We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
Our Recent Essays Behind the Front Page
Friday, December 29. 2017
2017 was the "year ofBitcoin" and many ordinary Joes became millionaires, as a result. Some people believe this ride is over. Perhaps with Bitcoin it is (I do not believe it is, though 1,000% returns are definitely over for it...perhaps not for other cryptos, though), and at least one 'expert' thinks it is. I'm not an 'expert', but I've heard if you speak enough publicly about something, you can become one (not a joke, this is definitely true). So maybe I should speak more about cryptocurrencies and be an expert.
This much is true - I suggested cryptos could represent a move away from standard currencies and represent a new reserve, particularly for nations which aren't fond of the dollar. This seems to be exactly what is happening. Amidst all the speculative excess which surrounds some of them, there are more and more real-world firms adopting them, as well as the technology which surrounds their development. In fact, I have begun to find uses for blockchain tech in my own field, and we are beginning to pioneer new uses for it to defeat fraudulent activity (funny, because the one reason people fear cryptos is that they are often used to engage criminal activity. My son told me many of his friends who used to purchase illegal substances via the web used Bitcoin. I asked him how much they had left. He said none, they'd spent it all. I said "shows you how much value you get out of using drugs.") Point is, Bitcoin does have uses. I am aware of several people who entered the Cannabis growing business (legally, in states that allow it) and cater exclusively to cryptocurrency clientele.
But, there's more. Lately, several major banking interests have realized that there is a real-world use for cryptocurrencies. The cost of transaction and portability is as close to zero as you can imagine. While investing in gold is a good place to put your money for 'safety' - it turns out cryptos are far better. There's no cost of storage, and they are far more portable. In fact, one crypto (Ripple or XRP), has many mainstream banking clients using it.
I wish I had been smart enough to invest in Bitcoin four years ago. However, I had 2 boys in college and no spare income. That changed 6 months ago, and I had a little pocket change this year. So I invested in Bitcoin, Ethereum, LiteCoin, and went heaviest into Ripple. There's a reason for the Ripple choice. It's the one which has the most adoption on a wide scale in the mainstream. It lacks the 'illicit' attraction of Bitcoin. Finally, as Bitcoin and Ethereum dropped, I noticed the money seemed to be rolling over into Ripple. So I entered the crypto market 2 weeks ago. I guess I'm officially an 'expert' now.
As I said, I went heaviest in XRP, then Litecoin. Why Litecoin? Because the owner divested his 'coins'. He did so to avoid SEC issues, but also because for Litecoin to go mainstream, it can't have a single investor owning the vast majority of its 'currency'. Plus, it made him a billionaire. Still, Litecoin is going mainstream, and that means there will be more interest in it as time goes on.
While Peter Schiff seems to think cryptos are likely to head down, and people fear their volatility, there are other points to consider. Volatility in the stock market is literally non-existent. Why? Because the vast majority of volatility comes from new money entering a market, and from a high level of speculation. Speculation scares people, but speculation also adds a level of stability to a market. A market lacking in volatility is inherently unstable, perhaps as unstable as one which is excessively so. The cryptos which are, right now, highly volatile are simply engaging in 'price discovery' - the logical price at which they can trade reliably after their run-up. And before they can move (one way or another) again. My guess is they will still move up. All that is required is a single event which rocks people's faith in a currency, and several may just do that in 2018. Cryptos are quick and easy to get in and out of, and while they are a questionable store of value at the moment, they won't be for very long.
Other 'experts' think blockchain based currencies are only just starting out. And while I believed that four years ago, I believe it even more now that I've worked a bit with blockchain firms. Another reason I did not play the smart guy four years ago was due to the fact that I understood blockchain, but didn't 'get it'. In other words, I recognized what they did, but didn't feel it was widely recognized as a viable technology. One month ago, while testing some ideas to prevent fraud, the firm I was working with gave me a primer on blockchain that was 3 pages long. The light went on, and I suddenly realized why people are rushing into them. It was at that moment, I decided to 'get in' with a sum which won't hurt me if, in fact, I'm completely wrong. But I don't think I am.
The world is ready for this. The world needs it. Why? Because people no longer trust the 'good faith' which is the underlying value of a dollar. This is not a political statement, it's merely economic fact. The dollar is worth a fraction of what it was worth 100 years ago, because the Fed has engaged in a long, slow (sometimes fast) inflating of the economy through illusory means (money illusion), which is an effective way of transferring cash from the poor to the wealthy without them realizing it. Cryptocurrencies flipped that script, and guess who was left out? That's right, the wealthy (except for the Winkelvi, Winkelvoss, Winkelvosses?). There's a reason to worry about that - the government(s) WILL want to get involved. In fact, some already have, buying into the cryptos. However, the health of cryptos means being decentralized and not governed. Be wary when governments show up. Regulating them is a bad idea, particularly when you think about how poorly the government has managed its current 'store of value'.
My guess is there is still lots of room to run in the cryptocurrency revolution - and while 1,000% returns won't be likely for many of them (not even XRP, though I've got my fingers crossed), there are still a few doubles and triples out there for the discerning and intelligent investor.
Of course, it could all be as Peter Schiff suggests and they all go to zero. But I think that's a pipe dream, too.
Display comments as (Linear | Threaded)
Would like to see more of a discussion of this. Why should a medium or standard of exchange have a return especially 1000%. And in a snowstorm (or here in Florida, hurricane) how much is a cypto worth when the power and internet go off?
There are several reasons for the high rates of return. For one, they're not just mediums of exchange. They are also units of value - and as such, that value can fluctuate depending on popularity, much as the Euro or Yen fluctuates against the dollar. No - they don't gain 1,000%. However, they are also relatively pegged to each other AND each nation manipulates its currency to such an extent that growth of the supply is (over time) exponential.
Which is why a unit of value which has a limited supply (Bitcoin and its cousins all have very limited numbers of available 'coins' to use - much like there is a limited amount of gold in the world). So increases in the currency supply will yield increases in the 'value' of cryptos. More real world dollars, laid against never increasing amounts of cryptos = growth. Simple math.
A second reason is the lack of volatility in the stock and bond markets. Day traders need a place to trade. Without a place to go to have reasonable 'action' for speculation, the cryptos provide them a place to park their liquidity. This liquidity increases the 'value' of the cryptos.
A third reason is currency failure. Each nation, as its currency failed (Greece, Cyprus, etc.) yielded a need for people to export their money quickly, easily and without much friction (or oversight from the watchful eye of government). Cryptos are an EASY way to hide what you don't want the government to know you have - ESPECIALLY if the currency is collapsing and the government is imposing rules on the export of currency.
I could go on and on - but each example gives more reasons why the claim this is "Tulipmania" is simply a vast misunderstanding of what is actually going on.
EVERY claim laid against why cryptocurrencies are fake, unreal or not useful - EVERY claim - can also be made about 'real' currency.
Example - someone today asked me "Aren't you concerned about the fact that it's known North Korea is mining cryptocurrencies and selling them at a profit to fund their nation?" Answer - "No. Not any more than I was worried about the fact that North Korea is/was the largest single counterfeiter of $100 and $500 bills. If they've found a legitimate way to earn the cash they need, then all the power to them - it's better than worrying about how they've been undermining the dollar."
Another - "Aren't you concerned about cryptocurrencies being used to fund illicit activities like drug purhasing or prostitution?" Answer - "You mean the way the dollar (or any currency) is used to do this? What make cryptos worse or better in that regard?"
Another - "Aren't you concerned that cryptocurrencies aren't backed by anything?" Answer - "Tell me again what the dollar or the Euro are backed by? The 'faith and credit' of nations which are heavily in debt and printing currency to pay off that debt? Which is a more stable solution?"
Even economists of a certain (Austrian) bent recognize the value. Friedrich Hayek, long ago ruminating on the role of money in the economy pointed out that governments shouldn't control the money supply, that when banks created their own money and each currency competed, the market was able to determine which currencies were 'best' and most useful/meaningful in the market. When governments took over that role, is when inflation started being a problem of monumental proportions, and stock markets began bubbling.
Decentralized currencies are the future.
Thanks Bulldog for talking about this more. BTW one warning sign might be that more friends who know little about stocks etc are talking about bitcoin. As far as what are dollars etc backed by, while technically nothing, underneath they are backed by the taxpayers and people of the country putting the currency out. Milton Friedman has written a few things about how far people will go to support their money.
Interesting times and again thanks for bringing the topic up.
Usually I agree - if people who don't typically talk about something like the stock market suddenly start asking about particular stocks, you can usually take that as a sign of being near a market 'top'.
However, the very strange thing about cryptocurrency is that none of the pros have really paid much attention to them, considering them faddish or 'unreal'. I have friends in tech who don't do stocks but have been in cryptos for up to several years.
Seems to me the roles are possibly reversed here. Locally, I have many Wall Streeters living in my town. None really discussed this topic. I noticed, this past summer, that started to change. One at a major firm began discussing them with me at a party, less currency, more blockchain.
When the same topic suddenly cropped up at work, I realized something was changing.
Most of the growth of the cryptos, up until now, has been driven by foreign and/or illicit activity. As I mentioned, early on, Bitcoin was used for puchasing illegal activities and substances, and this attracted the first round of money. Then several currencies failed and caused the first huge run up, which attracted the attention of people who normally have no place to put their money.....until the relative anonymity of cryptos opened up a new opportunity. This, then, attracted the attention of day traders seeking volatility when none was available in the stock market.
I think we're only just starting to see the 'real' money showing interest in this. When you see nations using their central banks to manipulate or benefit from them (China, North Korea, South Korea and Venezuela are all playing in the space now, or trying to enter it/regulate it), then a fundamental change has taken place.
Couldn’t a heckler get in and wipe out all of the value of the crypto currency?
No, not without quantum computing power.
Which is a risk, but not quite yet. I assume this may be a risk that is solved before quantum computing is a thing.
My son has several bitcoins he got as a teenager through selling things to other players on online gaming. Then they were only worth a couple of bucks. Now he says they are worth well over $100,000 (before the latest downturn, though). But he said he's scared to try cash them in because he thinks the IRS will find out.
Actually, they won't. That's part of the "problem" the government has with these exchanges. Unregulated and outside the lines - the SEC is only catching up with them now.
That said, even if they did figure it out - he's not happy with the gains?
From what I've been reading up on it, crypos are considered property by the IRS. They need to find out so he can pay capital gains tax and enjoy the profits legally. Nothing to worry about except for Uncle Sam taking more than his fair share.
BTC is somewhere between
"Ride it all the way to ZERO, like Dr. Strangelove, BABY!"
I'm not foolish enough to outright say "You are wrong." It's quite possible the stock market could be a fool's errand.
However, I'd say based on my interaction with blockchain tech, and getting a handle on what banks are now using cryptocurrenices for now - the concept that they are all garbage is far from the truth. In fact, many banks are investing in the cryptos in a variety of ways simply because the costs of transaction, portability and exchange are pretty close to zero. They are excellent tools.
But, it could turn out to be this is a fad. I really don't think it is, not based on what I've been working on. It's become clear to me that in certain cases, cryptos offer the ability to transact quickly, cleanly and at a low cost per exchange. Discrepancies are nearly non-existent in exchanges utilizing cryptos.
You MAY turn out to be right. I sincerely think you'll find out you're wrong.
Judged by his known idiotic trajectory and other than as a fluke, Buch stands virtually no chance of being right.
There was an article on applying blockchain verification to the agri-food chain that clicked with me. Everyone knows how much fish's labels are faked in the stores. Restaurants, retailers and supermarket customers are very keen to know the provenance of the food.
Walmart did a dry run where it took 6 days with existing procedures to completely trace back a food item's origin. A block chain setup did it in 2 seconds.
A take those numbers with a large grain of salt but the potential here is obvious. I've family in the farming industry, not techies by a long shot, but this really piqued their interest in conversations over the holidays.
You can find the article here:
Comments by anyone knowledgeable in the field are very welcome.
This is all absolutely correct.
This is the same kind of solution we're applying in my industry to fight fraud.
There are issues of knowledge about passing along information - who you are purchasing from, and being sure that the source is reliable and who they say they are. Blockchain solves this issue in more ways than one.
Ditto, currently working on integration of blockchain technology in supply chain management in an industry where provenance of every nut and bolt is of critical importance.
How about posting that 3-page blockchain primer that made the light go on. I've been intermittently reading up on cryptos and blockchain, but I can't grasp what prevents counterfeiting, or someone just legally getting control and creating bajillions of them.
This is a bit more than a primer but it's one place to start.
I hear this MIT place is pretty good.
I worked in telecommunications and worked up from fundamental theoretical considerations (Shannon capacity and complexity theory for various channels) through to DSP implementation.
The whole blockchain idea seems to have just been built with no fundamental understanding of an underlying theory. That's interesting to me. There's a lot of work that could be done here. The limits we see today may not be actual limits in the principle but in implementation (beyond basic networking and capacity).
Bulldog (and others) I am curious what the longer term 'winner' is in the blockchain (broadly defined) space. There are three potential outcomes:
1) BTC (because of first mover advantage driven externalities and scale are more powerful than any limitations)
2) A currently existing competitor that offers improvements in some or all of those limitations (Litecoin, Ripple, Ethereum etc etc)
3) A yet to come crypto competitor with greater improvements than currently available.
If the answer is one, the outcome is obvious, buy BTC, and keep buying BTC. If the answer is 2, it is to figure out which one. I would like you to assume the answer is 3, and ask, what would you be looking for to determine which new crypto is worth getting into as a long term winner (not niche player).
The one I have my eye on (no way to play it yet) is hashgraph. It is a distributed ledger technology (DLT, broad definition of blockchain) but it accomplishes similar objectives in a different technical way (not a narrow definition blockchain) that may turn out to be a DLT that is superior than any of the existing implementations in terms of speed, computing power, and security. Right now it is in walled garden private implementations, not public. If you have thoughts on that, or things like that, I would be curious to hear about them.
I don't get notifications of comments on old posts anymore, but I happened to go back and look at this, so I saw your post (only been 4 days, so hopefully I'm not too late).
Bitcoin will continue to win as long as the price of computing power is less than the costs of mining. Once that threshold is crossed, Bitcoin's value will diminish. This is true of ANY cryptocurrency which currently uses blockchain technology and needs to be 'mined'. That doesn't mean they become worthless, though. It just means the value of 'mining' isn't offset by the value gained. People still mine gold, but many of the miners barely break even. The same will be true of BTC. I don't really know what happens as BTC reaches this point, but I have some thoughts.
1. Energy has long been undervalued as a means of value/exchange, yet it is ENTIRELY what modern economies are based on. So BTC and other cryptos have the ability to be the first TRUE modern economic currency linking what makes our productive capacity meaningful with the the value of that capacity.
2. The value created by cryptos will become so intense, it will fuel a need to 'find' or 'innovate' new energy resources that are cheaper. The upside, at that point, is limited only by the costs of whatever new energy resource is developed. Consider, the money created by a new crypto millionaire tossed into fusion tech the way Musk has funded Tesla and his space endeavors. We could be on the verge of real change.
3. New systems, developed from blockchain tech, but utilizing far faster computations and less energy, make a new crypto more valuable. In essence, this is what causes ANY currency valuable go up and down in value. A nation with a solid economy and strong fundamental has a strong currency. If it turns out it was developed through gimmickry and it loses its edge, it declines in value and prominence. The Yen in the 1980s and early 90s, for example. The Chinese Yuan today, shown to have risen to prominence on the back of questionable gimmickry, faces some hefty headwinds (which is why China is doing what it can to kill crypto competitors - they know the competition is legit and will expose their economy's flaws).
So I can't answer your question in terms of which of the 3 outcomes will 'win'. I will say I agree (to a degree) with McAfee that BTC will "go to a million" (maybe...but I think he overstated where it's going, at least in the near term). But others, like Ethereum ARE being adopted and used. Criminals are abandoning BTC as the privacy issue is overwhelmed with all the attention it gets. So BTC and Ethereum...yeah, they'll continue for a while.
Ripple (XRP) will keep going up. Here's why. While there is no 'value' to XRP, it's just a token and can't be used as a currency (yet), it has legitimate uses in banking and therefore will become more and more popularly used, even as some banks develop their own proprietary forms of XRP. Its recent run was speculative on the "Coinbase adoption" belief would drive it higher....until Coinbase said no (for now). However, its use IS a cost - and therefore XRP NEEDS to have a price against it for it to be determined as a valuable tool. That cost will vary based on how many banks use it AND how many transactions they process through it. Either way, it's not a traditional crypto, but it will have some incredible uses in traditional finance. It is groundbreaking in many ways.
I am not familiar with hashgraph - would love if you'd share where I can learn more?
So ultimately I'd lay 2 more outcomes:
4. New "money" growth will propel investment and innovation into new energy - thereby making the cryptos themselves more valuable (BTC and others)
5. The governments of the world crack down and make it all illegal (like the US did with gold at one time). Which, in my estimation, will make them EVEN MORE VALUABLE because that's what happens with black markets.
There's a 6th scenario - we suffer a major recession and the Fed pumps tons of dollars into the economy, yielding a slight bump which is temporary and meaningless. People flock to cryptos because THEY ARE more stable than a centrally controlled currency. They skyrocket and the economy recovers on the back of improved prospects of cryptos (think about how regions, during recessions, created their own 'currencies' like Ithaca Hours).
There is, of course, scenario 7, which I don't believe. It's all BS and eventually Schiff is right and you mark it to zero.
I really just don't see 7 happening. BTC was created in order to overcome the problems which lead to, and caused, the 2007/2008 meltdown - centralized mismanagement of money.
It is volatile because it is new, it is volatile because nobody understands it yet. But nobody understood the internet in 1992, either. Bill Gates called it a fad. 10 years later, he was scrambling to be relevant in a world he ignored.
I would suggest ignoring cryptos at your own risk. The current crop may not survive or thrive. I don't think that's true - but maybe they won't. Either way, why take that risk?
All I did was put a little in. Not more than I can afford to lose. If I'm right, I'm happy. If I'm wrong, I lose only a little. The reward to risk is high.
Cryptos ARE changing how the economy works - if only very slowly. Charles Hughes Smith wrote a year ago that if only ON TENTH OF ONE PERCENT of world financial assets moved into Bitcoin, it would hit $17,000. As of today, it's at $17,000.
As I said, I wrote my little bits 4 years ago - and I saw it then, but had no money. I missed a good chunk of the run. But I really don't think the run is over yet.
"Bitcoin will continue to win as long as the price of computing power is less than the costs of mining"
I thought a bit more about this. In a way, these are interrelated, so it's possible to say the price of computing IS the cost of mining. But mining yields payments of Bitcoin, so I should change cost of mining to profit of mining, since it's really the amount of BTC that is paid out that is the value of mining. In providing the computing power, if I get 1 BTC a day, and my cost of computing is only $1,000, then I'm getting a 16X return daily.
Very few areas in the US will give you that kind of return, but lots of areas outside the US will (mainly in nations with heavily subsidized energy). Even if BTC were valued at $1,000, there could be value in mining, because you're earning more coins and if you're also trading, you can benefit.