I am most intrigued about is the impact that Quantum computing will have on the encryption underlying Bitcoin security. When one of the emerging Quantum computers can perform, in minutes, what today’s super computers require a year or many more to do, well, it is interesting. No?
Jeff, yes; however, the function that bitcoin etc are based on — the hash function — is notoriously resistant to quantum cryptanalysis so far. Things may change but it’s not a slam dunk.
Additionally the underlying code for bitcoin is subject to modification and should a quantum cpu emerge with sufficient working capacity the code would be altered rapidly for fear of it destroying the chain. The chain fails only if the community decides to let it.
Thank you for the article. A rare piece on bitcoin that is built upon rationality.
What strategies do you think high profile investors such as Michael Saylor, Ruffer LLP and Paul Tudor Jones are trading for bitcoin?
Each bought bitcoin on a different thesis (MS spends 99% of his time on youtube championing BTC as the next big thing) and Ruffer LLP says it is a “defensive move”. However, their entry prices are just slightly above 10,000 USD.
Do you think they are trading opportunistically, long term or just creating their own ponzi?
Kinda hard to answer without looking into their minds, but I would assume somebody who is talking his own book on youtube acts opportunistically at least.
For somebody like Ruffer or PTJ it probably makes sense to allocate a small percentage of AUM to BTC for reasons indicated above.
Somehow, personally, I cannot imagine somebody “investing” in BTC for the long term, as it does not constitute an “investment” my eyes (it is not an asset, offers no yield, equivalent to gambling on appreciation).
But that is just me.
Whatever Bitcoin is , It is not a currency. There are no governments that accept it for settlement of tax liabilities.
And it’s volatility precludes it from being a viable means of exchange. Example if you bought a $20,000 car at beginning of 2019 and paid for it with Bitcoin you would have paid for it an equivalent of $128000 for it in today’s Bitcoin price.
Not a currency and not a means of exchange but definitely figment of imagination.
I just keep recalling when The Hunt Brothers tried to corner the silver market- could we get a “Bitcoin Thursday”? LOL
Going long Bitcoin is a bet on human stupidity, definitely worth a small allocation after seeing my wife’s tik tok.
This is probably the best bull thesis I’ve heard.
What can be said about bitcoin that can not also be said about gold, which has been around as a store of value since before the dollar? In other words, why can’t bitcoin be used as a store of value in perpetuity, gaining when the dollar falls and vice versa just as gold has. Gold might be a greater fool theory but it doesn’t matter because it worked as a trading vehicle before any of us were alive and will likely work long after we are all gone. I don’t understand Ray Dalio’s criticism of bitcoin while embracing gold.
Gold has been a medium of exchange for thousands of years. It is stable (not in terms of price relative to fiat currencies, but in terms of physical appearance), can be stored, split up, etc. with relative ease.
Bitcoin replacing gold as a safe haven would require literally billions of people (think India, for example) changing their minds about the merits of owning BTC as a “store of value”. So far, given the absurd volatility of BTC, it is not, by any means a “store of value”.
Plus, BTC is hardly able to replace gold as a “doomsday hedge”. I am neither a gold bug nor a doomsday prepper (frankly I chuckle when reading about people preparing for the imminent collapse of the entire “system”), but if there ever should be a situation in which the entire monetary and societal system breaks down the last thing I would stock up on would be non-tangible virtual tokens which require a stable internet connection to trade the much-needed canned goods for.