Tag Archives: cryptos

Bitcoin’s Inconvenient Truths: The Silence Is Deafening

Gold is instantly and optically recognizable as money. You don’t have to explain it. Bitcoin and Special Drawing Rights (SDR), like a bad joke, have to be explained. Many “cryptologitsts” from the start gave up trying to explain Bitcoin and just sell it as virtual gold, which is de facto fake gold.  – Dan Popescu, investment consultant

Numerous inconvenient truths are conveniently ignored by Bitcoin/crypto-currency promoters.  Not the least of which is that the fact that the original concept for cryptographic currency was envisioned by the NSA.   I guess it’s convenient to assume the NSA developed this concept and then put it out there for the private sector to develop.  Sure, that makes sense.

A rapid rise in price does not validate an investment concept.  Dozens of dot.com stocks went from simple websites to multi-billion dollar market caps and back to zero in the late 1990’s. Until proven otherwise by the long test of time, Bitcoin could be another product of a fiat money printing bubble that is 100x the size of the money bubble that fueled the dot.com bubble. Gold and silver have withstood the test of 5,000 years. Bitcoin has less than 3,000 days of time-testing.

Be leery of the serial promoters who have dropped their previous advocacy of gold and silver like a hot potato to become religiously zealous salesmen of Bitcoin.  These were often among the most raucously vocal in their protest of the use of Comex gold and silver futures to manipulate the market price.  Yet, their silence on the introduction of Bitcoin futures hurts my ears.

The bulwark promotion of Bitcoin is that it is a de-centralized form of money that exists outside of Government control. But is it really?  I dare say the roll-out of CME Bitcoin futures, as “regulated” by the CFTC, certainly smells like the implementation of official intervention.  Those who previously protested gold/silver futures must not deny this fact. Perhaps more troublesome is the embedded forms of counter-party risk endemic to the system which creates Bitcoin.

Anything that exists in cyberspace is vulnerable to hacking.  This is a fact that has yet to be invalidated.  Circling back to the NSA white paper referenced above, can anyone out there truly claim the expertise required to deny that the NSA, or any other major sovereign intelligence agency, does not have the ability to corrupt the block-chain?  To be sure, cryptocurrencies are subject to network or infrastructure risk during a crisis.  Unequivocally, crypos are subject to government regulation.

Speaking of which, if I were a Bitcoin advocate, it would bother me that western governments go out of their way to hide their interest in gold as a monetary asset, yet they openly embrace cryptocurrencies.   Perhaps when the BIS declares Bitcoin or Ethereum to be a Basel 3 Tier 1 Central Bank asset like gold, I’ll have a change of heart.

The price of Bitcoin has experienced a remarkable run in price this year. Of course, the same could have been said for Dutch tulip bulbs from late 1636 to late 1637.  Most of the traders are chasing the price higher, with little to no understanding of the object they are chasing with their money, in hopes that someone at a later point in time will come along and pay a higher price to them.  Even worse, these price-chasers have placed undying faith in the analysis of Bitcoin coming from the  same con artists with whom they placed religious faith in the analysis of precious metals.

Also, up to this point there’s been  an absence of two-way price discovery for Bitcoin. Once the CME futures are rolled out, it will introduce – albeit in an unwelcome format – a provocative method to sell Bitcoin on margin.  The use of margin is the hallmark of a fiat currency-based fractional banking system – the very nature of which Bitcoin supposedly repudiates. The Bitcoin longs will face the same unlimited supply potential of paper Bitcoin that precious metals investors have endured for decades.

Make no mistake, I’m not trying to derail anyone’s interest in Bitcoin or cryptocurrencies.  And I’ll be the first to admit that it’s likely the price will go a lot higher from here.  But if the issues I raise here are indeed legitimate, how do you know when it will be the right time to sell?  That is to say, while the parabolic rise in Bitcoin has been largely continuous, any number of events could occur that would force the price re-discovery to be a step-function.  It’s all wine and roses on the way up, but at what price will there be a bid for you relieve yourself of your position?

Goldman Sachs Says Gold Is Better Than Bitcoin

“Precious metals remain a relevant asset class in modern portfolios, despite their lack of yield,” analysts including Jeffrey Currie and Michael Hinds wrote. “They are neither a historic accident or a relic.” Looking at properties such as durability and intrinsic value, they are still relevant even with new materials discovered and new assets emerging, such as cryptocurrencies, they said (LINK)

Here’s what blows my mind:  When gold ran from $250 to $1900, the entire western mainstream financial media called it a bubble. Bitcoin has run from $250 to $5500 and price momentum-chasers and the usual hypster con artists exclaim that it’s going to $100,000. Qu’est-ce que c’est, Rudolph Havenstein?

This is typically what a bubble looks like:

NVDA is without a doubt in a parabolic bubble. In a recent Short Seller’s Journal I explained in detail why NVDA’s fundamentals might justify a price closer $30 and provided ideas for shorting NVDA. Short-selling is the market’s method of introducing accountability and price discovery into the valuing assets. The problem with Bitcoin is that it can’t be borrowed and shorted. There’s no mechanism to impose express a bearish view of Bitcoin’s fundamental value.

The Goldman report goes on to say:   Intrinsic value:   There’s a limited supply of gold and other precious metals in the Earth’s crust, whereas in the case of cryptocurrencies, it’s easy to create alternatives, meaning there’s effectively no control over supply at a macroeconomic level and no intrinsic value due to rarity.  Unit of account: Gold is better at holding its purchasing power, and has much lower daily volatility. Bitcoin/dollar volatility has averaged almost seven times that of gold in 2017, the bank said.

All the pro/con-Bitcoin noise aside, without question the Bitcoin chart reflects “bubble-mania.”  Not everyone is “all-in” yet. As with all manias, it will probably become even more manic before someone whispers “fire” and the move toward the exits quickly goes from a brisk walk to a stampede.

But if everyone who has faith is all-in and no one is short, who will be left to buy when flood of sellers are looking for any bid to hit?