Nov

30

BTCorrelation, from Kim Zussman

November 30, 2017 |

 WSJ featured a chart of BTC vs other bubbles. Usually there is a correlate–such as the desk top computer and tech stocks, gold and political uncertainty (sic), etc.

The only things I can think of that correlate with BTC's trajectory are the frequency of NK nuke tests and due-process free salacious executions of key members of the deep state.

Others?

Andy Aitken writes: 

A key characteristic of a bubble is that the people in it don't recognize that they are in it.

The bubble proclamations about bitcoin seem to come from those who have missed out (i.e., they're "too smart" to participate), as well as from those that stand to lose something. Despite Anatoly's misquoting of me, in response to Jamie Dimon calling bitcoin a fraud, I did not call Jamie Dimon a fraud. I wrote that bitcoin said that Dimon is a fraud. Bitcoin is still less than a $150B market cap, less than a third the size of one company (Cisco) at the height of the internet craze. Which turned out to have not been a "craze". The most chiliastic augurs of a connected humanity, portents of Teilhard de Chardin's noosphere reified, were too conservative. Just 15 years later, there are quite a few tech-oriented companies that have surpassed CSCO's peak valuation, and everyone is tied to the net 24/7 through pocket supercomputers.

In my view, the bubble that is barely acknowledged is the vast scope, size, and scale of the state (not just the government), and its rapacious intrusion into our private lives. This precarious bubble continues to inflate on the premise that there is no diminishing marginal utility of additional units of state power. The gap grows between the linear growth in expectations and the logarithmic returns. If this is a bubble, then bitcoin represents its antithesis.

Rocky Humbert writes: 

Andy, Bubble schmubble. There are sardines for trading and sardines for eating. I submit that the most important trait for successful investors/speculators is knowing the difference. And not becoming an idealogue, philosopher or believer. I suggest that you read the Harvard paper that I posted two days ago a bit more carefully. As the paper reports and I've learned from experience, these moves go much further and last much longer than reasonable people expect. Especially for bitcoin (and real estate markets) since the supply/new issuance is very limited. And since you mentioned Cisco, I believe its high tick war around 85; 17 years later the stock is trading at 38. During its final blowoff phase, the stock appreciated by about 800% and the only trade was to be long. Until it wasn't. And then the only trade was to be short — for about two decades (with most of the move occuring during the first 24 months). Same thing with the Nikkei in 1990. Gold in 1979. Etc. And I feel comfortable predicting that the same thing will be true for BTC but from a final blowoff top of who-knows-where. Lastly, here's a rocky challege: Name one major currency whose value routinely moves around by 20% intra-day? (Other than a government engineered revaluation, of course.) Anyone? Anyone? Of course, it's Bitcoin.

Andy Aitken replies: 

I've been emailed personally by several people on the List who asked what I guess they thought were questions I hadn't considered or couldn't answer.

I've responded with thorough emails with numerous academic and non-academic references, and never received a "thanks" or even an acknowledgement of my time spent. The fact is that I have pulled out many times my investment, and yet those with the strongest opinions have nothing at stake (at least in terms of money, the need to be right is very much in evidence), with no more relevance to the market price than a bucket shop price shouter. I have less certitude about the future price than they do. But what do I know?

I really don't care if people think I am ridiculous or stupid. I'll take my profits while they opinionate. Your benchmark of price stability (USD) has declined in purchasing power by 99.5% since the creation of the Fed just over 100 years ago. This was after a long period of purchasing power stability, or even of productivity-driven deflation. Ah, but those fluctuations in prices (e.g. 1907)! They drove a free people to put the management of their currency in the hands of technocrats. My grandfather retired as a bank vice president about 55 years ago, never having earned more than $10K a year. And yet he and his family lived an upper middle class life, with no mortgage on the brick house on a tree-lined street, cars bought with cash, and a child who went to an expensive private college.

What sort of price stability is this? I hold gold and trade it, and even expect a rally in it, but I think we all know that the CBs would kill any "bubble" in gold, though such a "bubble" might be very much justified. If the state and its extension, the CME, kill bitcoin as Anatoly hopes, then another cryptocurrency (or something like it) will replace it.

There are already several that could replace it. It is a mistake to equate bitcoin with cryptocurrency.

There is the beginning of something here that all lovers of freedom should welcome, even if its name is not bitcoin.

Jason Pilfer writes: 

Victor had a quote about Dimon I recall that sums up many of these bitcoin bubble threads.

"Sounds like one of the non-falsifiable predictions from the adventurous traveler or so many of his ilk that don't have the constraint of having to make a profit with trading.vic"

I admire Andy's instructive tenacity and hope to see more. There remains quite a chasm to bridge. I've argued in the past that cryptos are an ongoing disruption rather than simply a new currency coming into an old framework. Many of the predictions would be more relevant if bitcoin were simply a global fiat currency.

The chartism and top/bottom calling entirely misses the reason why cryptos came into being, are incredibly popular and accelerating in adoption and appeal.

The bubble discussion is weary and likely tied to the ongoing global FOMO effect, yesterday I ran across this Fortune link from two years ago about how to short the megabubble when bitcoin was 1/10th today's price

Not much has changed.

The higher level discussion about CME impact is insightful and appreciated.


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2 Comments so far

  1. Andre on December 1, 2017 11:44 am

    It looks like tulip bulbs to me. Who were the original users of bitcoin, I think clueless deviants wanting to buy drugs on the internet. Some average marijuana was bought for $30,000 of bitcoin in today’s bitcoin value. Is it not digital fiat? I don’t get it.

  2. B on December 2, 2017 8:27 am

    Who where the original users of the internet? Deviants who wanted drugs and porn. Looks like that turned out ok.

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