Options for shorting Bitcoins?

Adam Taggart
By Adam Taggart on Wed, Nov 27, 2013 - 7:04pm

I'm not looking to stir up controversy among the Bitcoin supporters. And I sure wish I had bought some last year. Or even last month. Last week, even.

But the meteoric rise in Bitcoin looks to me like a movie we've all seen before: classic asset price mania. Could I be wrong? Sure. But it's reaching the point where I'd be interested in betting that I'm not.

My question: are there any clearly-known options for taking a short position on Bitcoin? Or even better, purchasing the equivalent of a put, where downside is limited?

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49 Comments

Philipp's picture
Philipp
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shorting bitcoin

Find someone on localbitcoins who wants to buy your coins. Wait a few days. If the price goes down show up to sell, if not just vanish into thin air.

More seriously, I've heard of https://www.bitfinex.com/ and https://btc.sx/ to short Bitcoin but I have never used them. In fact I don't even know a single exchange to purchase Bitcoin, which I could recommend to anybody and I would never let any coins or dollars leave on any one of them for any second longer then absolutely needed...

And talking about shortselling... waking up one night and seeing the price up in the air has happened and probably will happen again...

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davefairtex
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bitcoin shorting

I wouldn't short bitcoin on a bet right now.  I'm seeing a series of cup & handle breakouts that just reeks of bullishness.

That dip-buy at 450 was the clue.  People are treating each dip as their very last chance to get a bitcoin.  You can see it in the charts.

Until that psychology changes, its up, up and away!

Implied volatility for hypothetical bitcoin puts would be extremely high.

Until you see bitcoin making a lower high, and then a lower low - shorting is a bad idea.

Adam Taggart's picture
Adam Taggart
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I hear you, Dave

Dave -

Hear you on the manic TA signals right now.

My sense, though, is that when this turns, it will drop both fast and far. There very well may not be time to both researching potential ways for taking an inverse stance AND getting into position in time.

The point of this post is to figure out IF there are any sensible ways to bet against Bitcoin. If there are, then we can start discussing the appropriateness of WHEN.

As to IF, I've received some ideas from the Twitterverse, but nothing yet that seems realistically actionable. Will keep my ears open, and welcome any additional ideas from the PP.com readership.

mrees999's picture
mrees999
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Hopefully helpful info

I would be nervous as hell about doing anything on margin for bitcoin- NOTHING you have ever witnessed has traded with this percentages. Now there are a hosts of digital "alt" currencies that are giving ballast to bitcoin. The panic selling you saw earlier in April were due to too much demand and only one market exchange (mtGox) handling 80% of the volume on hardware that was designed to trade "Magic the Gathering On Line Exchange" trading cards - not a world currency.  It created a "bank run" when the site crashed. The world is vastly evolved in the last six months.  Prior to that crash, in 2010 previous crash was due to a wallet hacking job the stole people's on-line digital cash and it spooked all the newbies (read- everyone back then).

In bitcoin's very young life as an alternative currency system there have been three major (in percentage terms) corrections.  This happened at about $3.00, then at $30... then just short of $300.00.  The pattern is that each time was a multiple of ten times the previous peek.  If this pattern holds true, don't expect to see a correction until we reach about $3,000 in bitcoin price. Which might be next week at the incredible price advance :-)

I've followed this helpful you-tuber's charting channel dedicated to watching bitcoin and giving me the same perspective I just shared.  He was video recording live when it dropped from $30.00 to one penny for a brief moment in total sell-off. 

 

An interesting development I've just recently discovered is the "network effect" that having multiple digital alternative currencies is having. Bitcoin price has actually been very stable compared to its stable-mates that most people still have not heard of. Litecoin being the biggest and having gone from $4.00 three weeks ago to almost $50 - a gain of 1200% in.three.weeks.  So many of these "alt" currencies of been rocketing far past the price of bitcoin itself - and the only way to "reach" these currencies is to pay with them using bitcoin. You can only play there if you own bitcoin - so it has acted like a "conduit" to get people and money to them. This is deduced from seeing the smaller currencies go up 200-500% in a day while bitcoin stays about the same even though it must be sold to pay for the others.

 

So the kind of people that own bitcoin - are generally a bit more daring and gambling or understand technology much better and dare I say it?..pricincipals of economics and currencies - more than most. In my opinion they are much more willing to jump from one digital currency to the next in a see-saw rather than jump back into the US dollar or other national currency.  Any panic will see them just calmly shift balances between the digital currencies because the fees to interchange are almost nothing.  They'll wait the few days jumping or spreading between them - but don't expect them to get out of this game. Once you've felt the rush of seeing your net worth double, then double again the next day - any other investing is watching a slow turtle dance. The net effect is a very stabilized ecosystem. I don't think ANYBODY would have predicted this scenario or role even two months ago.

Forgot all the rules you've learned from every other market. You're playing with people on the other side of this table that are now "junkies" to high return and won't leave that world. With the world interest still building and pent up demand from all over the world to squeeze into a paltry one or two million bitcoins?  You'll get more gambling action in Vegas on any given night just from investors who enjoy the gamble side. There is a title-wave of new money trying to get in - any small panic sell is being overwhelmed by worldwide demand. And the "old money" is just sitting in alternative currencies just waiting to pounce on any break in the action.  This is a paradigm shift. I personally wouldn't be surprised to see market cap 1 trillion before a correction of significance.

A good website to keep track of the 24 hour movements of bitcoin, litecoin and some of the bigger alt currencies can be found here:

http://coinmarketcap.com/

You can trade and buy the various other smaller currencies here: (But you have to have bitcoin first to do it, you can just use USD to buy them).

https://www.cryptsy.com/

 

Good luck with your strategies!

 

 

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davefairtex
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fundamentals vs gambling

mrees-

Once you've felt the rush of seeing your net worth double, then double again the next day - any other investing is watching a slow turtle dance. The net effect is a very stabilized ecosystem. I don't think ANYBODY would have predicted this scenario or role even two months ago.

"Feeling the rush" is not what I call a good fundamental case for holding bitcoin.  Its very clearly "the greater fool" theory, the same logic used during the bubble in housing.  "I'm buying housing because its going up."

However, the charts suggest continuing buy side pressure so - its certainly fun for me to watch from the sidelines.

Once there is an ETF, then it can be borrowed, and then shorted.

Heck, let's get futures on bitcoins while we're at it...

 

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bowskill
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re Fundamentals

Dave - I get your point regarding the quote from mrees. But maybe that is a side effect, not a cause of the rush going on now.

Also, I think you are right about the buying pressure at the moment. Everytime somebody cashes in a big stash of bitcoin, there are plenty of lurkers buying the dip back up. For each new bitcoin millionaire there are plenty of wannabes.

However, I really do think there are fundamentals there staring us in the face. Bitcoin is at the intersection of a confluence issues discussed here all the time. Its the perfect storm of:
- NSA spying and trust issues sparking massive interest in use of cryptography for personal privacy in everything from email to banking
- imminent collapse of fiat currency(ies)
- parasitic banking practices
- bank bail-ins
- world discontent with the US$ reserve status
- QE, QE, QE... where is all that money going? 20% of one months QE could buy every bitcoin in existence and every alt coin as well probably. 
- lack of safe havens
- precarious P/E stock valuations
- manipulation of gold and silver prices
- Chinese cashed up and buying real estate (why not bitcoin as well)

At this point a relatively tiny proportion of people are saying they would rather put some (not all) money in bitcoin than a bank account, the stock market, real estate, bonds or gold (for now). Sure, bitcoin is new, immature and its a mind-bending experience getting into it without a doubt. But there are no safe havens today and bitcoin is offering an alternative. With good reason.

Once you start reading the bitcoin forums, listening to podcasts etc made by the developers you get a sense of the intellectual and entrepreneurial drive going on the background. To those types, the current price excitement is bemusing. They are driven by an understanding of privacy, fiat currency and banking issues. High prices do help to fund their projects but the development will go on regardless of how many boom and bust price cycles to distract everyones attention from the fundamental purpose.

Not one negative post on bitcoin I have read here has been articulated on any basis other than simple skepticism. Thats fine for those people and I am not critical of their personal decision to stay on the sidelines. Nothing makes more sense than sorting out and putting in place necessary hard assets etc and we all take our own path. But they just have to understand that others may be making an intellectual or even partly intuitive decision that has more basis to it than price mania.

 

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TAMWO37101
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Congrats mrees999

Holy cow mrees999--Are you a Litecoin millionaire yet? How fun to have had those conversations with you right before ltc took off.  Ultimately I decided against ltc when I realized btc is divisible by 100 million and that there really is no digital fundamentals for a 'silver' version of btc.  So I just stuck with BTC.  Now...Ive been tracking all the altcoins gains/market caps on the website you mentioned above at coinmarketcap for a few days now and  literally watched two dozen altcoins EXPLODE in price right before my eyes.  That was a HUGE red flag for me. All these other altcoins gains really cancels out the very fundamental of BTC as being finite when there can be an infinite amount of altcoins.  Altcoins seem to me the biggest threat to btc future and I would think/hope that there are at least a few developers/exchanges scrambling around trying to figure out THAT next step.  I have been thinking these exchanges need to offer mbtc and ubtc etc... as solution.  Psychologically we have been conditioned to think its better owning 1 of something, not .1 or .01 or .001 and that has been the appeal of altcoins and over the last few days its made a lot of people a lot of money but I think its just gonna drag on BTC.  Now the key is that you have to first purchase BTC before you can even dabble in altcoins so maybe you or someone can help explain how that may hurt/help/not affect BTC? Again, congrats mrees999, all that mining is finally paying off, I would say.  And Happy Thanksgivikah to All!  Oh also, here is link to Gavin Andreson (head of btc foundation for those that dont already know) article he wrote back in August expressing the very same concern of altcoin threat.  http://gavintech.blogspot.com/2013/08/the-macro-economics-of-alt-coins.html

TAM

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Seconding congrats to Mrees

He made an excellent post a week or two ago regarding the possible future of LTC.. and this turned out to be very, very tradeable advice.  The point he makes above that all alt. coins are only useful in terms of their fungibility back into Bitcoins is I think another very interesting point... I for one consider the rush into the alt. coins a bit of irrational exuberance, for this very reason... they are not useful themselves..  My own belief is that there will be a rush back into Bitcoin at some point from these alt. currencies, save maybe for LTC, which might survive.  I am not sure how this will happen since pressure from Alt. Coins  --> Bitcoin would not actually raise the price of Bitcoin directly, right?  It would though tend to take Bitcoins off the market, which would mean that on the currency side, there would be currency chasing even fewer Bitcoins.  Bottom line is that I think the exuberance in Alt. Coins is longer term bullish for BTC.

I also agree heartily with Bowskill's point above... I think that Bitcoin is not just another asset class.. it is the first new, universal, non-governmental money since Gold and Silver.  It's success is the holder's success.. no financial oligarchy!  This is pretty huge when you think about it, and actually makes the case for this time being truly different.  I am not saying it can't or won't get frothy... it has, and it will.  

For now, 0.1 BTC is the new 1.0 BTC.  Someday not too far off, 0.01 BTC will be the new 0.1 BTC.    

 

troof's picture
troof
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This time it's different? Moo?
mrees999 wrote:

Forgot all the rules you've learned from every other market.

Markets are made by people.  People (and the various sub-groups of people) follow a predictable psychology.  That psychology is determined by their DNA.  For the bulk of the human population, there have been no radical changes in that DNA in the short term.  Greed, gambling fever, something-for-nothing mentality, herd behavior, and more are all part of that psychology for the various sub-groups.  .   

The cowboys on their horses move with the herd and seemingly blend in with it.  The herd, as a whole, thinks it's breaking free of the old paradigm.  Look, we can run hither and thither and no one is stopping us or can stop us.  We can stop and graze or we can stampede.  Who can control us.  We can lie down and rest or move on to new pastures.  We're free.  But meanwhile, the cowboys are steadily and inexorably guiding the cattle to market to be auctioned off to the slaughterhouse.  All have their destiny under control except for a few strays who run off and go feral.  The feral ones have a 50-50 chance of survival and self determination in the long term.  Maybe they'll get picked off by predators, maybe they'll survive and reproduce.  The ones who get driven to market have no chance except for the Judas steers.  The cowboys get paid their small share and go home.  But it's the herd owners who gather up the richest profits.  It's all happened before and it'll happen again.

In this chess game, opening moves are limited.  One can move a pawn or one can move a knight.  But as the game progresses and the board opens up, the options for movement expand.  But the goal isn't movements.  The goal is checkmate.  The moves shouldn't be mistaken for the ultimate goal.

We will have a one world currency system whether we want it or not and financial and economic control will be complete.  "And that no man might buy or sell, save he ..."

 

 

 

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Jim H
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Troof

can you please be a little more transparent in terms of the point you are making?  Are you saying that you suspect Bitcoin is some kind of scheme put in place by the financial oligarchy?  If so please explain why you believe this to be.  

I think your view of market behavior is correct.. Bitcoin is and will continue to be subject to these human forces.  That being said, I tend to agree more with MRees that something is different this time.. this is an asset class that has never existed before.. it is still being analyzed and understood, even as it lives in the market.  I think Bitcoin will continue to surprise those who think it a tulip... because it is way, way more useful than a tulip.  We won't have functioning quantum computers for years... and even when we do, do you really think that the Gov't is going to tip their hands by using it first to hack Bitcoins?  I think not.  My prediction is that the current fiat monetary systems will crash and burn before practical quantum computing becomes a reality... so there won't be anything to save.       

troof's picture
troof
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Quicky answer
Jim H wrote:

can you please be a little more transparent in terms of the point you are making?  Are you saying that you suspect Bitcoin is some kind of scheme put in place by the financial oligarchy?  If so please explain why you believe this to be.  

I think your view of market behavior is correct.. Bitcoin is and will continue to be subject to these human forces.  That being said, I tend to agree more with MRees that something is different this time.. this is an asset class that has never existed before.. it is still being analyzed and understood, even as it lives in the market.  I think Bitcoin will continue to surprise those who think it a tulip... because it is way, way more useful than a tulip.  We won't have functioning quantum computers for years... and even when we do, do you really think that the Gov't is going to tip their hands by using it first to hack Bitcoins?  I think not.  My prediction is that the current fiat monetary systems will crash and burn before practical quantum computing becomes a reality... so there won't be anything to save.       

Jim,

I have no proof other of what you mention other than that of past history, which is still generally quite a reliable indicator.  I'm going by inference more than evidence.  Much intelligence work begins this way.  What benefits TPTB is allowed to flourish, spread, and proliferate.  What doesn't is squelched, suppressed, or selectively ignored.  The Rockefellers for example, have selectively helped certain social, educational, religious, and other ideas grow that would serve their purposes by feeding them money from the Rockefeller Foundation. 

Think about past schemes for alternative "currencies" of sorts.  The Hunt brothers.  The individuals (I can't recall their names) who started up their own metallic coin based currency a few years ago.  Both of these groups and others were rapidly stopped dead in their tracks. 

Bitcoin, on the other, is getting media exposure ... a lot of it ... too much actually for something which has the potentially to bypass or circumvent the present controlling system.  If it didn't serve the purpose of TPTB for BTC for have media exposure, do you think it would have media exposure it does?  Think about Ron Paul.  The media gave him only token exposure.  His media appearance was continuously downplayed and minimized in a variety of ways.  He served a purpose as a political/emotional pressure valve and distraction but nothing more.

If Bitcoin could benefit the average person as has been proposed, don't you think government interest would be much more intense and oppositional?  Various government agencies have declared intentions to look into this matter more but the resistance to BTC from the highest levels appears to be token.  Every sense I'm getting is that they want it to spread.  Just like Cyprus was a test case for bail-ins, so too BTC appears to be a test case for a one world currency that can supplant what we presently have.  Whether it succeeds or not is not important.  What is important is that information is being gathered by TPTB to note growth, spread, public acceptance, rapidity of change, etc. that can facilitate a more effective and efficient conversion to one world currency when the time comes, which it will.  It is economic shock testing (reference the article I posted a while back on Silent Weapons for Quiet Wars).  It is laying the path for what is to be.  It is a template.  It won't be hacked to stop it.  Rather, it will be promoted and morphed into what is most advantageous to TPTB.  It will be presented as a favorable alternative to the present system when, in fact, it will bring the masses even deeper into the clutches of TPTB.  Think of the end game, Jim, and what has to be accomplished to get there.

P.S. Regarding quantum computing, things are much farther along than the public realizes and not with those that the public suspects.  I'm off to Thanksgiving dinner but I'll return to this subject this evening or tomorrow.  Have a great Thanksgiving!

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mrees999
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The average owner of digital currencies. Forget the old rules.

The average owner of digital currencies. Forget the old rules.

It is funny how people who still don’t understand bitcoin and digital currencies still try to apply old paradigms to this new phenomenon that has no equal. Take a moment to realize that I take the time to back up my reasoning with references so you can see the background I use to make my determinations and allow you to verify for yourselves rather than just throw out unsubstantiated opinion or “gut feelings” based on nothing put non-applicable past history.

To put you in the correct frame of mind and give you the correct lens to view this realm, let me quote Ghandi.

First they ignore you, then they laugh at you, then they fight you, then you win.
 

I submit two references for my research for you to read for yourself and feel free to analyze my interpretation.  People commonly mistake bitcoin as just another investment – but to most of the people who own it, it’s a MOVEMENT. They don’t care to trade it. They don’t care what the media says – they scoff at the idea that they will dump it. If you’re waiting for a crash to say “I told you so” – good luck with that.

 

A fairly recent poll and look into the kind of person owns  bitcoin was done and is referenced here:

http://simulacrum.cc/2013/03/04/the-demographics-of-bitcoin-part-1-updated/

I’ll highlight a couple of key points,

The average person is Male (92%). 32.1 years old. Libetarian. Anrcho-capitalist. full-time job. A huge percentage is in the twenties.  Does this sound like your average “stock trader”?  I am part of the community. Let me give you some insight to what we talk about and how we view the world.

The so-called experts you might find on CNBC, Forbes Magazine, Financial times, Wall Street Journal have completely missed the boat.  Do you think if they had know it would return 8000% so far this year that they would have told everybody they know to BUY BUY BUY! (Jim Cramer).  Maybe the biggest opportunity to gain riches they’ve been a part of? – Where were they – if they are so smart? Are you talking their current talk any more serious than you did a year ago?  Have they proved themselves a reliable source yet?

Between 2009 and 2010 – They ignored you. But the very smart technical people that also witnessed the banking crises then sowed the seeds of genesis for the experimentation were sown.  These kids set up $3,000 mining machines and LOST money in electricity and equipment cost for years never knowing if the units that were given the initial value of ¼ of a penny would ever amount to anything for sure – just a vision and being part of a MOVEMENT. Being mostly Libetarian – they don’t trust government and know economics well enough to know money was being printed out of thin air with reckless abandon since this started. So ask yourself “what has changed for them to change their mind now and not believe in the movement”?

Our community knew, like many on this website, about the benefits of gold and silver. The program itself was written to mimic gold intentionally.  Only this community had the vision of the internet age and realized the potential to own limited supply number of units and be able to transfer and conduct business electronically using the internet without a third part\bank to need to be trusted. They saw the world burned by the banking system and get off Scott-free. What has changed? Do you think they want to give up their currency for that hyper-inflated cash system controlled by crooked monetary policy and banksters?  We are very much smarter than your average person.(Said as humbly as possible).

This community consider themselves to almost be insiders to a club. They’ve been made fun of and harassed since the beginning. Misunderstanding about the technology and myths and misinformation make up 95% of the talk about bitcoin in the media.  Yet you don’t see them selling out of embarrassment - it solidifies their commitment and causes self-justification. All the talk of “bubble” hasn’t made them itchy or nervous. The very early adopters are generally millionaires on paper. They fully expect to become billionaires as the MOVEMENT picks up speed any nearing worthless paper money all flies toward the gravity being created by the currency that has so far at least, not ever been manipulated and can’t be counterfeit or inflated. Because it’s an open ledger system – banks can use it effectively for hidden, off-balance book reporting and derivatives.   

Media coverage is most likely to mention the ability to buy drugs\weapons in the mysterious “silk road” type web-sites. But giving to charity and donations make up almost four times the amount of those that engage in illegal purchases. How often is that reported in the news?  The first three years I was on the internet-  the most common response to me was the internet was only used for porn and getting instructions to make bombs. They fear what they don’t understand.

By far the most distinguishing factor for bitcoin owners was it was intellectually rewarding.  Not the money?  Even though it has made them wealthy – they are technical visionaries well versed in economic and monetary principals - not stock traders.

 

What do people actually buy with bitcoins? As many people mistakenly try to slot the protocol and digital currency system as they would a stock or commodity-  (still in their non-applicable paradigms) they forget that it is a currency as spent like a currency as well.  Here’s a survey of how they spend it.

http://simulacrum.cc/2013/04/15/what-do-people-actually-buy-with-bitcoin/?relatedposts_exclude=495

 

Again, they use it for gifts by far most often.  Did you hear that on CNBC?  Do they get it?  These are the people that call it a bubble – but they don’t see it also being spent and hundreds of companies signing up every day to use it including research and consideration by PayPal\Ebay?  Coinbase and bitpay have made it so easy that companies can install an app on any smartphone and take payment – linking to their coinbase account and have it instantly traded of US dollars for less than 1% (Free for the first million in transactions.  They can do this without setting up a Point of Sale system. Just the smartphone they already own, and a free app. Do you see an attraction to that?  How can Visa\Mastercard\American Express compete with that?  But is that reported in the predictions of doom and bubble talk?  Is bitcoin a stock?  Coinbase is happy to take that bitcoin back in exchange for cash – so they can resell it to us with our bank accounts linked to them to repurchase it. They are happy to spend bitcoin to keep the movement going – but they quickly replace what they just spent with a new purchase of equivalent bitcoin so it’s of little consequence that they spent some. Their inventory didn’t go down a bit.

But much more people are holding it. Because it is a MOVEMENT they are emotionally attached to it.  Anybody who has bought and held is a WINNER. The only losers have been those that traded out of it. Think about that.  Are they going to be in a rush to sell and join that losing team?

 

Using Gandi’s quote, we are at the “then they laugh at you”. Do a quick google search and see how many times one of the financial websites\tv shows\ newspaper have already written off and declared the death of bitcoin.  Some of them several times. They still don’t understand it’s not an investment – it’s a movement. There is a big difference.

We might be starting to see the beginning rumblings of the next stage. “Then they fight you”. And some of are preparing. See some in the movement getting ready for “Dark Wallets” if they need to take the currency underground.

I reference this point – just so you get the emphasize the fact that because it’s a movement – you can throw out the old rules. When was a stock or commodity also a “movement”?

Ask yourself…”Is it really different this time”?

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mrees999
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Thank you for the cudo's. 

Thank you for the cudo's.  Just for the record - I myself don't have illusions that almost any of the alt currencies have much of a future.  Some of them truly are improvements over bitcoin and we can think of them as a bitcoin 2.0 or whatever. But Litecoin probably will survive. It has a completely different encryption method that can act as redundancy. If by any remote chance bitcoin suffers an unexpected setback - this would have no effect technically on the litecoin implementation. Although temporary financial "Sympathy" shock would be expected.

But I put a little money into them because a lot of people want to be the next bitcoin millionaire and buy these little currencies for pennies and repeat the history of bitcoin. Some of the bitcoin millionaires have so much paper wealth that they can spend a few fractions of one or two bitcoins and "Play the market" just for fun.  Like a roulette wheel, they can place "bets" and a lot of numbers.  One of the top three ways bitcoin is used is for gambling websites.  Putting a few bucks on these alt currencies has a lot better odds as they understand human nature. It's a lot more predictable than randomness of house odds.

It will likely eventually coalesce  down to the two or three dominant players. as technically there's probably not a need for more. I've already had trouble buying bitcoins as some of the exchanges "sold out".  I was told by coinbase that my purchase may not go through for a few days and I would have to pay the prevailing rate on that day.  Litecoin would have helped take off some of that pressure had it been available for purchase through coinbase. I think it will soon especially as the inventor of litecoin works there :-)  As the natural ration of bitcoins to litecoins is four to one - fair valuation could be argued to reflect that.  1/4 of $1100 (Price right now) is 275...current litecoin price is ~45... Good investment opportunity?

 

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mrees999
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Thanks!

Thanks!

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bitcoin: a currency/fundamental analysis

Here's a back-of-the-envelope attempt to sketch out a fundamental case for BTC - which is currently a prototype form of Internet Cash.  First I look at how it compares to other means of purchase, and then I see what the need for Internet Cash really is, based on transaction volumes.

Backing

So many people suggest that the dollar is completely unbacked - a fiat currency, and the same thing is true for BTC.  It is not true, the dollar is backed by what it can buy, namely stuff in America (at the most core-level analysis).  Americans will always have a demand for dollars, to pay down all that dollar-denominated debt, and so they'll be willing to sell stuff to anyone that come with dollars in hand.

BItcoin is also backed by what people are able to buy with it.  Here, BTC and the buck have the same type of backing, but because few people are willing to accept it (currently) for transactions, the backing is still bit sketchy.  [When it is Big News that someone is willing to accept BTC for their house, that's a clue - for instance, its never news that someone is willing to accept USD for their home]

Artificial Scarcity

BTC is better than the buck regarding scarcity.  The popular collectable card products (magic the gathering, baseball cards) retain value because of artificial scarcity.   BTC has that same attribute.

Do copycat *coin products dilute BTC?  Are they a way of breaking the artificial scarcity?  I'm not sure MTG had any real competition in its genre - perhaps someone in the field can comment.  I'm equally unsure of the competing *coin products.  It remains an open question for me.

Counterfeiting & Fraud

BTC (assuming no cryptographic breakthroughs - which is a critical assumption) is seemingly impossible to counterfeit, and it has a cheap (but non-realtime) validation mechanism.  In this, its better than any competitor - including gold.  Gold can't be counterfeited, but validation is not so cheap.  FRNs can be counterfeited; there are validation steps, but they don't approach the level of certainty that BTC has for the man on the street.  In addition, official policy can result in vast amounts of counterfeiting/devaluation of FRNs too.

Credit cards have fraud issues (someone in the system has to stand ready to absorb the billions in credit card fraud losses) as do checks - and the person absorbing the fraud for checks is the selling party.

BTC seems like a win here - when you include fraud and validation costs, as long as the sale doesn't need to be realtime.  What's more, there are no long term official devaluation issues.

Point of Sale/Interchange Fees

BTC seems to have a cost edge.  Electronic (credit/debit) purchases all involve having a 1-2% skim from a bank.  Paypal too.  Gold (in many places) has a 3-5% bid/ask spread.  FRN purchases are free for both parties - its the only zero-cost transaction mechanism.  Checks are very low cost, but there is a serious fraud risk with checks.  And currency conversion of any kind has a fee too - perhaps 2% as well.

 

So, where do BTC's strengths best apply, and how many of them do we need for the economy to work?  And what does that imply for the eventual valuation of BTC (and/or some form of Internet Cash)?

Where does BTC work best?

How about shopping in person?  No, FRNs win, credit products have other advantages, no delay is required for verification [BTC verification is non-realtime], etc.  I think the volume of BTC in person transactions will not be that great.

How about shopping online?  From a seller perspective, BTC is great, since the fees are quite low, there is no fraud, and transactions cannot be revoked.  Things are less great for purchasers, since there are no chargebacks so the buyer loses power.  However they are more anonymous - they serve the purpose of "internet cash."

This would seem to be an important (unserved) market.  BTC won't replace FRNs in-person, nor will they replace credit as the vehicle of choice for buying most Internet products - it is just too handy to charge something back if you didn't get what you wanted.

While not every internet transaction really wants to be in cash (the remoteness of the transaction and the delay in fulfillment would seem to beg for some sort of revocation ability), for the percentage that do demand cash, BTC/Internet Cash is exactly the right thing.

The Need/BTC Valuation

So how much dollar-value Internet cash is needed out there anyway?  Some simple math comparing the current cash in circulation with the total retail transaction volume might give us a ballpark number.

Right now, there is about 1.1 trillion USD and 900 billion euros in circulation worldwide.  Call that 2.3 trillion in cash in the two major economic areas.  Total retail transactions in 2012 were about 30 trillion worldwide.  Round up, and call it a 30:3 (10:1) transactions:cash ratio.  Internet e-commerce was about 1 Trillion.  So let's say BTC (Internet Cash all put together) in circulation could top out at that same ratio - 10:1, which would yield an ultimate USD $100B in Internet Cash need.  This suggests there is currently a massive unmet need for cash in Internet transactions.

Currently:

12M bitcoins x BTC $1150 -> market cap $13.8B USD

So if we assume BTC is the primary form of Internet Cash, that would yield a value of:

100B Internet Cash need / 20M BTC = $5,000 USD per BTC

Sky is the Limit?

Is "the sky the limit?"  I don't think so.  But $5000...is a lot higher value than I first thought.  Naturally speculation could drive it higher, but also this calculation assumes that BTC are needed for a decent subset of Internet transactions (perhaps 20-30%).

Are BTC used in $300 billion of Internet transactions per year?  No.  Right now, there is only a small fundamental need.  It's a gold rush, with actual utility to be provided later.  But the ultimate need does seem to be there.

Perhaps this will be like the Internet stocks.  Right now, we don't need 100B in Internet cash to handle the current number of cash-based internet transactions.  A great deal of the current value is pure speculation - gambling.  Maybe this will be like CSCO or EBAY or AMZN - worth absurd multiples of their actual worth as companies at the top of the 2000 bubble, but slowly over time approaching realistic valuations based on actual ROI 13 years later.

Predictions

This is not to be interpreted as a "buy BTC until it hits $5000" recommendation.  A really massive amount of BTC demand right now is speculative, and is completely detached from the fundamental need of BTC as Internet Cash.  BTC price could go anywhere.  I watch price/volume to see what the speculative demand is doing at any given moment.  And given the amount of money sloshing around the overall system today (SPX 1810!!) is it any surprise that some of it sloshed over into bitcoin?

If we had some sort of "deflationary event" I think it is likely BTC would dramatically sell off, since people would focus on the types of currency that allow them to pay off their debt.  Of course most other things would sell off too - but the things with a larger speculative component in them would (more likely than not) sell off the most dramatically.

Provided for your amusement, not intended as financial advice, etc, etc.

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Good analysis

Good analysis

I can't say I really disagree with any of your analysis here. It seams well thought out an reasonable and very business-like. But it is limited in scope.

There are at least five areas with different fundamentals that bitcoin could displace. Credit card and cash-like transactions are only one. (Although you failed to bring up the emerging market of micro payments where a 25 or 30 cent fee on top of the 3 to 5% would break the idea of charging 1 or 2 pennies to read a newsletter page or book on line etc. There is work being done to explore this possibility built into the web browsers. You obviously can't do that with credit cards. Micropayments might be the key that keep on-line publications viable and represents a totally new business model.

 

 

Remittances - This is the FIRST killer app for bitcoin network.  There are already more transfers through the bitcoin network daily than Western Union. See their stock plummet. The transfers take minutes instead of days. Remittances to Africa can be upwards of 9% and by the time it reaches the poor, 30% can be taken in total.

http://www.coindesk.com/bitpesa-uses-bitcoin-slash-kenyan-remittance-costs/

How much is the remittences market worth? - Probably close to a Trillion right there.

 

Right now - gold is in a fight for it's life against bitcoin.  For the price of once ounce of gold last January in bitcoin you can buy well over 100 ounces of the stuff. Gold is over 7 trillion dollars in the world. If just 5% of gold holders switched to bitcoin, where does that put it's market value? The wall of worry that is holding the gold holders back is starting to crack.

Here's a pretty entertaining video that brings up much of this for your further research:

 

 

 

 

 

 

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bitcoin: remittances

Article from world bank on remittances:

http://www.worldbank.org/en/news/press-release/2013/10/02/developing-countries-remittances-2013-world-bank

WASHINGTON, October 2, 2013 – Remittances to the developing world are expected to grow by 6.3 percent this year to $414 billion and are projected to cross the half-trillion mark by 2016, according to revised estimates and forecasts issued today by the World Bank.

The high cost of sending money through official channels continues to be an obstacle to the utilization of remittances for development purposes, as people seek out informal channels as their preferred means for sending money home. The global average cost for sending remittances is 9 percent, broadly unchanged from 2012.

So, not a trillion, more like 400 billion - but still a big number.  And the 9% costs number is accurate.  Could be an interesting market.  Its in the emerging market countries, however.  Currently the banks there have an absurdly high 'take' from the remittances cashflow so it would seem like a simple matter to compete with them.  However, if you've ever dealt with business in an emerging market country, you'd know that poking your nose into a powerful local entity's revenue stream can result in a quick "accidental death."  (I have friends who have told me about a possible business venture - "Oh I couldn't do that, I'd be killed."  And these are people with connections.  Someone without connections...I shudder to think.)

It would be a simple matter to set up a non-bitcoin remittance effort in competition to existing banks.  9% profit margin would seem to be ample incentive.  Why hasn't that happened?  I don't think the "easy money" is really that easy.  Remittance customers want local currency to pay their debts & buy food.  They don't want to hold BTC.

My prediction: it will start to happen, it will start to bite into local bank revenues, and then it will get stamped out by the authorities (tools of the local bankers) - fighting terrorism, money laundering, etc.

Regarding gold - If my assessment is accurate, and the total value of bitcoin "Internet Cash" is going to be perhaps 300 billion, and gold 7 trillion, I'm not certain I'd classify gold as being in "a fight for its life."

Lastly, when a big problem hits, people will flee to safety and local currencies - they want to be able to buy food and make debt payments.  (No debt payments = they lose stuff they care about).  If the actual utility from internet retail cash transactions hasn't come on line just yet, I believe that the speculative bitcoin holdings will be the first thing thrown under the bus.  Deflationary event = speculative air in most markets get completely wrung out, and then some.  Look at oil in the 08-09 crash.  Oil runs civilization, yet it dropped from 140 to 30.

I might point out - gold fared much better than oil.

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Monopoly

The trend on the globe is to fascist monopoly therefore there is no way the powers that be are going to allow Bitcoin to takeover.  The powers will seize the computers and make use punishable with prison.  

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Great posts dave and mrees.

Interesting profile of the early adopters of bitcoin posted by mrees. It is very interesting that when a disruptive technology like bitcoin starts to reach beyond the early adopters, people look to others of previous eminence for guidance and judgment.

I was working in IT in the 90's and clearly remember Bill Gates missing the arrival of the Internet. He described it as passing fad and gave Netscape a full twelve months jump on Microsoft. Of course Bill realised his mistake and by 1996 everything Microsoft was suddenly Internet focused.

There was a guy who had pretty much already achieved his own disruptive vision of a computer on every desktop. Fully qualified, you would think, to pass judgement on this new internet thing.

Not one of my adult friends has heard of bitcoin. My 16 year old son says all his school mates know what it is.

Some of the current crop of "expert commentators" are going to be late onto this bitcoin thing. That doesnt matter to the young ones making it happen.

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sand_puppy
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College kids know bitcoin and 9/11

Thanks for you comment on bitcoins, bowskill.  I have also been amazed that the college kids know about 9/11 being a false flag.  This knowledge and attitude really seems to be a generational thing.  The idea is common and familiar in the college aged kids.  After I indicate a bit of openness, I can't tell you how many have recommend to me "Loose Change 2" and "Zeitgeist", two of the early indy films on 9/11.

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Fed electronic cash

Here's a possible risk/competition to BTC - a theoretical, as-of-yet undeveloped "electronic cash" instrument (which I'll call "FedCoin") deployed by the Fed in order to co-opt the whole BTC deployment.

FDC would be convertible to USD cash 1:1, and the Fed would simply suck up the cost of maintaining the servers and infrastructure, much as they do in printing dollars in order to keep currency in circulation.  The motivation: they prefer to maintain their monopoly on issuing money.

FDCs would be entered as cash on the Fed's balance sheet.

People with bank accounts - or with cash - could turn deposits or money into FDC in any number of different ways.

This would of course be a centralized model run by the Fed, but the money would not need to be traceable.  For instance, if the Fed issued FDCs in "bills" - with no ability to split them - FDCs could circulate without touching a Fed server until a time of deposit into a banking institution, and validation could occur just using the Fed's public key.

So they'd be anonymous, and from the merchant's perspective, FDC would be a lot more stable in terms of value, and accepting FDCs would be just as advantageous as accepting BTCs are.  From the standpoint of doing business, the merchant would definitely be a happier camper, because they wouldn't have the volatility of BTC to deal with.  (Volatility is all well and good as long as the value just goes up, but its substantially less good when values fall).

And the buyer would have the same anonymity as cash (bills have serial numbers, after all).

And the depositing of FDC into bank accounts would be seamless, as would withdrawls.

Your friendly libertarian gang wouldn't like it, but - quite possibly - FDC would likely prove stiff competition for BTC.

This is just a speculation of course, and most likely if the gang in charge wanted to stomp out BTC they'd do it with Law Enforcement, but if instead they wanted to co-opt the whole internet cash party, this is one way they might do it.

If I were writing the BTC "business plan" I'd put this under the "Risks" section.  Again, if the need is great enough - and we're talking about a prospective issuance of virtual cash with a total value of about 10% of the existing currency in circulation - what is to stop the central authorities from trying to come to the party too?

After all, issuing currency is their business.

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oh, I see. Like with

oh, I see. Like with Torrents?

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Why the surprise? It is all going as expected

I don't think the FDC is really a risk. Honestly, who in their right mind would buy FDC outside of the US. So it would essentially be just another local currency. And if the Fed keeps printing it will essentially be another inflationary currency. Just a change of dress while going to zero.

But apart from all this, I really do not understand the surprise from people in this thread (or in this forum).

I mean, we have all seen the Crash Course. Some of us several times. We know very well how fiat money had to go. How each QE was kicking the can down the road on the one side, and making IT a bigger bubble on the other. We know how a bubble inflate slowly and deflate rapidly (or more rapidly). So yes, this IS a bubble. It is just that it is not the growing part of a bubble, it is the collapsing of a bubble. And the bubble is called FIAT money.

See it collapsing in real time here: http://fiatleak.com/

If all this has happened with gold you would not call it a bubble right? Would would have said, "of course it had to happen". But in the age of the internet who can buy physical gold? And to store it where? Really we expected the future to mean people digging holes in the ground to store physical gold. So 16th century :). And I believed in it too. Enough to invest a bit in it. 

Here is a blog that described everything that was about to happen:

http://servanlog.blogspot.pt/search/label/bitcoin

I would suggest to anyone to read ALL Servan's posts. It is only 4 (but long). Check out the dates:

December, 2010: The State Is Dead, Roll On the Global Free Republic

May, 2011: The Infostate And The Colour Of Money

August, 2011: Bitcoin fear and Gold, trade in a post central bank world

February, 2013: Bitcoin Has No Competitors ?

All this was predicted. Will the bitcoin "bubble" burst? If it will so many people will use this as an opportunity to just jump in. This is not a bubble because it gives new opportunities. 

See how bitcoin can be used to set up contracts: https://en.bitcoin.it/wiki/Contracts

Register documents: http://www.proofofexistence.com/

Which then can define new forms of companies not based anywhere but the internet:

http://firstblockchain.com/

And this using the Bitcoin network. But the Bitcoin network is only the first one. Here is a presentation of 4  others:

http://motherboard.vice.com/blog/beyond-bitcoin-a-guide-to-the-most-promising-cryptocurrencies

And here a list of all others: http://www.criptovalute.it/home

Now some are absolutely copycat of bitcoin. They only exist so the issuer can hope to make some money. But some represent real improvement (like all the ones in the article above). This is why after people go into bitcoin, and realise they have lost the train for far too long (as we ALL have done). If only I have bought bitcoin when I first heard about at the end of 2009. Then people say, hey, but I might not be too late for the others crypto. And this is really true. because even though we "know" that crypto are cue future. nobody know exactly which crypto will survive. Now is twitter and FB. But who remembers livejournal and myspace and orkut. They still exist (LJ is strong in Russia, and Orkut in Brasil). Orkut was the first to introduce the requirement for people to sign into with their real name. Something which was so important for Facebook. FB would never have picked up if you couldn't search in it and have a high probability to find your long lost friends. Those sites are all easily forgotten, but those were all other services that were necessary to come here.

So maybe Bitcoin will not stick, but it is the breakthrough. And it represents the passage. Many of those other currencies now trade for few dollars. But to buy them you usually can only buy them for bitcoins. And I grant you that not all will survive. But some will. And at least one or possibly to will make it. Which is why after people get into bitcoin they realise that their winning is only temporary, and they start to panic and differentiate among the various other crypto.

But those crypto, as I said, are not just a new currency. They represent the way to set up easily anonymous secure technologies. And many people are exploring this right now. Look for example at: http://opentransactions.org/ ( see also Forbes on this)

In short, no it is not a bubble. I stand with mres999 on all he said.

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who in their right mind wants dollars?

This is something I read a lot, and its a US-centric view.  If you travel overseas, especially to the emerging market countries, there are a large number of people who think dollars are substantially better than their local currency.

This includes pretty much anyone in the eurozone periphery when things start to get bad and there are increased rumors of a eurozone breakup.  The euro plunges, dollars get bought, and they materialize in the US as bank deposits.

The demand for USD is significant.  The subculture that imagines the USD is decaying trash is just that - its a subculture.  Big Money does not have that attitude.  If it did, USD would have broken below 72 and would be dropping right now.  Its one of those proofs-by-existence.

Most certainly 1970-2008 was inflationary - it was the massive increase in debt-money that caused this.  But that's not happening anymore.  The debt-money bubble has popped.

And as for FDC being a "local only" currency - the US is the largest market in the world.  I think the Fed would be ok with a "local only" success.  However I believe FDC would be internationally popular too.

Online retailers would most certainly love it.  A zero-volatility way for them to accept non-repudiatable transactions with no banker skim?  That is free money with no risk, an instant addition to their bottom line.  For most retailers, it would be better than BTC.

The key question for me is, would the Fed do this?  It would mean releasing control over the ability to easily trace money flows - moving cash is difficult, and banks act as a choke-point for electronic transfers.  Our Minister of Internal Security - uh I mean our defense cartel that "keeps us all safe" would probably have something to say about that.

http://en.wikipedia.org/wiki/Junta_(game)

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mrees999
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Capital controls and mutually assured economic destruction

Capital controls and mutually assured economic destruction.

One way very poorly managed countries keep money from leaving their economies is to issue capital controls. They forbid their citizens from buying foreign currencies.  See Argentina, Iran, and Venezuela for the current examples.  – They also forbid them from owning gold.  People in these countries are increasing turning to bitcoin.  As they can remain anonymous and trading for bitcoin in person with services like localbitcoins.com increases. Not only does it keep their purchasing power, it increases it dramatically as the price increases and as more of the country-men become more desperate.

You mention the mythical federal digital currency but I have high doubts about this.  Like it or not, bitcoin is completely neutral. It will likely become a reserve currency. Do you think China would trade or accept a FDC in trade?  Would the US accept a Chinese version of it? As bad as each of these countries would like to create their own and have it accepted by all the other countries, they all realize there is no need for anything other than the current country agnostic version that’s already established.  I believe that trying to convince all the other countries to accept their own version is unlikely. They all point fingers to the other countries and call them currency manipulators.  What would work is a currency that answers to no one.  It was pre-programed and can’t be manipulated without all the current users knowing it and agreeing to it.

I suspect that the US would LOVE bitcoin to sweep up the Chinese currency, or other “unfriendly” nations that play fast and loose with their economies so they can be more disciplined and trusted.  The world bank and Bank of International Settlements might love the ability to verify that accounting they report by verifying that on the block chain. They could avoid the accounting problems that Greece created by underreporting debts on the books.  But you can argue that other counties would say that should apply to the US as well.  It might have to come down to a currency that is non-central government specific. A currency that everybody already trusts and vetted and would be resistant to takeover by attack. The current price-tag of “catching up” with the computer power of the bitcoin network is 2.6 billion dollars and doubling every month based on the difficulty rating. This can be tracked in real time here: http://www.coinometrics.com/bitcoin/brix

Difficulty rating:

https://blockchain.info/charts/difficulty.

 

You might agree that if we think of this logically based off from motivation of self-preservation the “Threat analysis teams have likely already ran this scenario.  Perhaps this is why they’ve chosen the approach to adapt to it rather than try to kill it.  If they did, one of the other natural digital currencies would just quickly take its place and as it runs on completely different cryptology (scrypt) all of the bitcoin hardware would be useless. – Again they would have to fight the increasing complexity and cost of a runaway network. As it stands - I imagine all countries in a circle pointing fingers at each other as the problem. While bitcoin continues to churn away...getting more expensive, getting more respect, and not caring what any of them think. It's not allies or enemies to anyone.  To try to destroy it would make the rest of the world consolidate their anger to that one country. To have one country offer to be 'the solution" would be met with much eye-rolling from the others.

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Classic Paperbug Post by DaveF

Dave made a post yesterday that is just pure Paperbug BS...  if you have not realized it before, DaveF is our stealth defender of the dollar and TPTB.  Dave wants you to believe that the current paradigm will go on.. he wants you to feel confident in the FED and the dollar.  That is his message.. and as always, I find it subversive in the context of our discussions here at PP.com.     

Dave will lie to you by saying things like this;

Most certainly 1970-2008 was inflationary - it was the massive increase in debt-money that caused this.  But that's not happening anymore.  The debt-money bubble has popped.

which are clearly countered by well written pieces like this, written by some dude named Martenson, which shows in chart form that indeed total debt is now again on the rise;

http://mises.org/daily/6597/The-Fed-Must-Inflate

Dave will quote the dollar's relative strength in terms of DXY, which is simply a bunch of fiat currencies referencing against each other...  Dave would have you believe that a FED-backed version of Bitcoin would, could, actually compete with the open source version... does he think people are stupid?  Does he not see that a big part of the allure of Bitcoin is that it is open source software?  Bitcoin is an equalizer.. it cannot be copied by any Government or central entity..  that should be self-evident.    

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Are Dave and Jim meeting for lunch or not?

Dave?

Jim?

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Dave: stealth defender of the dollar

Dave made a post yesterday that is just pure Paperbug BS...  if you have not realized it before, DaveF is our stealth defender of the dollar and TPTB.  Dave wants you to believe that the current paradigm will go on.. he wants you to feel confident in the FED and the dollar.  That is his message.. and as always, I find it subversive in the context of our discussions here at PP.com.   

It seems that Jim felt he had to recharacterize my belief systems in order to discredit what I had to say.  For some reason, he doesn't like addressing the merits of my post.  Its just another day here at PP.

So who am I again?

1) Apparently I'm a stealth defender of the dollar - his main evidence for this is that I have this sneaky habit of looking at the data to verify my worldview, and I go the next step of having the effrontery to actually point out that the buck isn't crashing when...it's not crashing.  I think he has the same problem with my analysis of the gold market.

2) Apparently I want you to believe that the current paradigm will go on.  (Jim presents zero evidence - in fact he just manufactured this one from whole cloth - "I see you are still beating your wife" sort of thing)

3) Apparently I want you to feel confident of the Fed.  (Another manufactured charge, with zero evidence; its not how I feel, but - with Jim, facts aren't so important)

4) Apparently I want you to feel confident of the Dollar.  (Half true.  If you already have some non-dollar insurance - gold would do for that - then as long as the chart doesn't break down, definitely, you should feel confident of the dollar.  As soon as the data changes, then - gasp - stop being confident!  Subversive and paper-buggy, isn't it?  If your debt payments are in dollars, and your living expenses are in dollars, to me it kinda makes sense to have some dollars around.)

Now then, on to the merits of my actual post.  Is a hypothetical Fed-provided internet currency directly convertible 1:1 to USD a possible competitor to BTC?  I think so.  Calling me a bunch of names and manufacturing a fake belief system for me doesn't change this risk.

I think there are significant forces standing in the way of the Fed deploying FDC, but if they did, I believe it would definitely be accepted by internet retailers, regardless of the "non-open-source" nature of the offering.

I know, I'm a party-pooper.  The future for BTC isn't infinite, and there might actually be some risks.  The dollar isn't crashing.  Gold has yet to rally.  Bad Dave, such a Debbie Downer.

Regarding debt growth - TCMDO over 5 years is growing at a fantastic 2% per year, the vast majority of that due to government deficit spending, not private borrowing.  During 2000-2008, TCMDO was growing from 8-12% per year, and the vast majority of that was due to private borrowing.  And in the eurozone, overall debt is shrinking pretty dramatically.

Overall, at best we have zero credit growth in the two main economic zones of the OECD.  The debt bubble has popped.  Debt-money-driven inflation is dead, at least for now.  Without willing borrowers and private credit growth, the Fed and ECB will find it very difficult to inflate "the old-fashioned way" no matter how much they want it to be so.  Which they do, of course.

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davefairtex
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meeting for lunch

Bowskill-

Regarding lunch - last I heard, Jim wanted to bring a camera crew, a personal defense team, and had scheduled an interrogation session.  Me, I just wanted to hang out and chat, so, I don't think we have a meeting of the minds here.  The whole affair smacked of the worst sort of MSM adversarial octo-boxes that end up with ego-filled chestbeating with lots of heat and zero light.

Talk about old paradigm.  So no, I'm not interested in that.

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Chris has a different opinion, and so do I...

DaveF said, in defense of his point about total credit growth slowing;

Regarding debt growth - TCMDO over 5 years is growing at a fantastic 2% per year, the vast majority of that due to government deficit spending, not private borrowing.

I look at data all day... I see what you did Dave.  You took the negative growth years of 2008-2009 and averaged them in... that makes growth seem tame.  It's not.. credit growth is back on track, and it doesn't matter where the bubble is forming, be it student debt (yes) or Gov't deficit spending (yes).. it is still credit growth.

Chris said in his recent Mises.org piece,

That tiny little wiggle happened in 2008-2009, and it apparently nearly brought down the entire global financial system. That little deviation was practically too much all on its own for the markets to handle.

Now debts are climbing again at a quite nice pace. That’s mainly due to the Fed monetizing U.S. federal debt just to keep things patched together. As an aside, based on this chart, we’d expect the Fed to not end their QE efforts until and unless households and corporations once more engage in robust borrowing. The system apparently needs borrowing to keep growing exponentially, or it risks collapse.

http://www.mises.org/daily/6597/The-Fed-Must-Inflate

Why are we talking about the Eurozone?  They are the only ones not printing outright, which means the Euro should be more scarce... stronger, not weaker. 

Dave, we can all see that the dollar is not crashing for now, and that Gold is not rising.  The question is, as always, what is going on under the surface, behind the lying and obfuscation that the powers that be put in front of us to help us stay confident?  Most Western nations are on a runaway train to unsustainable debt growth in a world of depleting resources  .. most of us are here to try to understand the implications of that.  I believe you are actually the subgroup here Dave.. .one of the few who believes that what the markets are telling us is somehow useful, rather than being a charade.    

 

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mrees999
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My predictions for DaveF

Just for the fun of conversation - I've responded to your reply. I'll let the readers decide which of us paints a more likely scenario. I'll leave your comments as they were, and respond with my comments in BOLD so we can keep track of who said what.

 

Regarding the market size of remittances:

you said,

So, not a trillion, more like 400 billion - but still a big number.

The article you linked indicates 550 billion when counting non- 3rd world countries.  So I was including regular bank-wire transfers in my trillion dollar conservative estimate – bank wire transfers are several trillion. I went easy on you. But the math (I’ll use 17 million bitcoins as the real quantity today is 12 million so this will spot us a couple of years. Then the new mining becomes very slow. 21 million that everybody talks about is in 2140 – long after any of us will be alive to care. So let’s talk about number that will have an effect on us.

1 trillion / 17 million = 58,800 each.

 

You said:

 And the 9% costs number is accurate.  Could be an interesting market.  Its in the emerging market countries, however.  Currently the banks there have an absurdly high 'take' from the remittances cashflow so it would seem like a simple matter to compete with them.  However, if you've ever dealt with business in an emerging market country, you'd know that poking your nose into a powerful local entity's revenue stream can result in a quick "accidental death."

  (I have friends who have told me about a possible business venture - "Oh I couldn't do that, I'd be killed."  And these are people with connections.  Someone without connections...I shudder to think.)

I think you misunderstand the meaning of remittances. That specifically is to people not companies. Money transfers to businesses are called “Money. Transfers” I doubt there are people holding guns to a poor person’s head demanding that the $100 check that was just sent  to them for their monthly food has to go to “Vinny’s” check cashing ring.

 

You said:

It would be a simple matter to set up a non-bitcoin remittance effort in competition to existing banks.  9% profit margin would seem to be ample incentive.  Why hasn't that happened?  I don't think the "easy money" is really that easy.  Remittance customers want local currency to pay their debts & buy food.  They don't want to hold BTC.

 

They probably don’t even know about it yet.  I am making predictions for next year, and 2 – 10 years from now as the adoption continues. Adoption rates for the internet were shockingly fast once people learned about it. These people have smart phones –the apps are free. They leapfrogged technology and the old landlines and obsolete technologies that we can or should abandon.   They will be more likely to use the cash as toilet paper if it is still lying around.

You said:

My prediction: it will start to happen, it will start to bite into local bank revenues, and then it will get stamped out by the authorities (tools of the local bankers) - fighting terrorism, money laundering, etc.

My prediction – it will start to happen, and then the banks will adapt to figure out how they will stay in business – as all of their trading partners will have switched to digital currency too and they don’t want to be the last one out. Plus the local banksters will probably be the first ones to adopt digital currency thinking they might have better chances of money laundering etc.

 

you said:

Regarding gold - If my assessment is accurate, and the total value of bitcoin "Internet Cash" is going to be perhaps 300 billion, and gold 7 trillion, I'm not certain I'd classify gold as being in "a fight for its life."

 

I wonder if your assessment of internet cash reflects anything to do with gold. Nobody spends gold on the internet. That’s a completely different market.  Gold has crashed 99% of its value to bitcoin. I can buy 120 ounces of gold for the price of one last January – diverted to bitcoin. Imagine that…one hand holds once ounce of gold – the other hand holds 8.3 pounds of the stuff.  How long do you think it will take gold holders to picture that.  When is the last time you held 8.3 pounds of gold?  ($150,000 at today’s price). I think me predicting 5% of gold holders cashing out would easily be accurate. That much of a dent in demand will wreak havoc in the gold market, I expect a 25% further decrease in Gold price.  5% of 7 trillion =  350 billion. Divide that by 17 million bitcoins = 20,580 per coin.

 

You said:

Lastly, when a big problem hits, people will flee to safety and local currencies - they want to be able to buy food and make debt payments.  (No debt payments = they lose stuff they care about).  If the actual utility from internet retail cash transactions hasn't come on line just yet, I believe that the speculative bitcoin holdings will be the first thing thrown under the bus.  Deflationary event = speculative air in most markets get completely wrung out, and then some.  Look at oil in the 08-09 crash.  Oil runs civilization, yet it dropped from 140 to 30.

 

If all paper currencies have given up \ hyper inflated away as is the current path…and holders will have all fled into bitcoin as following the current trend, paper money will be toilet paper. The only transactions they’ll be making is with somebody’s bottom half.  They will likely be dealing with litecoins or some other less expensive digital currency. By then, bitcoin will probably be the exclusive domain of governmental exchanges and inter-bank high cost transfers that will be on the protected bitcoin network. Litecoins, with the different crypto algorithms,  probably modified to be used with anti-terrorism and government tax enforcement will be the de-facto currency of the common man.  20 years from now the newer generation will be laughing at us that we could ever holding silly pieces of paper with pretty ink and call it currency. And once again, gold and silver will be made into art and enjoyed by all people where it belongs.

Your previous post did some math for digital cash, and you came up with a ball-park figure of about $5,000 of justified price - if I interpreted that correctly. But I think you failed to calculate any BRIC countries or 3rd world -  they added together would equal at least equal to the US\EURO that you used. So let's double that amount to cover them.

 

And now the math:

Digital cash = 10,000 per coin

Gold replacement = 20,500

Remittances = 58,800

 This adds up to almost 90,000 per coin.

But we still didn't touch on investor demand from Hedge Funds that will start to dablle in it. Once one of them starts showing three digit returns, all the investors from competing companies will be demanding the same kinds of returns and a domino effect will emerge as mutual funds \ 401k, pensions all want to get in on the act. This would have a conservative estimate 10 fold increase in demand. That would be 900,000 per coin.

Then lets talk about "safe haven" investments by the world billionaires who suddenly find the concept of hiding wealth in bitcoin very appealing. at "Runforgold,com" they estimate 31 trillion is hidden away by these big guys. Let's say just 5% of that money moves into bitcoin... That's 91,200 per coin on top. So there we have right close to one million per coin. Did I miss anything?

 

Thanks for your entertaining, but hilariously incomplete views. But you're coming along.

What do you think?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
i look at data all day long

...credit growth is back on track, and it doesn't matter where the bubble is forming, be it student debt (yes) or Gov't deficit spending (yes).. it is still credit growth.

Interesting.  Here are three simple (related) questions for you.  Since you look at data all day long, answering them should be reasonably easy:

What level is credit growth today, year over year?

What level is average credit growth over the last 60 years, year over year?

How do you define "back on track?"

If you can answer these three questions, I will be very impressed at your ability to both discover the truth and faithfully report it.

I believe you are actually the subgroup here Dave.. .one of the few who believes that what the markets are telling us is somehow useful, rather than being a charade .

I didn't realize that the truth was one of these "majority rules" sorts of things.  Silly me, I guess I'm outvoted.  Extra credit question: what sort of logical fallacy did Jim just use there?

Most Western nations are on a runaway train to unsustainable debt growth in a world of depleting resources  .. most of us are here to try to understand the implications of that.

Now here's a point of mostly-agreement.  However, I don't think its debt growth that is the problem, I think it's existing debt that causes the trouble.  And depleting resources - 100% agreement, that means those governments can't expect growth to rescue them from their massive debt burden.

The way out?  The simple answer is inflation.  But...how?  Not by more debt growth.  That path has been (more or less) cut off.  People are now generally aware they can't grow national debts without limit.  And private bank credit has stopped growing in the US, and its collapsing in the eurozone.

What's the implication of that?  Inflation?  Yeah, not so much.

That leaves money printing.  But if money printing (in its current form) led inexorably to inflation, we'd have inflation right now.  But we don't.

The goal of the Fed extricating the economy via moderately high inflation argument makes sense, but its just not happening today.

So for me - I await the logic of events, remaining guided by the data I see.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
bitcoin debate

mrees-

Nice data-filled response.  I think it is unfortunate you liberally sprinkled your response with ridicule.  I'm not sure why you do this, since I think your points are interesting.  Perhaps next time you might do me a favor and lose the ridicule.  It makes for a more civilized conversation.

But I digress.

As always these things depend on the assumptions we make.  Lets look at some back-of-the-envelope calculations.

If we put the entire money supply (M2) of the eurozone AND the US into bitcoin, that's 10.9T + 9.2Tx1.35 = 23T US / 12M BTC = $1.9M/BTC.  Your estimate was 1M/coin.  Do I think that 50% of the M2 of Europe AND the US will go into BTC?  No, I do not.

If we assume bitcoin will replace ALL euro and the dollar cash in circulation we get a valuation of 191k per bitcoin.  (2.3 trillion US / 12M bitcoins = $191k/BTC).  Do I think BTC will replace all currency in circulation?  No, I do not.

I also don't think it will become the reserve currency.

I think BTC will have competition.  There's too much money involved for it NOT to have competition.  That competition may take the form of something we haven't seen yet.  Or there might be official competition.  Or a combination of official competition + a law enforcement effort.

I think once things become serious (12 billion is not serious right now - although I freely admit BTC moved higher than I thought it would on this run) then law enforcement will be dragged in on behalf of rich and powerful entities that will be the losers in a bitcoin world.  How might such a thing work?

Under such a regime, running a bitcoin validation server might be illegal.  Possessing bitcoins might be illegal.  Selling things using bitcoins?  Illegal.  And sending packets to a bitcoin server - illegal.  Enforcing possession laws = impossible.  But whacking the servers and detecting retailers that execute transactions?  Easy peasy, especially if the NSA gets involved.  Charge all involved with "faciliating money laundering."  The RIAA was unable to stop torrents, but they are toothless wonders compared to the banking cartel's political power.

And if 95% of retail doesn't go along because of the legal issues, the level of interest will decline dramatically, and with it the BTC valuation.  BTC won't be kllled, but the valuation will drop through the floor, because the amount of stuff you can buy with a BTC will be dramatically limited.

I understand what remittances are.  I even know someone who used to be in the business.  The choke point is the business where BTC is converted into local currency.  The remittance in BTC ends up happening, but the recipient can't pay rent until the BTC conversion to local currency occurs.  If that sort of BTC-currency conversion is forced underground because of local banker influence, the whole remittance via BTC gets a lot more risky, and thus less interesting.

As for wire transfers - its an interesting point.  I've done a number of them to my favorite emerging market country.  I pay about 1%.  If I bought bitcoin, dragged it across the border with a slip of paper, and redeemed it in the destination country, I'd have a bunch of cash, I'd pay bid/ask spread on both sides, and if I were dealing with some official entity, it might be worth saving a few hundred bucks to go through the exercise.  If it were unofficial - i.e. black market - I wouldn't even bother.  The risk of "something bad" happening to me just wouldn't be worth it.  Bottom line - the 1% banker skim is not an attractive enough of a market.  9% yes, 1% no.

As a result, I'm still sticking to the 400B business opportunity, assuming no local law enforcement interference.

End of the day though, when this much money gets involved, people start dying.  I just don't see it playing out as cleanly as you do.  File sharing is one thing, but picking banker pockets is quite another.  Don't get me wrong, I'm all for disintermediating the bankers - but I don't think it will work out as neatly as you project.  And the more successful it gets, and the more profit it takes away, the larger the effort will be to make it illegal.

"This guy used BTC to pay for a terror attack.  BTC needs to be illegal."

Presto.

Mackay's picture
Mackay
Status: Member (Offline)
Joined: Mar 12 2013
Posts: 17
Buying Gold in the Real World

If you look at my "joined" date, you'll see it's March of this year. I joined in the middle of the gold market shock. I actually bought a decently large amount of physical gold at that time and continue to purchase. 

I had been watching this web site for many months prior to joining, and DaveF's input was instrumental in me subscribing. As it happens, his observations saved me several hundred dollars per ounce. I seriously owe him lunch - without spies, cameras or protectors.

When I joined this site, I was looking for a serious analyst with an awareness of our overall sad picture. And I do believe Dave is one.

It's sad to see this subject (very much like the climate change thread) dominated by a person with the intent of shutting it down.

It surprises and disappoints me that Chris and Adam let this continue. Yes, you have to let debate flourish. But a decisive leader will step in when debate is stymied in such a fashion. Gold discussions on PP, through no fault of DaveF, are no longer fruitful.

Mac

gillbilly's picture
gillbilly
Status: Gold Member (Offline)
Joined: Oct 22 2012
Posts: 423
Ideological movement

Mac, I agree to a point. I have defended DaveF's right to be here and how important his role is. I also get tired of the condemnations of his trade (pun intended) as if all traders are somehow evil. I'm sure some traders/bankers/hedgefund managers/etc are selfish pariahs, but certainly not all, and most likely not the majority of them. No, it's no different than all other professions, there are good and bad.  Last time I checked most adults have had to trade in or out of some type of financial instrument at some point in their life.

On the other hand, I think what bothers many (me included) is that our lives have taken on a level of speculation that is not only tiring, but detrimental to ourselves. We literally are forced by the system we've created to think of almost everything within the realm of gambling...our health, our food, our heat, our retirement, etc. Those who thrive on speculation often dismiss the negative effects. in my opinion, DaveF has given a balanced view in all his posts. He acknowledges the negatives and yet accepts the reality as it is for now and give what he considers a helpful analysis. I also think those that challenge DaveF like JimH and Mrees have valid arguments and have their role to fulfill here as well.

Mrees, I would like to bring BTC back to the realm of people since ultimately that's where the concept of money exists. Your use of Ghandi's quote in my opinion is unfortunate. I think even Ghandi would be appaulled since his "movement" was not about money, and yet yours is, but you dismiss that it isn't and call it a movement. As I have stated I'm not enamored with any currency and all have flaws built into them because they were conceptualized and realized by human beings. I will try and respectfully point out some things you might consider in your many posts over the past weekend (which I'm only catching up on now):

Take a moment to realize that I take the time to back up my reasoning with references so you can see the background I use to make my determinations and allow you to verify for yourselves rather than just throw out unsubstantiated opinion or “gut feelings” based on nothing put non-applicable past history.

Non-applicable past history? What is the applicable history? How can something be born completely new out of non-applicable history?

People commonly mistake bitcoin as just another investment – but to most of the people who own it, it’s a MOVEMENT. They don’t care to trade it. They don’t care what the media says – they scoff at the idea that they will dump it.

So most are not trading it? And they don't care what the media says? You've spent the last couple days posting furiously defending it.

The average person is Male (92%). 32.1 years old. Libetarian. Anrcho-capitalist. full-time job. A huge percentage is in the twenties.  Does this sound like your average “stock trader”?  I am part of the community. Let me give you some insight to what we talk about and how we view the world.

Yes this does sound like a lot of stock traders, but what does that matter. What does the 92% male/32 yr old/Libertarian/Anarcho-capitalist demographic say about the present and future of bitcoin?

Maybe the biggest opportunity to gain riches they’ve been a part of? – Where were they – if they are so smart?

As you've pointed out many times, it's increased 9000%. What has increased that much? I remember OTC stocks going up that much back when I used to watch them. OTC stocks are very risky, and most in the finance community limit their risk. So, this statement really doesn't hold up in the face of human behavior. Not everyone is going to plow their money into BTC because it's gone up 9000% just like they don't plow their money into OTC stocks. I know, I know, it's not a stock therefore the analogy is non-applicable. Well, within the "technical" definition maybe so, on the human side of finances, definitely not. Think about it. It still relies on people to have trust and faith in it (so do stocks). Those are human qualities, not computer/networking qualities. Do I believe BTC has a place in the world? Of course, it already does, especially among 32 year old males who spend an enormous time on their gadgets. (sorry, I have to take at least one dig, since you posted that those who don't have access to the internet or smart phone should get a life...some might say the same to you and see you as a part of the "thumbing down" of society. (please use your thumbs for the quotationssmiley)

Is this really an ideological movement, or as you've pointed out a way of getting RICH? I watched one of the videos about how BTC will supposedly undercut the bankers and lawyers.  Is this really a new paradigm? It seems to me to have the same greed and overspeculation built into it. You have also continued to insist that people just don't understand it. Should a currency be that difficult to understand?

Only this community had the vision of the internet age and realized the potential to own limited supply number of units and be able to transfer and conduct business electronically using the internet without a third part\bank to need to be trusted...This community consider themselves to almost be insiders to a club. They’ve been made fun of and harassed since the beginning. Misunderstanding about the technology and myths and misinformation make up 95% of the talk about bitcoin in the media.

You've mentioned your community is really like a club, and this visionary club realized the potential to OWN a limited supply number of units. And how is this a new paradigm? Isn't that how the central banks started? So in the end, a new club of 32 year old males get rich of the backs of the older evildoers? And they'll be different somehow this time?

We are very much smarter than your average person.(Said as humbly as possible).

So glad you were humble:) But, you are one smart person among a world of smart people.

  Even though it has made them wealthy – they are technical visionaries well versed in economic and monetary principals - not stock traders.

Is that what we need to address our predicaments? Technical visionaries? One might argue we have plenty technical visionaries, in fact more than we need, and the technical visionaries in the past have the burden of responsibility of most of our predicaments. Again, do we need smarter people, or do we need wise people? Let's use Google as an example of the much hailed new paradigms. As they profess their ideology, what kinds of houses do they own in Silicon Valley? How do they live their lives? Hasn't Google merely been absorbed into the larger "system?" Do you think BTC will somehow escape this absorption? 

In all sincerity, you do seem very smart, but are you wise?

 

Mackay's picture
Mackay
Status: Member (Offline)
Joined: Mar 12 2013
Posts: 17
Gillbilly, gillbilly

Gillbilly,

gillbilly wrote:

On the other hand, I think what bothers many (me included) is that our lives have taken on a level of speculation that is not only tiring, but detrimental to ourselves. We literally are forced by the system we've created to think of almost everything within the realm of gambling...our health, our food, our heat, our retirement, etc. Those who thrive on speculation often dismiss the negative effects. in my opinion, DaveF has given a balanced view in all his posts. He acknowledges the negatives and yet accepts the reality as it is for now and give what he considers a helpful analysis. I also think those that challenge DaveF like JimH and Mrees have valid arguments and have their role to fulfill here as well.

That's a balanced and honest synthesis.

Your quote that "our lives have taken on a level of speculation that is not only tiring, but detrimental to ourselves" applies to the entire world and most everyone in it. In other words, it's the world we live in.

My main goal here on PP is to increase my resilience and keep an eye on world events through the PP prism so I might have forewarning. A secondary goal is to seek comfort in the writing of the like-minded and periodically escape the insanity of the regular world. The above quote definitely speaks to my secondary goal, which is a powerful one.

Still, resilience, my primary goal, is about observation. It's about watching the changes of the seasons, observing the patterns of the (disappearing) insects. It's about making do and making the most of the unexpected deer carcass because lean times may be around the corner.

I can scream all I want at that five-ton boulder in my garden, but I had better just learn to plant around it.

Cheers,

Mac

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 427
Gillbilly gullibility

Thanks for your feedback Gillibilly. I appreciate that you took a few moments to read my post and cared enough to respond. My intent is to engage in important conversations, and to do that, I found that an author must be passionate and interesting enough to get somebody's attention. So merely the fact you took the time is positive affirmation. So again thank you. 

 

It's also important for me to back up my views and clarifications if there might be misinterpretations. As I think you'd agree we have much in common based on the fact we spend time on PeekProsperity. We likely share same demographics and socio economic backgrounds. I hope you see that I'm not admonishing David's right to be here either. To me, he represents the exact audience that I would like to perhaps one day be open to the possibility of this new world. His view is equally important to me. His skills as a trader are much more sophisticated then mine. I admit that I really have little skill in trading an I would be hard pressed identifying a Bollinger band from an oscillator signal. Strength comes from differences not similarities. I'd rather spend an hour talking with somebody who sees things differently as I am first and foremost a student and have no illusions that I have a monopoly on truth.

 

I hope my reference is not offensive as so far you've only seen only one angle of this movement that I've mentioned related to money. The bitcoin protocol is much much more than about money as you will see in future posts from me.  I make this reference in this framework only because that one quote only fits this paradigm of thinking very well. It is my view that the bitcoin network changes everything from top to bottom but most people have only scratched the surface and talk about the currency of it all. The currency is just data - a database entry. We just happen to assign a value  to it and the price mechanism is the measured equilibrium that humans have assigned its importance. This varies around the world and in some oppressed country, this freedom of information is more valuable than in more free countries. Witness the difference in price for a bitcoin in China vs USA.

My assertion that bitcoin is revolutionary and in world-defining revolutionary must be taken in degrees. It's very complex. It will take years for it to sink in for a lot of people. So many people pre-judge it as a ponzi or pyramid scheme (although most people have moved on from that point). Even the European Central Bank as recently as last November (2012) called it a Ponzi scheme...follwed by awkward silence.

http://www.zerohedge.com/news/2012-11-02/friday-humor-ecb-explains-what-...

Fast forward one year and our own US Fed has finally gotten around to evaluating it and calls it

"A remarkable technical achievement"

http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter...

Perhaps you might agree that this is a pretty serious change of course in just one year from some of the top officials of monetary policy that shape financial decisions for the world. Is it conceivable that this change of heart when faced with reality might be the sign of a "movement" of sorts?

So, what in history have we found an equal to this? Can you give me something from our history that IS applicable?  I would love to hear it.

Regarding the early adopters not spending it:

http://www.forbes.com/sites/jonmatonis/2012/06/22/the-bitcoin-richest-ac...

I hope I don't  come across as needing to defend anything. It will simply swamp you. I'm just giving you a heads up and trying to give you a chance to profit before it does. I consider us all "outsiders" on this blog and I try to help my fellowship.  Once you get the "a-ha" moment you realize this and the effect is you'll feel like a deer in the headlights - as I hear most commonly when you finally "get it". I do try to clear up misunderstandings though.  But there is nothing in it for me really.  I just now posted a link to my bitcoin wallet on another post, but I don't really expect to get donations as my point of being here is to introduce the concept to those that are not yet on-board. They don't have digital wallets or currency in which to donate. So this experiment is only to gage my effectiveness and see if I can raise enough PASSION that they can show appreciation once they do. My plan is to announce the amounts collected so there can be a common gage of "kinship" for the group. That is the best measure I could think of.

On comments about certain people need to get a life:  You took that comment out of context. I said if you don't have a family or friends or pc \ access to a library or smartphone you should get a life.  It would be reasonable to think of a person like this as completely socially awkward and shunted in life. In my opinion there are more important things than bitcoin if one is void of all these things as well. In a priority list, I would place having friends and family and a happy life WAY up further on the needs list. Life is much more than money. Would you agree with that sentiment?

 

About the source of central banks - from what I understand about the history of money, these cartels where started by families such as the "Rothchilds" where very wealthy and used certain trickery to get people to give up their savings used to create the most powerful banks whom then turned into central banks. So, you might be inclined to agree once you study the history of money. This does NOT sound like the current independent and open source community at all.

http://en.wikipedia.org/wiki/Rothschild_family

Here is one of several studies that show educational levels around the world. By smart, I mean educated not the ability to learn quickly. But in context of my essay - not financially literate:

http://www.dosomething.org/tipsandtools/11-facts-about-education-around-...

My assertion that wee need technical visionaries is backed up by looking at the most important developments in the last 200 years. The invention of the automobile, the internet. Telivision, Radio. Satellite. Operating systems, computers, medicines. and I could go on. These are the people that change the world, not stock traders or politicians. My words are self evident.

Thanks again for your comments and feedback. I truly appreciate it.

- Mark.

 

 

 

 

 

 

 

 

 

 

 

 

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5752
A Self-Test for Beliefs

When one finds that emotions are raised by a topic, or by a differing point of view, such as agitation, annoyance, anger, or even a rising sense of threat that seems to travel from the gut towards the heart, it means that a belief system is in play.

This is not say that there's anything wrong with holding beliefs; we all do on almost every facet of our lives, and I would never admonish anyone for having or displaying their beliefs.

However, I find it useful in my own life to be aware of when I am holding a belief vs. when I am holding a well-formed opinion.  Why?  Because beliefs are notorious and tricky masters.  They very cleverly hide conflicting data from us, while cherry-picking the data we wish to see.

I have detected quite a bit of belief oriented posting in this thread, as evidenced by emotional content. Belittling, denigrating, ad hominem attacks are all evidence that we have beliefs in play.  Again, this is normal.  But I want to be clear that belief 'arguments' almost never go anywhere, or lead to any new insights, but regularly become corrosive to the overall atmosphere of the site.

While I will insist on us all being polite, I would invite anyone who finds their emotional state ratcheting up to consider that the main threat does not lie with what someone else is saying, but with what lies inside. Beliefs can be a stone-cold killer when it comes to investing.

In closing, I will leave you all with this chart of a darling stock from the 1990s - JDS Uniphase - which had its own strong following and an excellent set of arguments to support its meteoric rise from a few dollars to over a $1,000 per share.

If there's one thing I've learned around money and investing through various greed and fear cycles, it is that nothing lasts forever.  Today's darlings become tomorrow's forgotten orphans...  I think various people hold various percentage likelihoods for that applying to Bitcoin, but if you find yourself discounting that percentage to 0%, then you might have a belief system in play.

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2387
Who is in, and What is the, "Subculture"?

Let me first be clear;  I have nothing against TA or trading, or traders.  I do though believe that analyzing manipulated markets without acknowledging such makes one complicit in promoting the propaganda that the markets represent.  This is especially true, in my mind, as it relates to the Gold and Silver markets.  We can talk more about this later. 

I don't have time to address too many points right now.. but I do want to address one - and I am sorry that I forgot the exact word Dave used in his original post when I first responded.. I used the word subgroup.. and I meant to use the term he introduced to the dialogue;  Subculture   

Here is his original quote;

The demand for USD is significant.  The subculture that imagines the USD is decaying trash is just that - its a subculture.  Big Money does not have that attitude.  If it did, USD would have broken below 72 and would be dropping right now.  Its one of those proofs-by-existence.

Now I don't know about you, but I consider the word, "subculture" to have some negative connotations.  Wikipedia does too - see underlined;

In sociology, and cultural studies, a subculture is a group of people within a culture that differentiates themselves from the larger culture to which they belong. The term subculture has become deprecated among some researchers, who prefer the term co-culture, in order to avoid the connotations of inferiority associated with the "sub-" prefix.[1][2] While exact definitions vary, the Oxford English Dictionary defines the term as "a cultural group within a larger culture, often having beliefs or interests at variance with those of the larger culture."[3]

So, the way I read Dave's post, if you think that the dollar is destined to become trash based on everything that is happening now.. you are part of a, "subculture"... and the point I was trying to make in my posts was simply this;  I think most of us who frequent PP.com have serious doubts about the dollar.. I consider it trash already based on everything I know... so I think that really Dave is in the, "subculture" of folks to feel the dollar has some kind of a future, at least with respect to the PP.com population.  Somebody could set up a vote to see if I am right..

Why would DaveF use a deprecating term to describe folks who feel the dollar is destined to become trash?   The use of this term was just one facet of a post that  I believe was meant to instill in the reader a Bernaysian sense of confidence in the FED and the dollar, and/or make one feel foolish for feeling otherwise.  Why do I get slammed for attacking Dave's point, when he is really slamming most of the folks who frequent this site in his own special way... do most of you even understand what I am saying?  Am I writing in English?  I appreciate that people don't like the angst of this debate.. I really do.. but I think it is worth it to flesh these things out.  I am sorry that the lunch discussion got so silly and off-base.     

Remember the words of the smartest dollar trash talker subculture guy that I know;

http://www.mises.org/daily/6597/The-Fed-Must-Inflate

For the Fed to achieve anything even close to the historical rate of credit growth, the dollar will have to lose a lot of value. This may in fact be the Fed’s grand plan, and it’s entirely about keeping the financial system primed with sufficient new credit to prevent it from imploding.  

 

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 427
Thanks Chris...but... How do you know?

Chris, I really appreciate your wisdom. You've created one of the best thought provoking websites and I've referred many people to your series regarding the Crash Course.

 

However, I find it interesting that you would compare JDS Enterprise stock in any way to bitcoin.  When did you hear the leader of the ECB reference a US stock?  When have you hear the US Fed mention any US stock.

When have you seen entire enterprises rush to a new foundation of technology around a stock or company? When did you see currency exchanges set up all around the world to accommodate as particular stock? When was the last time you saw any kind of investment in a technology that is not a company? With no advertising or spokesman?  When did you see the price of ANYTHING rise meteoric while being ignored and then ridiculed.

When did a company provide such wide-ranging world changing paradigm  shifts that make entire industries mosly obsolete?  Third party contracts can be stored on the blockchain. Accountants become redundant. Contract attorneys can be eliminated as agreements can be created to be dependent on the clauses stored and tied to the money involved itself? What company or stock seriously threatened the holdings in gold and silver which have already crashed over 99% to the value in anything?

 

When is the last time we had a depreciating world currency? - Or a deflationary stock holding?  Did JDS provide any of these changes or expectations?

How often do you see a stock or company only four years old have a market cap that is larger than at least 120 countries total m1 currency supply? Have you seen anything that closely parallels this that you can give an example of?

Because you are admittedly much more wise and successful than I, it's reasonable that I may ask respectfully and in all honestly.. "How do you know"?

I mean no disrespect in questioning your knowledge on this subject. I realize you track and keep up to date on a lot of different subject and would not have nearly the time or desire to spend as much time on the subject as I have. Your knowledge far exceeds mine on a host of subjects. I am humbly your student on most topics.

Thank you,

 

gillbilly's picture
gillbilly
Status: Gold Member (Offline)
Joined: Oct 22 2012
Posts: 423
Aha moment.

Mrees,

Gullibility, that's a good one (seriously, I enjoy play on words - I thought up "thumbing down" today and was just itching to use it...my apologies if I used it out of context).

What makes you think I don't understand BTC? I understand how the blockchain theoretically works and how it can be used for much more than just financial transactions and conflict resolution (anything in the realm of data and information). I do understand the "value proposition," but so much of the messiness of human behavior is factored out of all of this. Context in conflict resolution can be everything, and thinking that resolution can come through virtual means is  in my opinion completely unrealistic. What many technologists fail to acknowledge is that cultural boundaries exist and they can each adopt different contexts and symbols. These symbols (included in our myths/belief structures) are what anchor a society or culture. Beliefs, are in the end, what we we all cling to because otherwise we as individuals or society will slip into nihilism, relativism, or anomie. So I agree with Chris to a point that beliefs are tricky, but in the end it is all we have and even informed opinions are usually backed by the metaconsciousness of our beliefs. Symbols are as important as facts in my opinion.

Language is one of the prime examples this. If you understand the fundamental symbolic structure and how every word in a particular language relates to every other word, you begin to have a basic understanding in how we relate ourselves to everything else dynamically (i.e. context). Computers are very poor in relation to context. Computers are in many ways technique's triumph of performance over context. It completely disregards dialectical context! So how can something that decontextualizes so much of reality become the answer to our problems and be the primary means of conflict resolution? I think your answer lies in the demographics of users (i.e. those who comfortable within that domain).

You asked for an example? The internet (which allows BTC to exist) was also supposed to be a revolutionary open-source platform, one that was/is individually/socially organized from the bottom. But is it really? If that were true, wouldn't we see much more variety in website design/self expression? The reality is that it is confined within the parameters designed by the programmers' binary language. The structure of binary language itself gives you a glimpse into the realm of decontextualization. But for those who like a nice neat self-referential system devoid of human messiness/emotions/irrationality, it becomes a safe-haven.

You are correct, the technical visionary developments over the past 200 years have been spectacular. But they have been spectacular developments in "performance." Has all this performance ensured us of genuine benefits to society, life, and the biosphere? Not so clear cut is it? To me the aha moment was realizing the world is in a crisis. Not a crisis of economics, but a spiritual crisis! That was and is the deer in the headlights moment. BTC is just another technology wrapped up in the myths of our time. We need to chose a different path that values people, culture, and the biosphere over performance, efficiency, etc. 

Peace!

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 427
Thumbs up to Gillbilly

Gillbily - that was a great post it gets a "thumbs up" from me on your Plus board. I don't disagree with any of it. That's what I love about the internet - it allows people to connect and share idea and beliefs and expand thinking and can do good things. But, this unfortunately makes one of your points invalid.

 

The internet is made of binary language true, but what have humans done with it?  For one thing we can now express ourselves to the entire word using language, symbols and all the other spiritual contextual references you made. I don't know you and will not ever likely meet you in person, but the internet has allowed me to learn from you. And hopefully I've given some valuable knowledge to you as well. For all of the destruction that we see today, given the context there are some good and some bad. If the world population would be the same today in an alternate universe that didn't have the benefits of technology - would we still be burning fires for heat?  How much more starvation would there be without modern farming techniques.

Perhaps there would be more surfs and lords without equal distribution of education and opportunity. But I get your point about the possible sterilization of real friendships and connections. I see the cellphone generation loosing the personal touch and virtual friendships being week substitutes for real friendships. I agree that environmentally there is a lot of room for improvement. But I am hopeful of the future. I wake up in the morning with the smile and look forward to the opportunities of the day rather than weep for the ills of mankind.

Thank you again for expanding and reminding me of the bigger picture as I remain a student of life.

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
the dollar-is-trash subculture

Jim, there is an entire group of people who are certain - they've discounted other outcomes to 0% - that the dollar is going to be trash.  Some even go so far to say that the dollar is currently trash.  What an absurd statement.  Others here at PP know what I'm talking about.  Every time I hear that, I think "how about you send me all of your trashy dollars, I'll give them a good home."  This thinking is what I call the dollar-is-trash subculture.

Big Money - another subculture - doesn't feel this way, at least not today.  The only problem is, Big Money has a lot more votes in the marketplace than the dollar-is-trash subculture does, and they more often than not they dictate where prices end up.

To be clear: I don't have any prediction on where the dollar will go.  The US is the core economy of the world, its my belief we may well have a currency problem, but I believe it is more likely for us to have a problem after Japan and Europe.  Its possible we could go first, its also possible that we all go together in some large cascade.  So I watch, await the logic of events, and I plan to take action according to things as they unfold.  I do not plan to be caught napping.  While I have insurance against some of the particularly bad outcomes, I am not part of the dollar-is-trash subculture.  I'm part of the driven-by-data subculture.  Now that's a small group of people - I'm in the minority wherever I go.

The use of this term was just one facet of a post that  I believe was meant to instill in the reader a Bernaysian sense of confidence in the FED and the dollar, and/or make one feel foolish for feeling otherwise.  Why do I get slammed for attacking Dave's point, when he is really slamming most of the folks who frequent this site in his own special way... do most of you even understand what I am saying?  Am I writing in English?

Ok, you feel put upon because you're trying to defend the honor of everyone at PP whom you think should feel offended that I'm...what am I doing again?  Oh right, I'm saying the dollar hasn't crashed, which happens to challenge what you believe to be the dominant belief system here at PP.  And everyone should feel offended because of this observation of mine?

From what I can see, you work overtime on stuff like this.  But - and I have to say it - that is Not My Problem.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2387
So we agree then....

DaveF said (highlight mine),

The US is the core economy of the world, its my belief we may well have a currency problem, but I believe it is more likely for us to have a problem after Japan and Europe.  Its possible we could go first, its also possible that we all go together in some large cascade.

Thank you. 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
yes we agree!

No problem Jim.  It astounds me you find so much "stuff" in what I write that I never put there.

We totally have a debt problem - public and private - and the eventual resolution of that debt problem may well result in a major currency problem.  Our monetary system doesn't work with declining resource issues, and that won't end well.  One possible outcome: a currency collapse.

But that outcome is not here today.  Nor is that outcome the only outcome possible.

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 427
StreetInsider.com agrees with me. Bitcoin possible $100k price.

According this this article published yesterday -

http://www.streetinsider.com/Analyst+Comments/Bitcoin+Could+Be+Worth+10-...

 

the value of bitcoin might be expected to reach $98,900 - or 100 times its current price at the time of the report.

That matches closely to my estimate number although they left out demand from hedge funds and other Wall Street funds. And didn't mention the "safe-haven" argument.

I don't know if that's accurate either, but at least I'm starting to get good company!  :-)

 

 

 

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 427
New Hong Kong Exchange will allow bitcoin shorting.

Looks like a relatively new exchange still officially in "beta" is live with margin and shorting options.  Check it out here:

https://www.bitfinex.com/

 

 

 

SPAM_seanwilliam1988's picture
SPAM_seanwilliam1988
Status: Member (Offline)
Joined: Feb 10 2014
Posts: 6
If you are new to bitcoin,

If you are new to bitcoin, you better check Bitcoin Daily to get some hints about this new currency. It will help you get broader knowledge before jumping into the bitcoin bandwagon.

Oliveoilguy's picture
Oliveoilguy
Status: Platinum Member (Offline)
Joined: Jun 29 2012
Posts: 578
Bitcoin Options??
mrees999 wrote:

Looks like a relatively new exchange still officially in "beta" is live with margin and shorting options.  Check it out here:

https://www.bitfinex.com/

 

 

 

Sorry...this is too weird. We have a crypto-currency experiencing rigor mortis type gyrations and now people are going to take a leveraged position on it?  What's wrong with Gold, Gardens, Bullets and Solar panels? If I can't touch it and feel it and understand it, my time and money is too precious to gamble on it.

My time spent on PP is searching for sanity and a world where bankers and naked shorts and derivatives don't control my existence.   

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