Tag Archives: bitcoin

Price is set at the margin

Posted on November 19, 2018 | 2 comments

Bitcoin is not money. Gold IS money because its marginal utility does NOT decline. Read an excellent short article: https://monetary-metals.com/the-ultimate-stablecoin-report-18-nov-2018/

We have covered several times Warren Buffet’s pointed (and disingenuous) comment that gold has no utility. It just sits, and there is a cost for it to sit. And an opportunity cost.

So why do people buy something which has no utility and no return? One, which we discuss a lot, is speculation. They buy whatever’s going up, in an attempt to cash in on the rise. So let’s not dwell on this.

A second reason is fear of counterparty default. Third, is gold is a non-expiring hedge for monetary collapse and/or a currency regime change. This is a broader version of simple counterparty default.

Right now, General Electric is in the news. Its investment grade rated bonds are trading like junk bonds. This is like an echo from the past. Bear Sterns retained its investment-grade rating until just before its demise.

GE has about $115 billion in debt. If it defaults, that could put fear into a lot of investors. They will certainly buy Treasury bonds (which are defined as risk free). Will they buy gold, which is the only financial asset which is truly free of default risk? Maybe.

However, in addition to GE we know that a significant fraction of bonds out there are issued by so-called zombie corporations, whose profits are less than interest expense. Rising interest rates can only have increased the percentage, though the increased cost kicks in with a lag (as each bond matures and must roll). In addition to the problem of rising default risk from these companies, there is the risk if enough hits at once, that the credit market they depend on, goes no bid again as it did in 2008.

Of course, if their bonds are impaired then their equities are worthless. Stocks will be crashing in this scenario.

We raise the issue of price being set at the margin to make a point. In this scenario, the marginal buyer of gold will not be the speculator. It will be the mainstream investor who is desperate to protect himself from a financial system going mad again.

When will this happen? Watch for news of GE and other major debtors sinking deeper into trouble.

As to systemic default risk, i.e. monetary collapse, it’s early yet. There are some peripheral currencies like the bolivar and lira that could go away soon. But their troubles are widely known, and visible far in advance. We would not expect their demise to have much impact on the world’s monetary order (though of course it is horrific for the people who live in Venezuela and Turkey).

Other currencies are also in trouble—we have written a lot about the franc. It is impossible to predict the timing of such a thing, though our gut feeling is that it is still a ways out.

As to the de-dollarization, loss-of-reserve-status, end-of-petrodollar, gold-backed-yuan, SDR-to-replace-USD ideas, we say: rubbish. The dollar will get stronger from here, if not in terms of gold then as measured by other currencies. Panicky people in Istanbul do not think “let me buy Brazilian reals, Russian rubles, Indian rupees, and Chinese yuan” because someone coined the glib term “BRICs”. They do not think “I will buy me some Saudi riyal because, petro.”

They buy USD.

So we end on a conclusion we have reiterated many times. When gold goes to $10,000 it is not gold going up. It is the dollar going down.

It is inevitable that the dollar will go down. Keith just gave a talk at an Austrian economics conference in Madrid “There Is No Extinguisher of Debt” (paper to be published soon). The collapse of the dollar is baked into the mathematics.

People could buy gold today at an 88% discount from that price. But do yourself a favor. Watch any politician on TV. Watch a Republican promise to “grow our way out of the debt”. Or watch a Democrat promise a free university education to everyone. Watch even many libertarians promote a Universal Basic Income(!)

If you think they don’t understand, you are right. But the vast majority of voters support these politicians. The voters, too, don’t understand. And the investors too.

Buying gold is a non-expiring hedge. But only people who perceive a need to hedge, will buy the hedge. The rest may think that stocks are a bargain here, being down almost 7% from the high last month. So far in this incredible boom following the crisis, every time people who bought the dip were rewarded.

Are we getting close to the point where it won’t be? If GE is any indication, if GE will have a contagion effect (remember that word?) then the answer is likely yes.

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Bitcoin, Blockchain, and Money

Posted on June 2, 2018 | 3 comments

Another interview with Caitlin Long

https://caitlin-long.com/

  1. Blockchain for Dummies
  2. Repo_Markets_Handbook
  3. Repo3

Free Course: https://mises.org/library/economics-bitcoin-primer

But THE book to get, read, and study is

AMAZON REVIEW

This book is the missing treatise on “Why Bitcoin?”. It is not technical from a coder’s point of view; however, it is technical on its treatment of economics.  If you never heard of Bitcoin. If you are a long-time holder of Bitcoin. This book is for you.

The book fills a gap on three fronts. First it helps those of us who became enamored with Bitcoin through individual and economic freedom explain our viewpoint in a succinct manner. Second, it serves as a philosophical on-ramp to the multitudes of speculators who flooded into Bitcoin in the past 6 months or so. It provides them a concrete reason to transform their time-preference (a key economic theme in the book) from trader to HODLer. Lastly, it is for people who have never heard of Bitcoin or have heard of it but don’t know or understand much about it. It provides these folks with the very best reason for converting at least some of their government-backed fiat money into the sound/hard money of Bitcoin.

Another overriding theme in the book is security. Without it there is no such thing as financial freedom. Near the beginning of the book Ammous explains:

“Should you come out of reading this book thinking that the bitcoin currency is something worth owning, your first investment should not be in buying bitcoins, but in time spent understanding how to buy, store, and own bitcoins securely.”
This is without a doubt the best advice one could possibly give regarding Bitcoin.

In reading the book you may find yourself wondering when he’s going to start getting to the Bitcoin part. The first seven chapters barely mention Bitcoin. Instead there is a gradual discussion of money and economics, including the various popular schools of economics. Ultimately, the conclusion is that Austrian Economics provides the fundamental basis of “Why Bitcoin?” In fact, those of us already schooled in Austrian Economics should celebrate the existence of this book. It can potentially spread the common-sense Austrian view to multitudes of people who otherwise would never learn of it.

If you know someone who bought bitcoins for speculation or to make some quick money buy this book for them and force them to read it. You may even have to go all “Clockwork Orange” on them, strapping them to a chair and pinning their eyes open. They may scoff at first, but they’ll thank you later (yet another benefit of having a low time-preference).

“The Bitcoin Bible”… er.. I mean “The Bitcoin Standard” is essential to read and understand for anyone even remotely interested in Bitcoin. Read it. Then read it again. Then pass it around to everyone you know and if they are reluctant, figure out non-violent ways to get them to read it. So, you probably shouldn’t resort to the “Clockwork Orange” method mentioned above. Just find a way.

If Roger Ver can be “Bitcoin Jesus” (or more accurately “Bitcoin Judas” at this point) then Saifedean Ammous is a “Bitcoin God”. Read his bible with the highest time preference so you can learn to have a low time preference when it comes to Bitcoin itself. BTFD and HODL!

Deja Vu for “Value” Investors https://www.dollarcollapse.com/value-investors-endangered/

Bitcoin is a speculation:https://www.ineteconomics.org/perspectives/blog/jim-chanos-cryptocurrency-is-a-security-speculation-game-masquerading-as-a-technological-breakthrough

GABELLI ON INVESTING TODAY

https://www.youtube.com/watch?v=Cxj2TqRvTT8

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Bitcoin: the World’s Largest Pump and Dump in History. Who Knew?

Posted on April 26, 2018 | Leave a comment

The clues and facts add up. Let’s sit and think for a minute:

In what rational universe could someone simply issue electronic scrip — or just announce that they intend to — and create, out of the blue, billions of dollars of value?

Bitcoin tangent

Did you guys notice something really interesting? The financial guys that really love bitcoin are some of the guys that either blew up or closed funds due to poor performance. The two most prominent fund manager bitcoin boosters are like that. It almost feels like they are so happy to have found their Hail Mary pass. And the most prominent guys that have good performance and didn’t blow up tend to be the guys that don’t like bitcoin and think it’s stupid, a bubble or whatever.

Think about that for a second. Oh, and that former hedge fund guy, after bitcoin plunged put his new bitcoin hedge fund on hold (buying high and selling low?). Now wonder he didn’t do well with his hedge fund; if you’re going to be making decisions based on short term volatility like that, you are bound to get whipsawed and lose money.

This is interesting because we can never really understand and know everything. But it is useful to know who you can listen to and who you should ignore. Sometimes, this saves a lot of time! From http://brooklyninvestor.blogspot.com/

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Monday, April 30, 2018
Warren Buffett: Bitcoin is Gambling Not Investing

In an exclusive interview with Yahoo Finance in Omaha, Neb., leading up to Berkshire Hathaway’s annual shareholder meeting, which will be held om May 5, Buffett laid out his latest thinking on cryptocurrency investing. He nailed it.

“There’s two kinds of items that people buy
and think they’re investing,” he says. “One really is investing and the other isn’t.” Bitcoin, he says, isn’t.

“If you buy something like a farm, an apartment house, or an interest in a business… You can do that on a private basis… And it’s a perfectly satisfactory investment. You look at the investment itself to deliver the return to you. Now, if you buy something like bitcoin or some cryptocurrency, you don’t really have anything that has produced anything. You’re just hoping the next guy pays more.”

When you buy cryptocurrency, Buffett continues, “You aren’t investing when you do that. You’re speculating. There’s nothing wrong with it. If you wanna gamble somebody else will come along and pay more money tomorrow, that’s one kind of game. That is not investing.”

Buffett’s point is that the assets he lists such as a farm, an apartment house, etc., generate income. Bitcoin does not.

I would add there is another type of asset people hold and that is money. As Ludwig von Mises taught us, money is the most liquid good and people hold because of this liquidity. They know they can instantly exchange it, at a fairly stable price, nearly anywhere for goods and services.

This is where Bitcoin and other cryptocurrencies fail in the money category. They are from an instrument at present that can be exchanged for any good or service and they are far from stable in price. Many people who have purchased Bitcoin over the last 6 months have lost as much as 50% of their purchasing power. That is not a stable asset, not even when compared to the U.S. dollar which is run by the Federal Reserve in crony reckless fashion.

Moreover, the idea of a world where a cryptocurrency is the world’s medium of exchange is a frightening notion. It is quite simply a remarkable way for government to track all transactions and prohibit transactions in specific books and other goods that it doesn’t want individuals to buy.

The idea that the government can’t track Bitcoin is a delusion view held by Bitcoin fanboys.

The Intercept recently reported:
Classified documents provided by whistleblower Edward Snowden show that the National Security Agency indeed worked urgently to target bitcoin users around the world — and wielded at least one mysterious source of information to “help track down senders and receivers of Bitcoins,” according to a top-secret passage in an internal NSA report dating to March 2013. The data source appears to have leveraged the NSA’s ability to harvest and analyze raw, global internet traffic while also exploiting an unnamed software program that purported to offer anonymity to users, according to other documents.
Although the agency was interested in surveilling some competing cryptocurrencies, “Bitcoin is #1 priority,” a March 15, 2013 internal NSA report stated.
-Robert Wenzel

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What is money Bastiat?  If you understand money, then the Bitcoin Scam becomes obvious.

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Bitcoin is the greatest scam in history
It’s a colossal pump-and-dump scheme, the likes of which the world has never seen.

By Bill Harris Apr 24, 2018

Okay, I’ll say it: Bitcoin is a scam.

In my opinion, it’s a colossal pump-and-dump scheme, the likes of which the world has never seen. In a pump-and-dump game, promoters “pump” up the price of a security creating a speculative frenzy, then “dump” some of their holdings at artificially high prices. And some cryptocurrencies are pure frauds. Ernst & Young estimates that 10 percent of the money raised for initial coin offerings has been stolen.

The losers are ill-informed buyers caught up in the spiral of greed. The result is a massive transfer of wealth from ordinary families to internet promoters. And “massive” is a massive understatement — 1,500 different cryptocurrencies now register over $300 billion of “value.”

It helps to understand that a bitcoin has no value at all.

Promoters claim cryptocurrency is valuable as

(1) a means of payment

Bitcoins are accepted almost nowhere, and some cryptocurrencies nowhere at all. Even where accepted, a currency whose value can swing 10 percent or more in a single day is useless as a means of payment.

2. Store of Value.

Extreme price volatility also makes bitcoin undesirable as a store of value. And the storehouses — the cryptocurrency trading exchanges — are far less reliable and trustworthy than ordinary banks and brokers.

3. Thing in Itself.

A bitcoin has no intrinsic value. It only has value if people think other people will buy it for a higher price — the Greater Fool theory.

Some cryptocurrencies, like Sweatcoin, which is redeemable for workout gear, are the equivalent of online coupons or frequent flier points — a purpose better served by simple promo codes than complex encryption. Indeed, for the vast majority of uses, bitcoin has no role. Dollars, pounds, euros, yen and renminbi are better means of payment, stores of value and things in themselves.

Cryptocurrency is best-suited for one use: Criminal activity. Because transactions can be anonymous — law enforcement cannot easily trace who buys and sells — its use is dominated by illegal endeavors. Most heavy users of bitcoin are criminals, such as Silk Road and WannaCry ransomware. Too many bitcoin exchanges have experienced spectacular heists, such as NiceHash and Coincheck, or outright fraud, such as Mt. Gox and Bitfunder. Way too many Initial Coin Offerings are scams — 418 of the 902 ICOs in 2017 have already failed.

Hackers are getting into the act. It’s estimated that 90 percent of all remote hacking is now focused on bitcoin theft by commandeering other people’s computers to mine coins.

Even ordinary buyers are flouting the law. Tax law requires that every sale of cryptocurrency be recorded as a capital gain or loss and, of course, most bitcoin sellers fail to do so. The IRS recently ordered one major exchange to produce records of every significant transaction.

And yet, a prominent Silicon Valley promoter of bitcoin proclaims that “Bitcoin is going to transform society … Bitcoin’s been very resilient. It stayed alive during a very difficult time when there was the Silk Road mess, when Mt. Gox stole all that Bitcoin …” He argues the criminal activity shows that bitcoin is strong. I’d say it shows that bitcoin is used for criminal activity.
In what rational universe could someone simply issue electronic scrip — or just announce that they intend to — and create, out of the blue, billions of dollars of value?

Bitcoin transactions are sometimes promoted as instant and nearly free, but they’re often relatively slow and expensive. It takes about an hour for a bitcoin transaction to be confirmed, and the bitcoin system is limited to five transactions per second. MasterCard can process 38,000 per second. Transferring $100 from one person to another costs about $6 using a cryptocurrency exchange, and well less than $1 using an electronic check.
Bitcoin is absurdly wasteful of natural resources. Because it is so compute-intensive, it takes as much electricity to create a single bitcoin — a process called “mining” — as it does to power an average American household for two years. If bitcoin were used for a large portion of the world’s commerce (which won’t happen), it would consume a very large portion of the world’s electricity, diverting scarce power from useful purposes.

In what rational universe could someone simply issue electronic scrip — or just announce that they intend to — and create, out of the blue, billions of dollars of value? It makes no sense.

All of this would be a comic sideshow if innocent people weren’t at risk. But ordinary people are investing some of their life savings in cryptocurrency. One stock brokerage is encouraging its customers to purchase bitcoin for their retirement accounts!

It’s the job of the SEC and other regulators to protect ordinary investors from misleading and fraudulent schemes. It’s time we gave them the legislative authority to do their job.

William H. Harris Jr. is the founder of Personal Capital Corporation, a digital wealth management firm that provides personal financial software and investment services, where he sits on the board of directors.

Read full article here: https://www.recode.net/2018/4/24/17275202/bitcoin-scam-cryptocurrency-mining-pump-dump-fraud-ico-value

COUNTER-ARGUMENT:  https://www.forbes.com/sites/ktorpey/2018/04/24/founding-paypal-ceo-bill-harris-says-bitcoin-is-a-scam-heres-why-hes-wrong/2/#2d9379a166b9

Where have we seen this type of behavior before?

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UPDATE: Friday April 27th 2018

Read: http://thecharlieton.com/whitney-tilson-why-the-hell-didnt-i-listen-to-charlie-munger/

Lesson be humble about what you attempt.

Below is an email from Whitney Tilson from Kase Learning announcing his:

Program Guide-Kase Learning Short Selling Conference-May 3,__ 2018

Attached is the program guide, which includes an agenda for the day and bios of all of the speakers. Registration and continental breakfast begin at 7:15am, the first speaker is at 8:15am, there are morning, lunch and afternoon breaks, and the last speaker ends at 4:15pm, followed by a networking cocktail reception until 7:00pm. The NYAC is on the corner of Central Park South and Seventh Avenue, and it has a dress code – no jeans, shorts, sneakers or t-shirts.

This full-day event is the first of its kind dedicated solely to short selling and will feature 22 of the world’s top practitioners who will share their wisdom, lessons learned, and best, actionable short ideas. I’ve seen many of the speakers’ presentations and they’re awesome! Companies that will be pitched include Tesla, Disney, Kraft-Heinz and Stericycle, plus internet ad fraud and gold.

The idea for the conference is rooted in the fact that this long bull market has inflicted absolute carnage on short sellers, and even seasoned veterans are throwing in the towel. This capitulation, however, combined with the increasing level of overvaluation, complacency, hype and even fraud in our markets, spells opportunity for courageous investors, so there is no better time for this conference.

Reporters from all of the major media outlets will be there, and CNBC is covering it as well. I was on their Halftime Report yesterday discussing the conference: www.cnbc.com/video/2018/04/26/kases-whitney-tilson-talks-the-art-and-pain-of-short-selling.html. I also just published the fourth, final (and my favorite) article in a series I’ve written entitled Lessons from 15 Years of Short Selling: https://seekingalpha.com/article/4166837-lessons-15-years-short-selling-veterans-advice

I’d be grateful if you’d help spread the word about the conference among your friends and colleagues, and wanted to pass along a special offer: when they register at http://bit.ly/Shortconf, they can use my friends and family discount code, FF20, to save 20% ($600) off the current rate.

I look forward to seeing you next week!

Sincerely yours,

Whitney Tilson
Founder & CEO
Kase Learning, LLC
5 W. 86th St., #5E
New York, NY 10024
(646) 258-0687
WTilson@KaseLearning.com

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Kiril Sokoloff; Bitcoin Investing

Posted on December 31, 2017 | 7 comments

An agnostic interpreter of what the markets are telling us.
CSInvesting: Note how he understands the cycles in commodity prices (oil)

Explore extensively here: http://13d.com/news.html#kiril-interview

I recommend listening to the interviews several times over the next few days. Note how you can apply what he says.  His understanding of European history (many centuries of horrific wars) will probably mean that many European states will want to remain in the European Union–thus, a weaker dollar than expected.

Note the date Dec 2016

Funny!

Munger rips bitcoin

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Multiple Delusions: Paper Wealth, A Booming Economy, and Bitcoin

Posted on December 19, 2017 | 2 comments

Let us not, in the pride of our superior knowledge, turn with contempt from the follies of our predecessors. The study of the errors into which great minds have fallen in the pursuit of truth can never be uninstructive.”
– Charles Mackay

Extraordinary Popular Delusions and the Madness of Crowds

A good read on investor psychology by John Hussman: https://www.hussmanfunds.com/comment/mmc171218/

Be careful not to blindly label every steep chart a bubble; it leads to sloppy thinking.

Just remember what the current stock market feels like with its low volatility and steady rises because this is what a bear market FEELS like (Video link):

https://youtu.be/X-bogN0V8RM?t=1m56s

Why Ackman struggles:https://www.institutionalinvestor.com/article/b15ywsstynx8fm/whats-eating-bill-ackman     Hint: he overpays.

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Intrinsic Value–Objective or Subjectively Determined? Bitcoin

Posted on December 14, 2017 | 6 comments

A Discussion about Whether Austrian Economists and Value Investors Agree on How Intrinsic Value is Determined.

CSInvesting: Understand that Intrinsic Value is SUBJECTIVELY determined while prices are set by the marginal buyer and seller.  All an investor does is compare price to value.

Essentially, value investing focuses on the comparison of a good’s intrinsic value and its market price and recommends investing in it as long as the asset’s value exceeds its price given a margin of safety.

The first article says in summary: value investing and Austrian economics are nevertheless incompatible, particularly given that value investing’s definition of value contradicts the Austrian value concept.

End-the-Myth-On-Value-Investing’s-Incompatibility-with-Austrian-Economics-by-Olbrich-et-al   I would skim this article.

An Austrian economist who is also a value investor, Chris Leithner rebuts the above statement: “Value investors’ conception and assessment of value are congruent with the Austrian School’s.”

“A value investor” measures value by one of two methods:

  1. First, he/she values a company according to the external prices of its assets. He/she observes, for example, that X Ltd owns quantity Y of land, and that such land has a market price of $Z per hectacre.
  2. Second, the value investor makes plausible (based, perhaps, upon past experience and/or domain specific expertise) assumptions about a company’s future cash flows and, using some rate, discounts them to the present.  He might do these calculations in his head or on a spreadsheet.

The Hinge between the theory of Value and the Practice of Value Investing.

John Burr Williams in his The Theory of Investment Value, 1938 wrote, “With bonds, as with stocks, prices are determined by marginal opinion…..Concerning the right and proper interest rate (discount rate), however, opinions can easily differ, and differ widely….Hence those who believe in a low rate will consent to pay high prices for bonds…while those who believe in a high rate will insist on low prices…Thus investors will be bullish or bearish on bonds according to whether they believe low or high interest rates to be suitable under prevailing economic conditions.   As a result, the actual price of bonds….will thus be only an expression of opinion, not a statement of fact.  Today’s opinion will make today’s rate; tomorrow’ opinion, tomorrow’s rate; tomorrow’s opinion, tomorrow’s rate; and seldom if ever will any rate be exactly right as proved by the event.

How then does Warren Buffett define and measure value? In his 1994 Letter to Shareholders he writes:

We (Charlie Munger and I) define intrinsic value as the discounted value of the cash that can be taken out of a business during its remaining life.  Anyone’s calculation intrinsic value necessarily comes up with a highly subjective figure that will change both as estimates of future cash flows are revised and as interest rates move.  Despite its fuzziness, however, intrinsic value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.

Graham, by the way, would agree with the definition of intrinsic value but he would doubt whether investors could usefully apply it. (Ben Graham, 1939)  “The rub,” writes James Grant in the 6th Edition of Security Analysis (2009), page 18, “was that, in order to apply Williams’s method, one needed to make some very large assumptions about the future course of interest rates, the growth of profit, and the terminal value of the shares when growth stops.”

The entire article by Chris Leithner is an important read: Value Investing and Austrian Economics Leithner

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BITCOIN

Certainty is not certaintude–Oliver Wendell Holmes

  1. Bitcoin Certitude is not certainty
  2. Bitcoin Adoption and Usage
  3. The Promise and Peril of Bitcoin

The video below–though choppy in the first few minutes–is worth hearing about the psychology of market bubbles.   The interviewer of Bob Moriarty is ignorant of basic economics (Can prices EVER go below the cost pf producing a useful/needed product? Yes or No), but you can follow the discussion.  Note the pushback of the interviewer who is also an owner of bitcoins to Moriarty’s questions.  The psychology is fascinating–the will to believe and suspend judgment.

Other Comments

Bitcoin is up more than 2,000 percent in the last year and now trades above $17,000. Bitcoin futures trading launched this week on the Cboe exchange, gaining more than 19 percent Monday in the first full day of trading.
There are now 1,358 cryptocurrencies in existence, according to CoinMarketCap. Other digital currencies such as ethereum are better designed for programmable “smart contracts” and have quicker transaction times versus bitcoin.

Bitcoin’s scalability is another issue. There is technical limitation on how many transactions that can be processed at the same time. Partly as a result, widespread use of the cryptotcurrency for payments has not occurred yet.
So cryptocurrency investors must honestly ask themselves, is bitcoin really changing the word through blockchain technology innovation or is it mainly speculative asset? It’s the latter.

Kynikos Associates short-seller Jim Chanos, lauded for his prescient negative calls on Enron and Tyco, compared bitcoin to previous fads.

Bitcoin “is a speculative mania. It’s Beanie Babies,” he said at a Schechter event in Detroit, Michigan Wednesday, referring to the toy fad craze during the 1990s.
DoubleLine Capital CEO Jeffrey Gundlach criticized the lack of analytical rigor in the recent “nice round number” $1,000,000 price targets for the bitcoin, which is reminiscent of previous speculative blow-offs.

“I have no interest in this type of maniacal type of trading market,” he said on CNBC Wednesday.

Hedge fund manager Seth Klarman, the value investing giant who often draws comparisons to Warren Buffett, wrote in his classic “Margin of Safety” book an illuminating parable warning against speculation:

“There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, ‘You don’t understand. These are not eating sardines, they are trading sardines.’

Like sardine traders, many financial-market participants are attracted to speculation, never bothering to taste the sardines they are trading. … trading in and of itself can be exciting and, as long as the market is rising, lucrative. But essentially it is speculating, not investing. You may find a buyer at a higher price—a greater fool—or you may not, in which case you yourself are the greater fool.”

 

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Bitcoin and the Theory of Money; Hedge Fund Quiz

Posted on August 14, 2017 | 4 comments

Bitcoin is not only irredeemable, but also unbacked. That is a big difference—in favor of the dollar. (Keith Weiner of Monetary-Metals)

Read an analysis of Bitcoin as money (Bitcoin has no backing.  I think of Bitcoin as “Token” money. What are your thoughts?

Also, the developer of Bitcoin provides his understanding of the theory of money.  As a review read: On the Origins of Money_5 Menger

For those who are interested and are in NYC:
Blockchain Technology Versus Fiat Currency

The next CMRE event will be held on October 3 at the University Club in New York City: Blockchain Technology Versus Fiat Currency.  Speakers will include noted author George Gilder, co-founder of Etherium Joe Lupin, thought-leader Saifedean Ammous, and more.

Topics will range from an introduction of blockchain technology, economic implications, the politics surrounding private currencies, and the role of gold. Full program to come.

Check back on www.cmre.org for more information and to purchase tickets.

http://www.cmre.org/

TIMING THE CRASH: Performance_Update_2017_07

QUIZ: What has caused or one of the MAIN reasons that companies like Amazon keep gaining strength?  Hint: What Bezos does is meaningless.

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TREASURE CHEST! A Value Analyst Pro; BITCOIN

Posted on May 5, 2014 | 3 comments

POTHOLE

 

TREASURE CHEST

Introduction

Ecclesiastes tells us: “The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.” Myrmikan Research applies this principle to the subject of credit bubbles.

The ancient Greeks discovered that debt could magnify wealth. The debtor feels richer from the use of the borrowed property, while the lender feels richer from the compounding interest yielded by his claim. Both indulge in consumption more freely. As long as the accumulating claims remain contingent, the bubble grows. But, eventually, someone asks to be paid, and the expandingclaims on wealth must be reconciled to tangible wealth, much of which has been consumed.

The first recorded credit bubble popped in 594 B.C. Athens. Threatened with a civil war of creditor versus debtor, the Athenian ruler Solon pulled down the mortgage stones to free the debtors and devalued the drachma by 27% to relieve the bankers. Every credit collapse since – from the Panic of A.D. 33 to John Law’s Mississippi Bubble to the Great Depression and many others besides – has followed Solon’s template of debt default and currency devaluation.

“The natural remedies, if the credit-sickness be far advanced, will always include a redistribution of wealth: the further it is postponed, the more violent it will be. Every collapse of a credit expansion is a bankruptcy, and the magnitude of the bankruptcy will be proportionate to the magnitude of the debt debauch. In bankruptcies, creditors must suffer.” – Freeman Tilden, 1936

And against what is currency and debt devalued? Carl Menger, founder of the Austrian School of economics, was the first to explain that money is liquidity and that gold is the most liquid asset. Thus, gold has served as the reference point of value since the origins of money and is that against which currency must be devalued to relieve debts. Paper promises depreciate.

“The faith is lost. All with one impulse people rush to seize the gold itself as the only reality left—not only people as individuals; banks, also, and the great banking systems and governments do it, in competition with people. This is the financial crisis.”
– Garet Garrett, 1932

Myrmikan Research chronicles the collapse of the current, global credit bubble – the largest and broadest in history – analyzing current events from the perspective of Austrian economics and placing them in historical context.  Many links to books: http://www.myrmikan.com/research/

A Value Investor/Analyst, http://www.hacketts.com/  Click on Samples link on the left and read examples of company research. If you want to be a professional analyst, his research sets a high standard.  Note the format: Thesis stated right up front. He eats his own cooking too.

BITCOIN

Gavin Andresen, Chief Scientist of the Bitcoin Foundation, talks with EconTalk host Russ Roberts about where Bitcoin has been and where it might be headed in the future. Topics discussed include competing cryptocurrencies such as Dogecoin, the role of the Bitcoin Foundation, the challenges Bitcoin faces going forward, and the mystery of Satoshi Nakamoto.

 

 

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Posted in Investing Careers, Special Situations, Valuation Techniques

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Is Bitcoin a Scam?

Posted on March 19, 2014 | 9 comments

Bitcoin-Crash

Bitcoin the PERFECT SCAM

Bitcoin is as a SCAM by design as I have voiced many times over several months in that even when a large percentage of people have their holdings stolen the price is stable enough to continue to entice new entrants into exchanging hard earned fiat currency for bitcoins via the ramblings of the clueless mainstream press, investors who will also at some point lose the value of all of their holdings.

As I have pointed out several times before bitcoin ultimately has a destiny with extinction because in order to continue verifying bitcoin transactions then bitcoin miners need exponentially greater processing power to achieve this, where today a bitcoin miner would need to invest in order of $20,000 to have any hopes of breaking even, costs that looks set to double every year where a decade from now break even mining operations would require an investment of more than $40 million which would imply far fewer mining pools that would in effect OWN the bitcoin craptocurrency and through the block verification process even be able to re-write who owns what.

Ultimately this means that the bitcoin mining will become the sole enterprise for criminal enterprises as no legitimate enterprise would be able to cover the costs of verifying bitcoin transactions (blocks) and thus earning new bitcoins, thus leaving bitcoin mining wholly to criminal gangs operating bot nets in control of millions of infected computers that would each mine fragments that would periodically be harvested by the bot nets.

So bitcoin holders don’t be surprised when you come to open your wallet.dat file that you find it is empty!

Read more: http://srsroccoreport.com/bitcoin-the-perfect-scam-price-does-not-reflect-true-dangers-of-holding-bitcoins/bitcoin-the-perfect-scam-price-does-not-reflect-true-dangers-of-holding-bitcoins/

Agree/disagree.

Interview of Volcker

http://www.thirdave.com/news/third-avenue-credit-manager-interviews-paul-volcker/

Will the last bear turn out the lights:

http://www.testosteronepit.com/home/2014/3/17/will-the-last-bear-please-turn-out-the-lights.html

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Posted in Economics & Politics, History

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Case Study of the Bitcoin Bubble

Posted on December 6, 2013 | 4 comments

bitcoin

Bitcoins are the product of socially naive programmers’ fantasies. They thought they could substitute algorithms for ethics, digits for legality, anonymity for custom, and dreams for responsibility. Ultimately, they thought they could substitute impersonalism for personalism. They were wrong. They merely launched a tulip mania.

If the advocates of crypotocurrency have a case for a free market social order, then they should advocate not buying Bitcoins until such an order exists. Money develops out of a social order. They have put the cart before the horse: a new monetary system before the institutional arrangements to support it. This was Mises’ argument regarding the regression theorem. A comprehensive monetary order that will replace the existing one is not going to be designed by obscure programmers. It will be the product of human action within a prevailing social and legal order.

The best article on Bitcoin–by far–from Gary North: http://www.garynorth.com/public/11866.cfm

Bitcoin is not money

Here is the problem in one sentence: a modern division of labor economy is very close to all or nothing. You cannot have a monetary system that does not apply across the board, yet still defend the concept of the division of labor through competitive pricing. You cannot have a currency that applies to illegal drugs, programming services, and almost nothing else, and expect that currency to replace the existing currency, which is a fiat money-based currency. There has to be a transition from the fiat-based currency, in which there are hundreds of billions of transactions a day worldwide, which in turn provides a comprehensive system of pricing and information feedback, in order for the present system of the division of labor to be maintained.

Any suggestion that Bitcoins can move from the modern system of integrated currencies, prices, and contracts, to get to an equally comprehensive system in which you could make a pencil, without the pricing system that is provided by the existing fiat money order, is simply utopian.
…..

Most of all, Mises argued, socialism has no means of pricing capital. There are no capital markets.

The same is true of the as-yet nonexistent Bitcoins economy. It cannot do without the pricing system provided by central banking. It cannot produce goods and services without converting Bitcoins’ digital fiat money into the banking system’s fiat money. You cannot produce real goods with virtual money.
You have no capital markets without the monetary system. Capital markets are all based on contract. Bitcoins are based on a rejection of contracts. Capital is based on responsible owbnership: public claims on assets, enforceable by law.

Bitcoins are based on a rejection of enforcement by law.

Bitcoins relate only to consumer goods, and hardly any. Yet even these cannot be delivered by sellers without selling Bitcoins and buying dollars to fulfill contracts. Sellers cannot replace sold assets unless they have bank money to buy them in the real world economy. This economy operates in terms of real money, which today is central bank money.

Bitcoins represent zero threat to the central banks. Bitcoins are used by most owners as ways to make money: to buy more dollars than they paid. It is just another investment asset — one based initially on a complete fantasy, namely, that Bitcoins will somehow remove people from central banking.
Bitcoins are valued in terms of dollars. The mania is fueled by their rising dollar-denominated price. They provide an investment medium for high-risk speculators. They are nothing more than a way to get into a tiny market, and then ride the wave up, as more people get into it. There is no payoff in terms of the economic value of autonomous Bitcoins that are held only because they will serve as an alternative currency. They are held as a way to make money by selling to the greater fools, who will pay real money — dollars — for them.
It’s tulip bulb market. It rests entirely on getting back into the dollar economy.
Bitcoins will have no impact at all on the monetary base. They will have no impact on the capita; markets.

Capital is valued in terms of central bank money. Bitcoins will not change this, for they cannot reduce the size of the monetary base. They do not pull money out of the fractional reserve banking system. The quantity of real money is in no way affected. The investors remain in the central bank economy, in which capital is priced. Capital is not priced in terms of Bitcoins.

This is why Bitcoins’ economy today cannot produce even a broken pencil. It is giving Bitcoins far too much credit to say that they can produce a broken pencil. There is almost no division of labor based on stand-alone units of Bitcoins. To move to Bitcoins’ realm of virtual money for real products, other than maybe programming services, is a fantasy.

“I, Broken Pencil”: An Economic Analysis of Bitcoins
Gary North – December 06, 2013
To understand Bitcoins, return to the basics. . . . keep reading

And I, Pencil http://www.econlib.org/library/Essays/rdPncl1.html

More articles:

Bitcoin-CMRE

Questions About Bitcoin By Staff Report – December 09, 2013

Bitcoins: A Fully-Compliant Currency The Government Can Love … All of bitcoin’s benefits to the establishment revolve around its blockchain. In simple terms, a blockchain is a registry of all transactions carried out in bitcoins. Thus is resolved the problem of double-spending one particular bitcoin: It can’t be done (at least in theory) due to the blockchain. But the blockchain is in fact a register – a trail – of bitcoins. So it’s a relative cinch to piece together each and every transaction of any particular wallet in the bitcoin universe. And since exchanges need detailed personal information about a bitcoin user in order to comply with money-laundering laws before issuing a new user with a wallet, the government or other interested parties could determine what any one particular person has been doing in the bitcoin marketplace. – Blacklisted News/Gonzalo Lira

Dominant Social Theme: Are you ethical? Okay, then go live in a “green” hut and give government every cent you’ve got so the bureaucrats can reintroduce feudalism.

Free-Market Analysis: Let’s start with bitcoin. Then comes a bigger announcement … We’ve been skeptical of bitcoin for years. The smug techno-geekness of bitcoin’s backers irritated us, especially when we realized what they were supporting – a system that keeps track digitally of every single transaction ever made on the Internet.

You can see above that Gonzalo Lira has figured it out, as well. Those who blithely defend bitcoin without fully evaluating both the pros and cons of its technological stance are doing the freedom movement a, well … disservice, in our humble opinion, and apparently Lira’s, too.

That makes at least two of us against the rest of the libertarian world that is still a good deal enamored of this monetary marvel. Of course, it doesn’t hurt that bitcoin has recently hovered around US$1,000 a coin, a price that has sent people scurrying to garbage heaps to try to dig up old bitcoins now worth millions in aggregate.

One of these stories received wide attention recently. A fellow supposedly discarded an electronic cache of bitcoins years ago and then decided to search a dump to see if the coins were still there. This story – and we have our doubts about it – was all over the mainstream media, which is not a good sign.

Does anyone really believe that if bitcoin was a subversive, government-altering currency the mainstream media would be covering it so closely, or The Bernank would be issuing positive-sounding statements about it?

  • One of the main sources of bitcoin’s super-secret protection is DARPA’s TOR facility. It always struck us as a bit odd that bitcoin users were depending on a military protocol for their protection – especially Silk Road.
  • Then there’s the initial bitcoin Creation Myth. This has to do with an inscrutable Japanese techno-genius dropping bitcoin rules into the ether where they were gradually discovered and applied by a growing number of enamored acolytes.
  • The blockchain has always bothered us because what is indecipherable now may not be in a decade. Who knows how technology changes anonymity over time? We did find out that doyenne of alternative currencies, UNESCO”s Margrit Kennedy, has been preaching LETS trading systems that are backed enthusiastically by her former UN employer – probably because they also demand a general ledger. This is most helpful, of course, when the government wants to investigate for non-payment of taxes, etc.
  • It always seemed to us – throughout this ongoing bitcoin mania – that gold and silver were perfectly good alternatives to a wretchedly complex digital system. Granted, they are not directly as fungible as bitcoin, but they’ve been around for millennia. That’s more than bitcoin’s few years.

For all these reasons, we had reservations, which continue today, about bitcoin. Is it a system developed and placed on the Internet to anticipate the expansion of REAL alternative, digital currencies? Is it a kind of Trojan Horse, meant to provide the banking industry with a way to nullify a potential challenge – and regulate it – before something else comes along that is more challenging?

These may sound kind of hypothetical, but this iteration of The Daily Bell has certainly tried to speak to the expansion of alternative investing by setting some specific criteria. One powerful criterion would be “ethical” – as has been mentioned in past articles – and involves picking and choosing investments based on their ability to support freedom and free markets.

Bitcoin may offer profitability, but perhaps there is a “cost” attached that might – just might – involve a reduction of personal and monetary freedom in the long term. Does this sound counterintuitive? Perhaps so. But despite its success, High Alert Capital has not recommended it or taken a position in it thus far and probably won’t in the near future.

 

Bitcoins: The Road to Investment Hell Is Paved With Good Intentions.
Gary North – December 03, 2013
Look at the market, not at programmers’ justifications of the technology. . . . keep reading

 

Bitcoins: The Second Biggest Ponzi Scheme in History
Gary North – November 29, 2013
What goes up will come down. . . . keep readingUpdate:http://www.zerohedge.com/news/2013-12-07/bitcoin-crashes-loses-half-its-value-two-days50% sell off (Dec. 8, 2013)   Who knew? 

WHY MOST PEOPLE WILL NEVER GET OUT OF BITCOIN WITHOUT MAJOR LOSSES

There may be some Bitcoin traders who think they will be able to pick the top in the Bitcoin market and then get out. It will never happen that way.Here’s why: The market will “train” such traders to stay in the market. Over the weekend, Bitcoin plunged by more than $300. It is now climbing back up. This is not the first huge plunge from which Bitcoin has recovered. There have been several others and it is typical of speculative stocks/investments. I have seen this pattern occur many,many times. Without getting into the long technical explanation as to why these plunges occur during an ongoing bull market, suffice to say that it trains traders to hold on during dips and buy even more. The problem with this is that it will be impossible for traders to differentiate between the final real plunge that starts the bear market and a short-term bull market plunge. The trader will end up being in at the top. He will wait for the price to climb back so that he is “even” but it never will.

On cue, we have Bitcoin junkies proving my point. Honey Badger comments at my post, Bitcoin Crash on News Major Chinese Web Site Has Stopped Accepting Bitcoin :

Yes, we go through one of these “crashes” every few months or so only to rise to a higher level soon after. I’ve been through a half-dozen of these already. What’s nice is I get to pick up cheap coins on the pullbacks.

And Mises-hater Max Keiser leads his merry band of groupies over the cliff:

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Posted in History, Investor Psychology, Risk Management

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