Remember these words: I should have listened.

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  • Sat, Dec 06, 2014 - 11:34pm

    #1
    mrees999

    mrees999

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    Remember these words: I should have listened.

“I should have listened,” say the skeptics, cynics and the disbelievers. But they are speaking of you and your words once you realize they were right. They may honestly believe that your bitcoin fascination will end sadly, wherein they can dutifully remind you that they told you so.

“I should have listened,” might be the words created during times of frustration in the mind of this reader from time to time. These thoughts and feelings may come to the relatively inexperienced Bitcoiner who may have, unfortunately, purchased a few bitcoin during the peaks to sadly watch the price deflate. For those who only know bitcoin as a possible currency replacement, or an investment in some way that only shows on the surface of bitcoin, it may seem like dark days. They might have read about the great bitcoin crashes in the past, but perhaps the cycle and patterns won’t repeat this time.

Most Bitcoiners have been told, by the ‘experts’ in popular opinion, that bitcoin is a scam, a ponzi scheme, or a joke. It must be true – the public reason, because they read it on the Internet. The public also might get their inside information from their government, their news channel or their neighbor. Everyone must think they are the experts blockchain technology, yet 99% of the population wouldn’t know a blockchain from a dog chain.

The eye sees only what the mind is prepared to comprehend. A quick glance at history will reveal closed societies that refuse to think outside their own paradigm. They shun new ideas or thought and progress.

“It’s a ‘pump and dump.’ You’ve been duped,” they tell us. Many Bitcoiners have tried to explain how it will change the world – but are met with skeptics who point to the steady decline in price as their proof. Most have never heard of blockchain technology, or understand how it is already changing the world. They have yet to learn of the changes they’ll find in passports, privacy and property.

The price of bitcoin has gone down fairly steadily throughout the year and not without reason. There have been major shocks to the bitcoin system this year, such as the spectacular implosion of Mt. Gox. Ominous warnings from repressive governments reminding their citizens that bitcoin isn’t a legal tender, as if they needed reminding that you can’t spend a foreign currency to pay your bills. Yet despite the bad news that seemed to pile on bitcoin to begin the year, bitcoin still hangs around. It still makes the news. The on-air skeptics which laughed only a year ago have straight faced conversations now. Old school economists still can’t believe the world would embrace a paradigm change that would then make their work seem less relevant.

paul

Paul Krugman

Paul Krugman

Famous old-school economists like Paul Krugman may take delight with each price drop. Perhaps he’s writing and rehearsing his speech already: “Bitcoin – I told you so

“I should have listened,” could be the words that haunt some early bitcoin adapters. They were brave enough to think differently than most of the world and many were even told – that they thought foolishly. Early Bitcoiners have largely steeled themselves to these opinions and adapted to become stronger because of the constant barrage of criticism.   New York Magazine’s Kevin Roose, wrote an article in March of this year, describing the bitcoin community as a cult. But sometimes even the critics come around. Kevin recently left New York Magazine to work for ThisIsFusion, his new employer seems intent on promoting bitcointhrough Twitter. Convert, or two-faced? Knowing that your fellow Bitcoiners have also faced the strange looks and sideways tilting heads showed that shared experiences strengthens the bonds in the community. Having somebody call you ‘crazy’ might be a badge of honor in the Bitcoin crowd. That’s a sign you’re now on the ‘inside’. However,  if you are looking for a cult to join – you’ll need to lookelsewhere.

Most in the bitcoin space already know that bitcoin investment is not for the faint of heart. The common mantra from even the Bitcoin Foundation Chief Scientist is: “Do not invest more than you can afford to lose.” Of course, some choose to ignore these words. Others have used the opportunity to double-down on their investment, taking advantage of the cheaper prices. But yet the dark clouds continue to hang over the bitcoin world. The community is likely ready for the “bitcoin weatherman” to give a good news forecast for bitcoin which includes warmer temperatures and sunshine. They want to have the reassurance that they did not give their hearts and minds to a cause and movement that only fizzles while the world reminds them that they should have listened.

The thought that bitcoin could go to zero would be a bitter pill to swallow, probably more than almost any other investment because of the emotional investment many have with the technology. To be fair, it would likely be hard for most to not be emotional about this bitcoin. It is different because it carries the baggage of forcing Bitcoiners into defending it and by extension oneself for believing in the idea because it comes to represent the essence of the individual. One’s judgment and vision may be called into question for following the road less traveled. Defending bitcoin is defending yourself because it is so different. To remain centered, it’s perhaps best to expect the price to reach zero. How does one know if they’ve invested too much money into bitcoin as an investment? If they will lose sleep  if the price of bitcoin goes to zero. Most current day bitcoin investors have yet to have the honey badger of money come to their rescue as he has so often in the past.

It appears that fans in the bitcoin space are increasingly diving into two camps. In one camp we have those who are mostly interested in the speculation and investment. They don’t really care for the politics or movement that has begun around the technology. The Wall Street investors and most venture capital money seem to fall into this category. The other camp is the “hard-core” Bitcoiners who think of it not as a currency or payment system, but as freedom.

It’s a movement.

It might be argued that this group wouldn’t mind so much if the technology promised by the blockchain invention will live on in other currencies or methods that have just begun. Of course, some may be evenly split – but if bitcoin fails the movement will live on through the explosion of innovation that follows.

Bitcoiners are at a unique advantage point to watch the development, understand the advances that are happening in the science and, most importantly, to be there first. Bitcoiners are the ones feeling the pulse of the future in blockchain technology. A skeptic may believe these words that encourage readers to adjust expectations that the bottom could fall out and they are only preparing to concede defeat. However this is not the case. There is no “we’ll get them next year” mentality unlike the fans of every sports team – minus one. Many Bitcoiners have skeptical friends and family who refuse to try to understand what the fuss is all about. They might be all too happy to say those four hated words nobody likes to hear:

I. Told. You. So.


Now for the good news:

star night

 Stubborn rays of hope refuse to be extinguished.

Again, and again, and again the topic of bitcoin relentlessly resurfaces again proving: it’s not dead yet. This fact must be annoying to the critics who haven’t been able to see past their own present paradigms. People EXPECT bitcoin to fail. The longer it hangs around, the more it stays in the news, the more everyone talks about it:  may slowly and silently be chipping away at their resolve. Justifying their opinion becomes more difficult and their ego will instinctively remind them to be consistent with themselves to save face. But reality and ego might be destined for a collision course.

Why does it seem that many Bitcoiners are actually… happy? There are conventions and meetups where people don’t seem to care about the price. Many in the bitcoin space readily admit that the price is perhaps the LEAST interesting part of the bitcoin story. Wall Street firms are preparing to create Equity Trading Funds (ETFs). Commodities Futures  and Trade Commission (CFTC) have already held hearing and the general feeling is that all systems are go. The CFTC is the agency that regulates gold, silver, and other commodities and they consider bitcoin in the same category. Their charge is to guard against price fixing and market manipulations. If they are successful the wild price swings could finally find calmer and  more predictable waters.  The fact that bitcoin currently does not have a stable and predictable price is the biggest knock against it. If we want to use bitcoin as a currency, we need to be able to cross off the “store of value” complaint that critics maintain. It remains to be seen how effective the attempts by the CFTC will be.

How much do these Wall Street companies say about the price of bitcoin these days? The silence is deafening. They are keeping their cards close to their vests. This could be a good sign for bitcoin holders.  Hedge funds, mutual funds, and other big firms have strict restrictions in the kinds of investments they are allowed to allocate funds. When regulations are finalized all the pieces could fall into place that will finally allow the financial vehicles from which they can allocate some diversification money. The regulated bylaws do not allow them to invest in bitcoin directly, just as they cannot invest in gold or silver directly. They do so by using the gold and silver ETFs that track the price and (supposedly) are backed by the asset. If just a one percent investment allocation is diverted toward digital currencies by these huge firms … the price will explode. If just one percent of the allocation of gold investment was hedged into bitcoin – the price will explode. Bitcoin meets the criteria of being the magic word investors love to hear: “non-correlated asset“. In these scenarios, the projected price possibilities are so incredible it may be seen as imprudent to speak of them out loud.  Many of these fund managers are likely licking their chops wanting to get in early. If the price does explode, other mutual fund managers will be under pressure for their own funds to compete. This domino effect could result in its own positive feedback loop.

Circle Internet Financial just came online and out of beta and it is silky smooth.Bitcoin Investment Trust was created by SecondMarket and its first New York regulated exchange is reportedly just waiting for the New York regulators to issue final guidance. PayPal is entering the business. There have been some indications that Dell has more plans for bitcoin beyond just accepting it as a payment option. Many industry experts indicate the hottest job market in the field of technology now is going to bitcoin startups.

New York seems to be closer to having a workable bitcoin licensing plan. Several foreign governments appear to be finally ‘getting it’ and warming to the idea of bitcoin related jobs invigorating their economy.  Wall Street firms need to purchase bitcoin funds at low market value – the lowest possible.  I don’t want to start a conspiracy theory, but logically, would it not make sense to be pleased to see the price of bitcoin going steadily down so they could strategically move into position and buy it up before making any big announcements? Wouldn’t you if in the same position? The entire bitcoin market cap is child’s play for big Wall Street firms. The market is so thinly traded (by Wall Street Standards) that they could probably assign an intern to buy and sell at the right pivot points to send the price exactly where they want it. Or a wealthy hedge fund manager using his personal money over a few lunch hours. For now, small time players will be just have to hang on for the ride. Hope for the best, prepare for the worst.

In short, it seems that the market price and the news lurking around the corner and hidden in the details of news articles, do not align. This may only recognized by those “in the know” that track these events closely and can divine meaning. The current price does not match up with the rumblings of titanic shifts that are underfoot. I do not give financial advice – but I do give caution…don’t get greedy and limit your excitement to what will allow you to sleep peacefully if it doesn’t go as you’ve planned.  But… on the other side of all this talk about preparation – it’s fun to imagine preparing for takeoff. In this case, a safety harness and safety straps may be in order. Strap in for the wild rocket ride that might be possible in the months and years ahead. Remember to keep your hands and feet inside the rocket ride at all times. While you’re on it, try to come up with something good to say every time you hear those four words from your friends, family and foes.

“I Should Have Listened.”

 

“The eye sees only what the mind is prepared to comprehend.”

 Robertson Davies, Tempest-Tost

 

  • Sun, Dec 07, 2014 - 06:39pm

    #2

    Jim H

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    Excellent Bitcoin piece MRees…

Indeed.. Bitcoin is not dead.  A single Bitcoin still fetches $375… what's with that?  That is a far cry from zero. 

Others on PP.com do see the utility as well – a recent comment from JohnShippen;

https://www.peakprosperity.com/comment/173967#comment-173967

Capital controls are a certainty. They have already started. Just look at Cyprus to see the authorities'  game plan for when things start to unravel. Everything was locked down. 

My approach is a blend of gold, silver & cash in my possession, the rest geographically dispersed offshore. Realistically only silver coins could potentially substitute as money for normal daily transactions like buying food. I also like Bitcoin as a way of getting out of the system and bypassing capital controls.

 

 

 

  • Mon, Dec 08, 2014 - 09:15pm

    #3
    mrees999

    mrees999

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    Former mainstream bitcoin critics are finally coming around

Here's a link to just one of the most recent examples from "Business Insider" magazine.. They are just now "getting it". I understand the difficulty grasping it, it takes most people about six months of careful study to put it all together, it's complex. But once they understand that currency is just the first app of potentially thousands of more that will build on the technology they experience what I have found…How in the world do you explain it in a way people will understand and not think you're nuts?  After two years of laughing at it, they are finally having their "a-ha" moment.  It floors them once they grasp what it means.

It makes me laugh out loud as I knew it eventually would. They are already saying "they should have listened". 

 

http://www.businessinsider.com/mauldin-what-is-bitcoin-2014-12

 

  • Mon, Dec 08, 2014 - 10:51pm

    #4

    Jim H

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    Question for you MRees…

Not sure if you saw the interchange that led up to this post;

https://www.peakprosperity.com/comment/173984#comment-173984

Could you please look over the exchange between myself and LukeMoffett to see if I am missing his point?  He is suggesting that an openness on the part of the Bitcoin.org to potentially increase divisibility (which would open the blockchain to becoming even more bulky and ponderous) is a detractor.  I don't know how realistic it would be.. but I don't see it as a negative, because I would imagine it being a necessity only if Bitcoin became wildly popular and went through huge deflation (increases in buying power) first.  As you say.. it can take a while for folks to process the many facets of Bitcoin… divisibility being but one.            Thanks, Jim

  • Mon, Dec 08, 2014 - 11:19pm

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    Just an FYI

As someone who was skeptical back when bitcoin was in its speculative bubble, I had lunch with Andresen (I know Jim, you probably can't believe it) a week ago and he completely agreed it was in a bubble. He also agreed bitcoin trades not just as a currency but heavily as a commodity. It is also TAXED like a commodity. The government is not opposed to bitcoin as some might think, but make no mistake it is taxed like any other commodity. We talked of other things, but I will stop there.

  • Tue, Dec 09, 2014 - 01:17am

    #6

    Jim H

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    Cool Gillbilly!

Quite a mover and shaker Marc is.  Here is what he said in Oct. on Bloomberg;

"Bitcoin is truly radical, Cryptocurrency, more broadly, is a truly radical, truly revolutionary, fundamental breakthrough in computer science, completely different way to do transaction processing, potentially a replacement for a very large amount of the status quo, but has the big chicken-and-egg challenge.”

http://www.coindesk.com/marc-andreessen-long-bitcoin-short-apple-pay/

I don't really like using the term, "bubble" for the early peak in Bitcoin price… maybe over-exuberance would be a better description if you ask me.  The market can be excused a bit for learning about this very new form of money.  Again.. after all that it has been through, a single Bitcoin still will cost you $363 to acquire today.  I am tending to believe that now that Bitcoin has been stable in price for a while… that the real "bubble" will be ahead for Bitcoin, along with Gold and Silver.  

Let me challenge you Gillbilly, and anyone else reading this, to do two things. 

One, ponder the chart of chart of China's appetite for Gold since 2009, with an emphasis on the present trend. 

    https://www.bullionstar.com/blog/koos-jansen/china-net-gold-import-1212t-jan-nov/

Two;  Watch this counter for a while and see where all the Bitcoins are actually going.. where the demand is coming from;

  http://fiatleak.com/

See a pattern?  Discuss. 

  • Tue, Dec 09, 2014 - 08:29am

    #7
    mrees999

    mrees999

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    bitcoin divisiblity vs gold

Currently the Bitcoin protocol (big B) indicates that the unit of currency aka "bitcoin" (small b), is a block of one-hundred-million ledger addresses on the public ledger, AKA 'blockchain'. The given name of bitcoin is simply another way to refer to 100,000,000 bits  – as dollar is just another name for 100 pennies.

Gold is physically devisable to the level of an atom, but for practical or monitory purposes you really can't do much with less than a gram. I think most visitors on this website already realize that if it was not suppressed, gold might reasonably be measured in multiple tens of thousands of dollars per ounce. Worldwide money printing would equate catch up with ~20 trillion in "money" in the world system (comprised of liquid debt as well). That shock to all world-wide currency and banking markets needing to adjust and equalize would leave dead bodies in its wake and not realistic outside of a world war.

What would be the reasonable smallest purchase you could make with a gram of gold? Say gold is $50,000 per ounce. One gram is .03 ounces. This is $1607 as the smallest realistic measurement for useful trade without converting to paper and trust – we saw how well that worked out last time. How are you going to pay for groceries with that? – Silver wouldn't fair much better at around $100 per gram. 

If you want to conduct business further than arm's length, you're going to both have to trust somebody – to keep the books and record how much everybody owns so who is that going to be? How about when you have different laws, court systems, politics, or religious differences? Last time we were on the gold standard we didn't have modern day banking and the internet. It probably won't ever be the same again.(although 'preppers' are counting on that not to be true – and I keep enough silver on hand to hedge that prediction).

The reference for bitcoin in the community is now shifting the naming to "bits" for the units of reference. They've begun referencing units from a full bitcoin block to the sixth decimal – then left two digits to the right of the decimal to represent partial units of that sixth spot. This is how most currencies are currently expressed to including the dollar… $1.27 for example. So this is what people are used to now, so it   won't be such a mind-bender when needed.

It was getting strange paying for things with .002924 bitcoin for a candybar,  but it makes more since to it cost 2924 bits  (around $1.00 today). This was done with the full expectation that a full bitcoin could realistically reach 1 million dollars in valuation. At this period one "bit" would be on par with one dollar.

Bitcoin is top end limited to 21 million because they must inflate to handle world wide transactions. As it is considered much more seriously now to replace the current SWIFT and ACH banking rails which require 'rent' and currency conversions for each country bank that it passes through, governments and companies are seeing they can bypass the whole thing by using the blockchain.

The problem is that if bitcoin is only worth $350 and you need to pay a supplier in China 20 million dollars, there aren't enough freely trading bitcoins to transfer dollars into bitcoins on one end and then sell them for Yuan on the other without sending huge shock waves throughout the bitcoin exchange markets. We hit a peak of $450 a couple of weeks ago because of one guy in South America that bought a few millions worth at one time.  

If we think of bitcoin as simply a payment mechanism, the 'envelops' to transfer world currency would have to inflate enormously to take on that load. Bitcoin valued at $100,000 could do it.  How much is traded daily in the Forex markets?  If just one percent of that was rerouted through the bitcoin network for speed, cost efficiency etc – how expensive would a full bitcoin be?

There are people on Wall Street making these plans right now.  So to the original point about divisiblity, the program core recognizes down to the eight decimal spot and that is where it will remain until things become so expensive that we need to look further down, but that might not be for 100 years as the 21 million top won't be seen for another 120 years.  That leaves us with "only" 2.1 quadrillion addressable sub-units to deal with. That program can only be changed when a majority of the bitcoin processors who effectively control the network agree by consensus that it is in the best interest of the network that we begin to recognize units smaller than eight decimals.

Right now it's like the land grab days of the old west. Comparing it to gold, just because you can measure gold at an atomic scale and value 'grains' of gold, it does not lesson the value of gold. We've never had anything like bitcoin to compare against. The bitcoin network now is shaping up to be the 'spine' of other digital records and properties including smart contracts and smart property. They are converging into a technology called "side chains" that will rewrite how law, accounting, record keeping, auditing, and voting will change.  All these new technologies want to be protected by the safety of a computer system that can handle 400 quadrillion calculations per second (and climbing) so all the technologies are coalescing around bitcoin as their 'rock'. Its role is becoming more clear now than ever.  

Some people are talking about buying bitcoin now as a modern day "land grab"  for property that will be coveted in the future as the de-facto single source of truth. And the first system in the world that allows anybody in the world to use it without needing to trust anybody else's word that vow to hold our gold, or dollars, or silver or anything else that would require trust. It might well turn out that the banking system themselves will be the biggest users of it and change credit card systems and interbank transfers to the more efficient system. But for that – they will have to buy it – hopefully from one of us that has made their fortune for holding it before they could finally see the writing on the wall.

 Bitcoin is the idea whose time has come.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  • Tue, Dec 09, 2014 - 09:11am

    #8
    mrees999

    mrees999

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    No US government I know of is opposed to bitcoin

I've researched this quite a bit and found nothing but positive remarks and attitude from all agencies I could find that would have a  stake in the matter. None of them truly consider it a threat and the NSA has ways to find bad guys as evidence by arrasting 400 suspect running illegal "tor" based bitcoin for drugs business. As this takedown was coordinate with agencies around the world, it was well planned and studied for some time. 

 

Havning a block chain that leads them to all people involved like breadcrumbs will be a  hudge adanvce of dollars which are usually untraceable. And bitcoin is impossible to counterfeit. 

 

As far as bubbles I are to be expected as we see a revolution apearing before our eyes. This is a paradigm changing only on-par with the invention of the internet, but this is going to be much faster as the intac is now done.

  • Tue, Dec 09, 2014 - 09:24am

    #9
    Hrunner

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    Thought provoking on Bitcoins

mrees999,

Thanks for your thought-provoking piece on Bitcoin.  Very capable case made for bitcoins.

I'm still biased toward gold and silver as backups to fiat, but am considering a diversification into bitcoins for all the good reasons you outline.

My issues are, despite the very fair points you make, are:

Bitcoins require a working infrastructure of electricity, computer servers, DBAs, ever-faster CPUs, trusted networks of internet connections.

All well and good, but what if what Chris is describing, i.e. an energy constrained world, which means a complexity constrained world, comes into being?  And it doesn't have to be Mad Max to cause a serious crimp in electronic bitcoins.

I've been in several global locales where smooth and continuous electricity is not a given.  In a debt crisis, the Western World could start to look like those locales in a relatively short time.

As far as I can tell, no electricity, no servers means no bitcoins.  Not true for gold and silver.

Plus bitcoins do not have 6,000 years of human history, experience and literature to lean on.  But that's not your or anyone else's fault.

Secondly, is there a way to counterfeit bitcoins?  I confess ignorance here about how bitcoins are "mined" and authenticated / validated.  But if there is any way to counterfeit them, or even trick some buyer into thinking you are transacting with 'real' bitcoins, then as bitcoins become as valuable as you believe, the pressures to counterfeit will become enormous.  Thus it is always so for things of value, whether paintings, gold, or Chinese copies of DVDs.

Things of value always attract thieves and governments.  But I repeat myself (hattip to Mark Twain).

  • Tue, Dec 09, 2014 - 04:43pm

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    Gavin, not Marc

Jim, It was Gavin Andresen not Marc Andreesen. Sorry I should have clarified. Also, to clarify I was talking about the bubble that happened a year ago…when I was skeptical, and yes, I'm glad I didn't buy any when it was up at $1k.  I'm less skeptical of it now that the dust has settled. I don't think investing in some bitcoins is a bad thing but people need to go in with their eyes open, and I certainly wouldn't bet the farm. 

Currently there is concern over centralized mining efforts, which I think could eventually spur a "winnner takes all" environment. Reduced energy costs in certain geographical areas will give a leg up to miners in that area. HRunner's point on PM having thousands of years of history is not a small point. Financially, people flee to what they know and understand. There really shouldn't be an "aha" moment in bitcoin. Or it shouldn't take pages of explanation and months of education for it to happen. For it to really take off, it needs to be simplified in its understanding. I can totally understand how it may grow into something more commonplace if people embrace it. Gavin expressed he would much rather see it grow slowly without the bubbles than what happened last year. 

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