Cryptocurrency Mania is the Most Fascinating Financial Phenomenon I’ve Ever Seen

Wolf Richter with Jim Goddard on “This Week in Money“:

The piquant irony: My ruminations were recorded on Wednesday, before the stupendous crypto-crash on Friday when some of the things we’d discussed two days earlier actually occurred.

And here’s what happened on crypto-crash day. You’ll get whiplash just from watching. Read…  Cryptocurrencies Crash 25% to 50% across the Board

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  101 comments for “Cryptocurrency Mania is the Most Fascinating Financial Phenomenon I’ve Ever Seen

  1. Gershon
    Dec 24, 2017 at 4:17 am

    Remember, friends and neighbors: In a time of universal fraud, possession is 9/10s of the law.

    • Ferdinand Hoischen
      Dec 24, 2017 at 11:47 am

      I totally agree!

    • Gary
      Dec 24, 2017 at 12:39 pm

      OK, this might seem nutty but here’s my thesis:

      ” Western-style ‘capitalism’ is simply an energy-burning mechanism.

      Bitcoin is one of the purest energy-burning systems that can be devised (similar to building a brick wall then tearing it down again, but more fun). It’s job is to do nothing but consume electricity, and fiat currency is involved somewhere in the process. ”

      PS. Merry Christmas!

      • interesting
        Dec 24, 2017 at 3:25 pm

        “western style capitalism” has morphed into a casino where the whales NEVER lose.

        And energy burning? well it better be. Making products world markets wanna buy can be done in no other way.

        • Gary
          Dec 24, 2017 at 6:16 pm

          Yes, good point. What I meant with my prelude sentence:

          The goal is to burn energy for the SAKE of burning energy. The fact that some fun, useful, interesting products sometimes result is just an incidental by-product.

          [this is my attempt at a “high-brow” thesis]

        • Otto Maddox
          Dec 25, 2017 at 3:45 pm

          And you’ll replace capitalism with?? Enlightened central planners??? What you describe are the flaws of the human race. Guns and gulags perhaps?

        • Hiho
          Dec 26, 2017 at 5:40 am

          Otto, the economy is already being planned by “enlightened central planners”.

          They are called: Wall street and City of London.

          An economy is always centrally planned. The question is, who will do the planning? Accountable democratically elected governments or totally unaccountable private corporations.

        • fozzie
          Dec 26, 2017 at 10:11 pm

          “The goal is to burn energy for the SAKE of burning energy.”

          The concept is called ‘Proof of Work’, and the by product of it is the use of electricity. For Bitcoin in particular(other crypto currencies use a variation), that proof is finding the input into a particular hash function(SHA256) that results in a certain amount of leading zeros. Since hash functions are designed to be non-deterministic by nature, this requires a brute approach to finding a valid input target. That amount of leading zeroes increases as time goes on, which is why mining coins at home on your general PC isn’t really feasible anymore. It’s also why the increased use of electricity, even in the face of mining hardware that has moved from using general purpose CPUs, to GPUs, to dedicated hashing ASICs.

          Crypto currencies aren’t the only example of this proof of work concept. One published example is an email server with a protection against spam attacks. When a client connects to the server, the server responds with a challenge that requires a certain amount of time for the client to process. This time, say say several seconds, wouldn’t be very noticeable to a user sending a single email to a friend, but would effectively prevent the spamming of millions email addresses quickly.

          I find it ironic that advancement in technology has allowed us to replace our inefficient incandescent light bulbs with LEDs, but those gains in efficiency are being offset. If crypto currencies are here to stay and only grow in use and number, I wonder how much that offset will be. See – https://futurism.com/mining-bitcoin-costs-more-energy-159-countries-consume-year/

      • Javert Chip
        Dec 24, 2017 at 5:50 pm

        Gary

        “…Western-style ‘capitalism’ is simply an energy-burning mechanism…”

        What’s this have to do with capitalism? Sure looks just like simple (mostly millennial) greed.

        • Droll Troll
          Dec 24, 2017 at 7:46 pm

          …   and  NOT VERY SMART  millennial greed !
           
           
          ( Could it be that  Baby Boomers / Gen X’ers
              have  FINALLY  figured a way to rake in a
                 profit on  “The Special Snowflakes”? )

        • alex in san jose AKA digital Detroit
          Dec 24, 2017 at 8:22 pm

          In all fairness, life itself is simply an energy-burning mechanism.

          Bitcoin is stupid, but so are Leonardo’s paintings, the Great Pyramids, and Beethoven’s 5th.

          Pre-“civilization”, on the West Coast, there thrived a Native culture that was obsessed with money. Money, for them, was tusk shells, little hollow things an inch or so long. A standard unit was a string of these a certain length long, think of them as the $20 or “Franklin” of the time. The people would even have a line tattooed on their arm to check the length of the strings of shells to make sure they were up to standard – like those pens people check bills with now.

          Further up the coast, the natives valued copper, which could be found, in relative abundance, in pure metal form. It was a rich society with lots of salmon and other things to eat, so much so that as hunter-gatherers they could afford to stay in one place instead of wandering over a range as most hunter-gathers do. And they were obsessed with wealth in a way as crazy and stupid as anyone could be, but the way they did it was pretty cool. They’d amass a large amount of wealth, foodstuffs and carvings and things made of copper, especially these large ceremonial mask or shield looking things, and then hold a big party, called a “potlatch” where they’d give it all away, everyone would eat up or carry away the food, they’d smash up the copper stuff, etc. You were a bigger guy the more you gave away.

          I really like this last idea. Sure, amass a bunch of wealth, but as Carnegie said, spend the first half of your life making and the 2nd half giving it away.

          Bitcoin’s a fairly stupid activity invented by humans but it’s not an outlier.

        • Haus-Targaryen
          Dec 25, 2017 at 8:39 am

          I’d venture to say it has more to do with the Boomers (who as a generation run the government, central banks and thus monetary policy) wanting to preserve their precious welfare state at all costs and have printed tons of funny money to prop-up asset prices in furtherance of that aim.

          Thus my generation, being filled with morons (educated and brought up by the Boomers, mind you) — got itself an asset class you guys haven’t had a chance to blow up yet, and being the morons we are (as said above) don’t understand bubble dynamics because we’ve never lived through one in our adult lives (until now).

          Then again the boomers and bubbles … how many has it been just in the past two decades?

          While I appreciate most on here are wealthy independent of the state — most in your generation are going to be spending their golden years under a bridge somewhere if they weren’t wise enough to have kids of their own.

        • Javert Chip
          Dec 25, 2017 at 7:54 pm

          Well, anythings possible….

          ….except millennials (definition: born after 1980) have been voting in every election since 1998 (including Obama in 2008, when the national debt was less than half of what it is now) and millennials outnumber boomers.

          Blame boomers or the tooth fairy all you want, but sooner or later you need to look in the mirror to see who’s been screwing you.

        • Haus-targaryen
          Dec 26, 2017 at 2:20 am

          Funny that … if millennials are from 1980 forwards until 2005 — that means that one years of us got to vote in 98; three in 2000; five in 02 and seven in 04.

          Boomers on the other hand have been voting for a solid three decades, but let’s definitely blame those millennials for the financial state of the nation.

          Who/what is screwing me at the moment?

          1) student loans;
          2) paying into a welfare state I’ll never be able to benefit from;
          3) stupid house prices driven by low interest rates to keep your financial system intact;
          4) health care costs, see #2.

    • cdr
      Dec 25, 2017 at 3:11 pm

      “In a time of universal fraud, possession is 9/10s of the law.”

      Or, it’s almost a comical example of ‘this time is different’. Computer tulips. Fake money is the best money. If it comes from a computer, it’s real. I’m too smart to fall for it if it weren’t real. Anything this easy to buy must be easy to sell. The big boys say the top is a long way off. The Fed won’t stop it. It’s better than printing your own money. You can’t lose unless you sell.

      references: Oak Island buried gold. This time is different. Tulips. Expert opinions. Conspiracy theories that are really fact. The govt can’t control it. Pets.com. Mrs Watanabe.

  2. Si
    Dec 24, 2017 at 4:17 am

    “Crypto-crash day”? Crypto is not for the faint-hearted, that’s for sure. In fact, bitcoin has “crashed” by around 30% half a dozen times in 2017, each time posting record highs shortly afterwards. Volatility is par for the course for cryptocurrency – a revolutionary technology following a normal technological S-curve.

    • Hiho
      Dec 24, 2017 at 10:58 am

      Yeah sure.

    • Maximus Minimus
      Dec 24, 2017 at 1:34 pm

      Does the S stands for the South Sea Company?

      • Si
        Dec 24, 2017 at 2:11 pm

        Look it up.

        • alex in san jose AKA digital Detroit
          Dec 24, 2017 at 8:25 pm

          It’s right on Wikipedia, complete with a curve drawn by someone using their mouse on Windows 3.11 For Work Groups.

          The business I’m in is all about “the bathtub curve” stuff’s worth a lot new, devalues for a decade or two, and then the value comes back up.

    • JoeM
      Dec 24, 2017 at 3:15 pm

      Si, you are hitting the bullseye.
      Generally Wolf’s blogs are smart, the comments less so, mostly repeating their biases it seems to me. I personally have a hard time understanding why someone who believes The Fed has/is printing excess USD & that Gold & Silver are “real” money would be against cryptos unless they didn’t understand it.
      Si, would/could you provide a link that appropriately informs readers as to how effectively disruptive cryptos are to the financial systems?
      To all others, here is an article describing the process of adoption Si mentions.
      https://medium.com/@mcasey0827/speculative-bitcoin-adoption-price-theory-2eed48ecf7da
      Please note the chart of the many previously adopted technologies.

      • JZ
        Dec 25, 2017 at 1:40 am

        When it comes down to “money”, it is NOT about “technologies”, it is about violence and “power”. If you keep thinking about “tech” you will reach conclusions that will surprise you.
        I am against people working for dollar while bankers print. I like the idea that one could bypass the bankers in all transactions and financings.
        But here is the thing, if everybody has a BTC “wallet”, you do NOT need the “FED” to kill BTC, The robbers do. They will use violence against your BTC wallet and there is NO FDIC, lawyers and government “gun”s to get back what you have lost. You think the BTC is difficult to rob? You think your BTC wallet is tougher than the banks with security guards and speed dial to the police? The truth is, if you think about money, you have to think about “guns”, NOT “tech”. In this regard, gold and silver are harder to rob than BTC because they are more of “store of value” than BTC’s “means if exchange”, in other words, people tends to “store” gold and silver. Nobody knows they have them, and if you know they have it, you do not know where they store it physically. BTC is easier to rob if you are at the wrong side of the gun.
        Even if you ignore violence, when it comes down to doing deals as large as cars, buildings, companies, do you have a government registered escrow as intermediate? What if the house is NOT what is said to be and you can not recourse back out of the deal because your BTC has been transferred?
        For money you can lose, BTC will do. For money you can NOT lose, you would not put it in forms without government guns backing.
        I like the idea that there is a competitor to compete out corrupted bankers, but that competitor needs to have guns, NOT tech.

        • Paulo
          Dec 25, 2017 at 9:15 am

          Actually,JZ, your Post reminded me of the of British East India Company and the rise of corporations during the beginning of the Industrial Age.

          Dominate India, outlaw hand weaving as the Indians had done for generations, make them grow and sell cotton for sustinence, ship the cotton to England where mechanical looms and virtual slave labour produced the cloth, ship it back to India, and then sell it back to the Indians. Need clothing? Buy or cotton. Or else. Oh yeah?, no salt for you….buy ours. The Crown outlawed all other competition, backed it with the might of the navy and marines, and took their skim every step of the way.

          Sound familiar?

          If that wasn’t violence and corporate power controlling Govt well,….. nothing new under the sun.

          As soon as Bitcoin threatens the powers that are, look for mysterious deaths or increased hacking incidents.

          Might has always been right, but one can remain below the radar and do well in this busy society. It’s easier than poaching in the King’s forests or trying to survive as a cropper on their land. :-) Just stay out of debt and be careful….even cynical.

      • Hiho
        Dec 25, 2017 at 3:36 am

        Let’s hope that you and the other crypto fanboys do not start crying and asking for a bail out once all the stupid money has been lured in and all the smart money has flown out.

        I wonder who actually lacks the understanding of what is going on.

        Fiat money is not worthless paper because is backed by the ability of the gov to tax all of us, whatever the means necessary (even violence).

        Cryptos are backes by… Well by the preposterous thought that they can only go up in value. Ponzi schemes have been following the same patter since the tulip mania and you guys do not seem to learn

        Good luck with that, but do not bring down the entire economy with you.

        • JZ
          Dec 25, 2017 at 5:26 pm

          although BTC looks like tulips right now, AKA, a vehicle to transfer each othet’s $, its initial intention and true power is it is a great tool of medium of exchange. Nobody will need bankers to do transactions, and the bankers will NOT loan he mass recklessly because they can NOT print BTC. No bailout either. The system will have some discipline again. If you ignore the surface issues of tulip like mania wealth transfer, there is still a fundamental issue for BTC to become the true means of exchange and replace $. And that is the government guns backing on transactions and FDIC insurance. BTC is anarchy, everybody can rob everybody and .gov will NOT heed. $ is backed by .gov, but it is corrupted and being printed like hell. Neither is true solution.

    • interesting
      Dec 24, 2017 at 3:29 pm

      “Volatility is par for the course for cryptocurrency”

      AND the whole selling point of this insanity was touted as the exact opposite. Why hold “worthless toilet paper” was what the USD was described as.

      Well then why hold something that could be worth half tomorrow? why spend it if it could be double by tomorrow? why accept it for payment if it could be worth half by tomorrow?

      to call that a currency is silly, bordering on STU……..never mind.

      • Michael Fiorillo
        Dec 24, 2017 at 11:51 pm

        Yes, and if you travel back through the ancient mists of time to a couple of years ago, transactions were going to be virtually free and near instantaneous.

        Yeah, and we were told many years ago that nuclear energy was going to be too cheap to meter, too.

        It seems that all but the most technically savvy are entering this Thieves Market via the exchanges, which makes it about as “crypto” as their driver’s licenses or brokerage accounts. The hope for ever-increasing prices would seem to require that this dumb money rush in, but in so doing it turns to ashes all the initial claims for Bitcoin, since it’s not anonymous, not a currency and not a friction-less means of exchange. That doesn’t even consider the ongoing security issues and the truly mad waste of energy involved.

        I don’t know how far-reaching the eventual/inevitable crypto panic is going to be. Presumably the amount of leverage in play will largely determine that. But when you factor in all the energy and social waste, delusions, hype, deception/self-deception, as well as the mistrust of sovereign currencies symbolized by cryptocurrencies, it’s an ill wind that’s blowing, whatever future uses the block chain may have.

        There are debacles ahead, not only for the suckers who buy at the top, but for the rest of us.

        Fascinating to watch, though; it’s a window into a spontaneous live experiment in collective madness. They may be taking our bread, but the circuses are spectacular.

        • Miggy
          Dec 26, 2017 at 3:25 am

          It’s nothing more than gambling I can’t believe nobody is commenting about this, and we all know it. I put a couple hundred on it and it gives me something to do after working my rear end off all day while I sip a hot beverage on a cold day.

    • Gershon
      Dec 24, 2017 at 3:37 pm

      Methinks it’s dawning on “Si” that a Greater Fool won’t be coming along to take his Bitcoin off his hands.

      I smell fear….

    • Javert Chip
      Dec 24, 2017 at 5:59 pm

      Si

      “…bitcoin has “crashed” by around 30% half a dozen times in 2017, each time posting record highs shortly afterwards…”

      Well, I’m an old guy and all that.

      But looking at the last 12-months of Bitcoin, I see a pretty spectacular chart (as in LOOK OUT BELOW!), but I only see 1 30% drop + 1 that comes close.

      How 2 becomes 6 in this discussion is a mystery, as is whatever (other than greed & stupidity) is used to value Bitcrash…Bitcoin…whatever.

      Is it possible to make money from Bitcoin in this environment? Hell yes; look at how well & how long Bernie Maddoff did so well.

    • van_down_by_river
      Dec 24, 2017 at 8:53 pm

      Buy the dip!

      Every dip is bought without fail so every dip seems to guarantee a quick profit of 10% to 30%.

      It doesn’t matter that it seems to have no value or purpose – all that matters is there will be a greater fool eager to pay a higher price in the future.

      So why have I failed to buy any of these dips? I can’t afford to make wild speculations with money that took 25 years to accumulate (the same reason I can’t profit from the broader equity bubble).

  3. Gershon
    Dec 24, 2017 at 4:23 am

    How long will the Federal Reserve tolerate the existence of rival counterfeiters?

    • Ferdinand Hoischen
      Dec 24, 2017 at 11:51 am

      I have the impression the Fed views Bitcoin et al as a blueprint for their own future activities. So they let the Bitcoin morons dance until they have all the information they wanted and then shut them down and take over.

    • Bin
      Dec 24, 2017 at 9:32 pm

      Reminds me of when the American Colonies started their own currency. There was a war over that one. I kind of wonder whether they will crush the cryptos, or just adopt them?

  4. Cash is king
    Dec 24, 2017 at 4:37 am

    Funny how zerohedge is covering so little from the self-off. I wonder why….

  5. Nicko2
    Dec 24, 2017 at 5:07 am

    It’s not surprising….just indicative of how much global ‘dark money’ is in the system. Answer: A LOT.

  6. Bill
    Dec 24, 2017 at 6:05 am

    Last year, out of curiosity, I acquired $135 of Bitcoin. I did not believe one blogger who forecast a $7,000 price before the end of 2017, but at $135 at the front end it was entertainment.

    When that that investment went over $2,000 I thought “Hey, I have other uses for that kind of cash. What I found out is that it is not easy to convert the stuff to cash unless you are one of the “big guys”. This last Wednesday I was able to do so clean.

    What bothers me most is that to be successful, Bitcoin would have to become easily fungible. It isn’t. Eventually, a cryptocurrency may make that leap. It isn’t Bitcoin in it’s present form.

    • Maximus Minimus
      Dec 24, 2017 at 1:41 pm

      What should bother everybody, but mostly the present intellectually deprived PTB, that a currency is a stand in, and enabler of transactions, in real world value. At present, neither bitcoin, nor the central banking fiat has that quality.

      • Javert Chip
        Dec 24, 2017 at 6:04 pm

        Maximus Minimus

        Talk is cheap.

        Please send me all your “worthless” fiat money so I can dispose of it for you.

        If and when I cash your check, I will humbly & sincerely apologize.

        • Maximus Minimus
          Dec 24, 2017 at 8:34 pm

          Sending it over in ten bitcoins. Oops; it jumped, one less.

        • van_down_by_river
          Dec 24, 2017 at 9:14 pm

          No one is implying Fed Reserve tokens are worthless in today’s economy – I can go to the store today and buy a dozen eggs for about $2.

          The worry is central banks are pushing the bounds of confidence in the currencies and this puts the future value in peril. If I could buy everything I need to consume during retirement today I would be fine, but unfortunately I need to consume these things in the future and it looks like my savings will have little value in the future.

          Likewise, the central banks have inflated asset prices to outrageous levels – income from investments purchased at today’s prices will not sustain me either. I just didn’t believe central bankers would push things this far.

          We are all forced to place our bets in life – I bet central banks would not inflate assets to these precarious heights and I lost that bet. Now I must live with the consequences – stuck with a pile of currency forever losing it’s value yet having no viable alternative.

        • Javert Chip
          Dec 24, 2017 at 10:24 pm

          All hat, no cattle

    • MASTER OF UNIVERSE
      Dec 24, 2017 at 4:29 pm

      Eventually actually happened this past week with Long Island Iced Tea(tm) announcing their name change on the small cap stock market to Long Blockchain Corp. so that they can avail themselves of the irrational exuberance on blockchain tech, and increase market share, as well as exponentially boost, Long Island Iced Tea(tm) stock for the shareholders.
      This is only the second company to attach blockchain tech to the stock so as to increase share price of the stock, and stock sales. As soon as they announced the stock went up 200% off the bat.

      Back in the 90s everyone made bucks off of the .com pump n’ dump. Imagine if every corporation out there peddling stock actually tied their stock to blockchain tech like Long Island Iced Tea(tm) just did with their Finance Management Pivot to Long Blockchain Corp?

      We could be looking directly at the next wave paradigm of Quantum Behavioural Economics if the entire corporate level stock trading community takes the Long Island Iced Tea(tm) lead to pivot.

      The number one mandate for chief executive is to increase stock price, volume of sale of stock, and maintain shareholder contentment. Long Island Iced Tea(tm) have fulfilled that criterion.

      MOU

      • alex in san jose AKA digital Detroit
        Dec 24, 2017 at 8:27 pm

        All I know about Long Island Iced Tea(tm) is those things will get you schnockered really fast.

      • Bobber
        Dec 25, 2017 at 1:59 pm

        That type of behavior won’t last long. A few pump and dumps like that and people will wise up quickly. Even if you know it’s a scam, and you want to gamble anyway, you’ll realize that that first movers stole the majority of gain. Your expected return is much less than roulette.

        In the meantime, the money going into this stuff will likely to increase student loan defaults. I have a feeling this space is dominated by beaten down millennials who are desperate for some financial gains.

        • MASTER OF UNIVERSE
          Dec 25, 2017 at 5:30 pm

          Get your points, guys, but why would Long Island Iced Tea management take the risk on the name change to Long Blockchain Corp. with the parent company Long Island Iced Tea(tm) as partner holding $24 million in assets, and selling $5 million per year in stock, if management was not confident in the bet long term overall? Management is not going to risk the $24 million in assets, and they certainly are not pivoting to evidence lower sales volume on the stock. What Long Blockchain Corp. knows is that they can positively grow their position exponentially in comparison with just letting Long Island Iced Tea(tm) exist just as a small cap stock with no additive value added Blockchain Tech to boost interest. They are gambling high stakes with the $24 million in assets that back the Blockchain. Long Blockchain Corp. management are not going to evidence any market loss until they decide to sell out on the Blockchain to cash in their chips. The Board of Governors of the Long Blockchain Corp. cannot professionally agree to enter into risk that would guarantee the demise of the $24 million in assets if they were at risk in the pivot. You two guys seem to think that governance at Long Blockchain Corp. is into long risk & short risk. I, for one, know that Blockchain Tech is not going to disappear anytime soon, and so too does Long Blockchain Corp. management.

          Jamie Dimon thinks it is a flash-in-the-pan tech, and it ain’t.

          Long Blockchain Corp. is a tactically smart move if Blockchain Tech has efficacy, validity, and reliability. So far industry is being forced to accept Blockchain Tech as part of the evolution.

          MOU

  7. hidflect
    Dec 24, 2017 at 8:22 am

    This is an assertion without the facts to back it up but I believe the only people who actually use Bitcoin (excluding a tiny band of zealots) are drug dealers. Out of all the friends and financial connections I have, only 2 have bought in and neither of them spend it. I doubt they even know how or where they can.

    • Tom
      Dec 24, 2017 at 8:33 am

      Many gamblers will hit it big through dumb luck but few have the wisdom to get out in time.

    • Thrasymachus
      Dec 24, 2017 at 10:00 am

      >I doubt they even know how or where they can.<

      In a purely economic sense, Bitcoin is really the medium of exchange in a barter situation. That is what BARTER was all about. It was some object that was recognized as acceptable among a group of traders so it becomes the medium of exchange. The problem with Bitcoin is that it is limited and therefore does not represent a true currency that many expect to compete against the government when there is not enough to go around for everyday use among the people.

      • robt
        Dec 24, 2017 at 11:36 am

        Bitcoin itself is divisible to 1 satoshi, which is .00000001, therefore if there are only 21 million coins available, there are 2.1 quadrillion units of transaction available. If each satoshi was worth a US penny, then a bitcoin would be worth 21 trillion dollars.
        So the current float of Bitcoins alone available is 2.1 quadrillion units.
        Beyond this, with pair-trading of coins and tokens, an infinite supply of units of transaction are theoretically available. A big part of the trading is pair trading. If Bitcoin is a derivative of currency/money, then the trading becomes derivatives of derivatives.
        Then you have to start thinking about what the ‘master money’ is. Currently it’s the US dollar, with other official currencies’ value derived from that.

        • interesting
          Dec 24, 2017 at 3:34 pm

          “If Bitcoin is a derivative of currency/money”

          If If If If ……. a true laugh out loud moment!!!

        • Gershon
          Dec 24, 2017 at 3:40 pm

          If each satoshi was worth a US penny, then a bitcoin would be worth 21 trillion dollars.

          Ah, but that’s the thing. Bitcoin has zero intrinsic value. Zero, nada, zilch. And all the touts and shills in the world won’t change that simple fact.

        • robt
          Dec 24, 2017 at 5:56 pm

          Interesting:
          True, as you imply by ironic LOL, people actually believe BTC is a currency, not a derivative of currency.
          Except in very few establishing venues, many of whom have subsequently withdrawn direct pricing in Bitcoin because of its volatility and excessive transaction time and costs, the BTC must be translated into US dollars or some other locally spendable currency.
          Any venues that support BTC pricing usually (hopefully) immediately convert their payment into fiat currency and take payment in local currency, unless of course they wish to speculate by holding crypto. Therefore BTC is a derivative of money.
          Nobody that spends currency to buy goods, let’s say, a car, wants to look at an invoice in local currency for the goods they bought for resale and realize their revenue from the resale is suddenly half of what it was a week ago.

    • Thrasymachus
      Dec 24, 2017 at 10:05 am

      The user base is of course much wider than *drug dealers*. Bitcoin has replaced gold as the hot anti-establishment medium which has been gaining momentum. In light of India canceling their currency, there is a growing position against government currencies. The Chinese were circumventing capital controls by buying gold as a *transfer agent*; now they are using BTC.

      • Frederick
        Dec 24, 2017 at 11:01 am

        I wonder how big an impact this sell off will have on the gold and silver markets They seem to be gaining some momentum as of late

      • Gershon
        Dec 24, 2017 at 3:44 pm

        Bitcoin has replaced gold as the hot anti-establishment medium which has been gaining momentum…

        No, a bunch of bubble-chasers piled into Bitcoin and drove it to insane “valuations” which did nothing to alter its intrinsic value: zero.

        Gold is the ultimate antidote to the central bankers’ deranged money-printing and monetary malpractice. It’s been a store of wealth for 5,000 years, and will be the best antidote against the Keynesian fraudsters at the Fed long after Bitcoin has imploded back to its true value: zero.

      • alex in san jose AKA digital Detroit
        Dec 24, 2017 at 8:34 pm

        My understanding is that Indians and Asians in general are huge gold bugs, and if India cancels their hold-in-your-hand currency, I’d be prepared for gold to rise, because (assuming such exists) any Indian not holding gold will want to, and the other 99.999% will want to hold more.

        As for a transfer agent, I believe this is how fine art works. I mean, Van Gog’s Sunflowers is a nice painting, but you can buy posters of it, or even very well executed duplicates in oils, if you like. Years ago Bill Gates digitized a ton of outstanding paintings so anyone can look at them in detail. There’s no reason for Sunflowers to be worth millions other than, everyone knows it (it’s unique) and it’s pretty much agreed it’s worth millions.

        I guess Bitcoin does this with each “coin” having a unique number. Easier to transport across borders than musty old paintings too.

        I still just don’t get it though. If I want to steal my neighbor’s gold, all I have to do is go next door and take it. Maybe there’s some resistance, maybe I have to burn his place down and the gold melts, but it’s still gold. But if I want to deprive him of his bitcoin, all I have to do is turn off his computer. Poof! It’s gone!

        • Thrasymachus
          Dec 25, 2017 at 1:34 pm

          >But if I want to deprive him of his bitcoin, all I have to do is turn off his computer.<

          It would be wise for you to read up on *blockchain technology*.

    • kam
      Dec 24, 2017 at 11:29 am

      There is enough crypto held by a small enough group of people to sell and buy between each other to play havoc with pricing.

      This is absolutely not different than any other pump-and-dump stock boiler room.

      • kam
        Dec 24, 2017 at 11:32 am

        “not” s.b. “no”

        Merry Christmas Wolf and to all other contributors.

        K

    • Javert Chip
      Dec 24, 2017 at 6:05 pm

      hidflect

      CORRECT-O-MUNDO. Exactly.

    • farmboy
      Dec 26, 2017 at 6:48 pm

      thats what they said when the internet came out. Its just for porn time wasting and hucksters Now its hard to imagine going without it again.

      I sure admire the courage and insight of the early addopters of crypto currencies and the odds are getting better every day that the cryptos will make the banks as obsolete as Wolfstreet and all the other alternative media sites did to the MSM. Go cryptos. If the early adopters make a shitload of wealth it is just a bonus. The most important part will be taking the power of money creation away from the mafia.

      • Dec 26, 2017 at 8:27 pm

        Humor is always welcome.

  8. Richard
    Dec 24, 2017 at 8:48 am

    When the crash comes what will happen to the companies supplying miners with processors and other tools? This must be a huge business when you consider how much power they consume. Are they all Chinese now?

  9. MC01
    Dec 24, 2017 at 11:18 am

    Read the comments, and if you can keep some detatchment from this phenomenon you’ll understand very well why Wolf Richter says this is the most fascinating financial phenomenon of our lives.
    ;-)

    And Merry Christmas to all.

  10. DanR
    Dec 24, 2017 at 11:31 am

    Is there an argument to be made that bitcoin is the confluence of peak financialization and peak technology?

    • MASTER OF UNIVERSE
      Dec 24, 2017 at 6:52 pm

      The Term ‘peak technology’ is an oxymoron in so far as technology is ubiquitously expanding at a rate that does not peak, ever. Information tech & AI are just getting started, and quantum computing is now getting the dollars. Blockchain tech is here to stay, and Financialization is dependent upon USD currency, Reserve Currency Status, and maintenance of the Dark Pool Derivatives universe of approximately $1.8 quadrillion. Not to mention Debt to GDP ratio that cannot be ameliorated without cashing in assets.

      MOU

  11. Bobber
    Dec 24, 2017 at 11:56 am

    Crypto currencies are a symptom of a larger problem. What’s fascinating is how central bankers have assumed an activist economic role that nobody could previous imagine. Bankers have taken your savings and given it to spenders, who drop it in the pockets of the top .1% through anti-competitive business practices practices. When that doesn’t put enough billions in their pockets, they take your money by increasing your share of national debt burden via tax “reform”.

  12. Steve C.
    Dec 24, 2017 at 12:11 pm

    I’ve been through many downturns, only to see it rocket up weeks later. When people talk of cryptocurrencies they think Bitcoin, they don’t realize just about every major industry is about to be disrupted. The financial industry as an example…. you have Veritaseum which enables software-driven peer to peer capital markets without brokerages, banks or regular exchanges. You have SALT Lending which will offer blockchain backed loans with crypto collateral backed cash loans and no credit checks. You have Populous which is an invoice trading platform which will allow the buying and selling of invoices globally without the banks . You have OmiseGo which will allow many kinds of financial transactions in a completely decentralized and inexpensive way. I could go on and on just on the financial industry… in EVERY industry this is happening, don’t be last to get on the train.

    • Bobber
      Dec 24, 2017 at 2:51 pm

      Are you saying short the investment banks that derive fees from these transactions?

    • Joe Metz
      Dec 24, 2017 at 3:04 pm

      Smart Steve C

  13. andy
    Dec 24, 2017 at 1:44 pm

    I guess the biggest bubble in history (in stocks, bonds, real estate, and everything else) is less fasinating than this nothing-burger.

    • Álvaro Martínez Hernández
      Dec 25, 2017 at 4:40 pm

      Those bubbles are bigger in sheer volume but this bubble is bigger in terms of mania and speed. It’s probably the best textbook example of a bubble ever.

  14. Rates
    Dec 24, 2017 at 2:36 pm

    It’s definitely fascinating. It pretty much invalidates all the economic charts out there about stagnating incomes, etc, etc.

    When it comes to Bitcoin and digital currencies, there seems to be a bottomless amount of money i.e. money people are not supposed to have. Remember this BS: https://www.washingtonpost.com/news/wonk/wp/2016/05/25/the-shocking-number-of-americans-who-cant-cover-a-400-expense/?utm_term=.0026889328e1

    So they struggled to come up with 400 of expense but not Bitcoin nor opioids?

    • alex in san jose AKA digital Detroit
      Dec 24, 2017 at 8:40 pm

      Rates – It’s Schroedinger’s Saver. The masses simultaneously don’t have enough to cover a $400 medical expense, but also have thousands a year to buy cigarettes, fancy sneakers, truck nuts, and Kraft Dinner.

  15. Dec 24, 2017 at 3:29 pm

    I wish you all and your loved ones a Merry Christmas and Happy Holidays.

    • Gershon
      Dec 24, 2017 at 3:53 pm

      God bless us, Everyone!

    • alex in san jose AKA digital Detroit
      Dec 24, 2017 at 8:41 pm

      Back Atcha, Wolf! Merry Christmas!

    • robt
      Dec 24, 2017 at 11:42 pm

      Thanks and best wishes, and thanks to you for the time and effort you devote this site!

    • thatblackwoman
      Dec 25, 2017 at 2:58 am

      thanks for your excellent data. happy we-love-jesus day.

    • Petunia
      Dec 25, 2017 at 8:51 am

      Merry Christmas and best wishes in the coming year!

      • Paulo
        Dec 25, 2017 at 9:27 am

        All the best in the sunny south, Petunia.

        Merry Christmas to all from snowy west coast Canada. Now, if my wife would wake up we could start the day.

    • cdr
      Dec 25, 2017 at 10:42 am

      Thank you. Same to you.

    • Rates
      Dec 25, 2017 at 11:20 am

      Merry Christmas and Happy New Year as well.

  16. Wendy
    Dec 24, 2017 at 10:32 pm

    Is it possible for a phenomenon to resemble a bubble and not be a bubble?

    Is one only able to proclaim a bubble after it pops?

    When all bubbles in the past were inflating, there were many ardent supporters.

    There is only one way to tell for sure….when I buy some bitcoins, then it will be a bubble, and to prove it, I will hold till the bitter end.

    Merry Christmas, and thanks for a thoughtful and interesting forum.

    • Hg
      Dec 27, 2017 at 10:44 am

      LOL a refreshingly self deprecating investment strategy Wendy. You may find yourself a rich woman in the end. I pray so, and Merry Christmas to you.

  17. Bobber
    Dec 24, 2017 at 11:07 pm

    Why doesn’t somebody come out with an electronic currency (not necessarily based on blockchain) that’s efficient and backed by a fixed amount of gold? The currency couldn’t be inflated or printed, like government fiat.

    A governments could do this as well. I think the first government to back their currency with gold could be the new reserve currency.

    • Maximus Minimus
      Dec 25, 2017 at 2:01 pm

      Because the only major holders of gold are governments, and they create trust by their unprecedented power of taxation, seizure, and enforcement.
      Bitcoin would have a better chance in life if it could line up a hundred Hollywood celebrities who would guarantee it with all their worldly possessions (OK, it would be the picture of them rummaging for food in backyard garbage bins).

      Merry Christmas to all.

  18. Nick
    Dec 25, 2017 at 2:36 am

    Hey Wolf,

    Ive been following your website for the last 6 months or so and have seen a good amount of wary bitcoin posts and I just wanted to chime in as “crypto enthusiast”. Although I got into the field in early 2017 upon hearing of BTC and Ethereums prices, I decided to take a look into why cryptocurrencies had a 20 Billion market cap (at the time) and honestly theres good reason why people are pouring money into this field and blockchain techonologies.

    Most notably, theres nothing like bitcoin else out there and there will never be either – its a decentralized, deflationary, anonymous (up to a point) and censorship resistant virtual currency. The whole reason why BTC has been taking off last couple years is because its a hedge against the quantitative easing thats been going on the last 10 years, and a way for people to store and/or exchange money without any 3rd party interference – government, banks and so forth.

    Theres currently more than 350+ developers (and more can always join) that are working on developing the code of BTC, improving it as need be so its a worldwide community project, with no one person or country able to change, delete or hack the code as it requires at least a 51% agreement across all computers running the bitcoin code, which is estimated to be a bit above 150,000 across the globe.

    And on the flip side, blockchain technology is definitely a game changer when it comes to the tech field and for ALOT of companies, the only way you can buy into/invest into them is through BTC. So even if you dont see the use for BTC, you can use it to invest into up and coming companies to reap the monetary reward later. Companies such as Power Ledger – https://web.powerledger.io/ , IOTA https://iota.org/ , Ripple https://ripple.com/ (which is trying to be a SWIFT replacement) all have real world uses, working products (or close to it) and big investors or government contracts backing them and the only way you can invest in them is through BTC.

    Blockchain technology and BTC arent going anywhere and since many hedge funds and big money players still arent into BTC or only got in the last couple months, there is still alot of money that can be put into this market. Just look at all the overvalued stocks and assets out there in the real world, once the economy does hit the inevitable recession and money comes out of of all those inflated assets, where do you think that moneys gonna go?

    For a nice basic walk through of real world usage and adoption, I like to show family and friends this video – https://www.youtube.com/watch?v=27VZ6gYYNOA.

    Im gonna finish my rant here, but thanks alot for all your articles and information your post on this site. I look forward to the crypto posts in 2018.

    Merry Christmas to you and your family!

    • Petunia
      Dec 25, 2017 at 2:24 pm

      My problem with bitcoin is all about the no recourse aspect of it. The blockchain’s claim to fame is transparency. The public ledger is replicated to assure its survival and to add transparency for its users to see. This public aspect is what should make the blockchain a full recourse system, because every transaction should be identifiable. Instead every transaction is really not identifiable because you can steal a bitcoin and nobody can “find” it. This huge discrepancy is what makes it a huge scam to me. You should be able to track the buying and selling of coins as well as the transactions using bitcoin. It should all be in the public ledger, but it’s not.

      • Nick
        Dec 25, 2017 at 4:40 pm

        Its a valid point, but a close comparison would be doing P2P transactions using cash – no recourse unless you have the other persons name/identifiable information. The BTC blockchain was made so that it wouldnt have recourse so that you could not go back and modify the ledger of existing transactions. Although it is a personal preference I do *prefer* no recourse, although there are other coins out there that do promote a “return” feature for transactions and have qualities more desirable than BTC for smaller exchanges. Furthermore, as far as identifying the person sending or receiving BTC it is definitely anonymous for a reason – imagine if everyone knew which address belonged to whom and can see what they spend there money on? Who would want that

        • Petunia
          Dec 26, 2017 at 4:41 pm

          It’s not about know which address belongs to any person. It is about reversing transactions once they have been identified as fraudulent in any way. Charge backs are normal in business. Once a fraudulent transaction has been identified, it should be reversed. Without this bitcoin is a ponzi waiting to collapse.

  19. Ishkabibble
    Dec 25, 2017 at 4:00 pm

    The most facinating thing I’ve seen over the past 26 years (post-Soviet-collapse era of US history) is the desperate behavior of the US federal government to invent enemies for the US’s vitally necessary MIC to fight, along with the desperate behavior of the congress and Fed to fund them; then, since 2008, while desperately trying to keep the perpetual wars going, the increasingly desperate behavior of the Fed in careful coordination/concert with other central banks and “financial authorities”, to do “whatever it takes”, to try to meet the IMO inherently-impossible goals of section 2 “Purposes” of TARP:

    =====
    SEC. 2. PURPOSES.

    The purposes of this Act are—
    (1) ………
    (2) to ensure that such authority and such facilities are
    used in a manner that—
    (A) PROTECTS HOME VALUES, COLLEGE FUNDS, RETIREMENT ACCOUNTS AND LIFE SAVINGS;
    (B) PRESERVES HOMEOWNERSHIP AND PROMOTES JOBS AND ECONOMIC GROWTH;
    =====

    IMO 2A and B of the above REQUIRE that the “treasury” PREVENT private “home values” (presumably, prices) and the “value” (prices) of shares in the private stock market from falling, as well as, presumably, preventing the “value” of “life savings” in banks and “retirement accounts” (whatever that means).

    Now, just exactly WHERE does “inflation” fit into this well-thought-out plan/mandate to maintain “value”?

    I can’t help but think of Greenspan, Bernanke, Paulson, FOMC and the congress (of morons) as Wicked Men of La Mancha. They dreamed the impossible dream. They fought a defenseless foe (US taxpayers). They ran where ethical men dared not go. That was their quest. To follow their greed. To follow that (death) star, no matter how far. They fought for the Elite, without question or pause. They were willing to march every common person into hell for that hellish cause.

    Think of Richard Nixon as the original “plate spinner”; the petro-dollar as the sticks and the post-TARP central banks around the world as other plate spinners trying desperately to keep more and more debt-plates spinning while dropping none (preventing loss on investments, homes, savings, etc.). Here they are and what’s going to happen in the near future:
    h…….ttps://www.youtube.com/watch?v=tzkLq2cgXL8

    Yes, “push” is coming to “shove” in the USA, folks. For one example, an extremely-civil war II in the US is being fought as I type. Unlike the Civil War of the 1800s, the Elite warriors in today’s war are impeccably-coiffed and richly-dressed in custom-tailored suits and dresses and “educated” in the finest schools. Never in history has so much been spent by so few on personal appearance and dental hygene. Not only are many careers at stake in this war, but so too is the future of the USA’s “place” in the so-called “international community”.

    For another example, the US’s war machine has got to start generating much more profit, so the US has got to decide in the near future whether it’s going to escalate its attacks on Syria and Afghanistan and whether or not to attack the DPRK and Iran. That latter two potential conflicts could lead to all-out nuclear war, so the normally-straightforward, profit-based decision process is getting a bit bogged down on the issue of survival of the human species. No doubt saving face and protecting the reputations and “legacies” of very old, astronomically-wealthy people will finally decide those matters.

    • MASTER OF UNIVERSE
      Dec 25, 2017 at 8:37 pm

      Ishkabibble, you are truly the first person in the entire world of Finance that I have discovered that actually understands what is really going on.

      Greenspan’s grand bet was that as long as Subprime Mortgage Backed Securities never created a default scenario that exceeded 5-10% of actual defaults the Financialization scheme would function indefinitely where the CB would only need to put out brush fires instead of fixing uncontrolled contagion. In brief, The Committee to Save the World is Charles Ponzi II, and Time Magazine is the imprimatur. The Greenspan Put is the methamphetamine in the punch bowl at the Federal Reserve party. Quantitative Easing for a decade was pure debauchery, and Quantitative Withdrawal is all that Keynesian risk piled up and coming home to roost as contagion that is wholly uncontrollable.

      MOU

    • mean chicken
      Dec 26, 2017 at 3:06 pm

      “The most facinating thing I’ve seen over the past 26 years (post-Soviet-collapse era of US history) is the desperate behavior of the US federal government to invent enemies for the US’s vitally necessary MIC to fight, ”

      My best way of explaining this is certain special interests have positioned themselves such they are capable of inventing the future. It’s safe to assume the future they agreed upon made them very rich, at the expense of others.

      So to discover the culprits and criminal enterprises responsible, is a simple process of following the money.

  20. Jeremy
    Dec 26, 2017 at 9:22 am

    Bitcoin is back above $15,000, and heading for the moon.

    I think it’s time for some definitions of terms:

    * A person who owns Bitcoins is a speculator
    * A person who buys CBOE options for Bitcoin is an idiotic speculator
    * A person who sells CBOE options for Bitcoin is a lunatic

  21. mean chicken
    Dec 26, 2017 at 2:44 pm

    Ugh, I’m old enough to have learned to avoid the unknown. Primarily b/c of the high ratio of scams I’ve witnessed.

    For instance, why would any sane man intend on launching an EV designed specifically for traversing the Earth into outer space and transport it to Mars?

Comments are closed.