THE WOLF STREET REPORT: The Big “Buy & Hype” Bitcoin Casino

In 2012, a dude offered to buy my book for 1.5 bitcoin, a “Monetary Revolution” that “doubled in 4 months.” I’d just need to hype bitcoin on my site. That’s still how it works. And big highly leveraged players with huge megaphones jumped in. (You can also download THE WOLF STREET REPORT wherever you get your podcasts).

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  301 comments for “THE WOLF STREET REPORT: The Big “Buy & Hype” Bitcoin Casino

  1. Auld Kodjer says:

    WOLF – I wish to purchase your book for 1 & 1/2 tulip bulbs.
    Do we have a deal?

    • Jim S says:

      Big difference between tulips and bitcoin. I have been hearing this comparison since I started buying bitcoin and other cryptocurrencies back in 2015. Pretty sure if we did a comparison of annual returns you would be very surprised.

      • raxadian says:

        Tulips are easier to sell.

        Tulips are organic so they die.

        Tulips never cost so much you could buy a house somewhere cheap with just one or two of them.

      • Winston says:

        The “mania” part is still relevant to bitcoins, just as it is to a lesser extent for the entire stock market.

      • roddy6667 says:

        The Bitcoin Mania is just at an earlier stage than Tulip Mania. At one time the Tulip Fanboyz were saying the same things as you.

        • Millie Brown says:

          The fed is the only entity that can stop Bitcoin. All they have to do is stop printing money and Bitcoin becomes worthless. I don’t have faith they plan on turning off the money machines.

          Unless you can register “fiat apologist” you aren’t even in the same conversation.

      • SpencerG says:

        Yeah… tulips add to the beauty of the world.

    • Jeremy says:

      For 1 tulip bulb, I will teach you how to type 1½ instead of “1 & 1/2.”

      • DawnsEarlyLight says:

        Lol, that’s mighty bulbous of you!

        • DawnsEarlyLight says:

          BTW, in Windows

          ALT + 0188 = ¼ ALT + 0189 = ½ ALT + 0190 = ¾

          (numbers entered via number keypad)

        • DawnsEarlyLight says:

          of course, the windows character map would get you many more examples!

          Windows key + .

        • Jeremy says:

          No, “Windows key + .” opens emoji window, from which there is no fraction emoji.
          “ALT + 0188 = ¼ ALT + 0189 = ½ ALT + 0190 = ¾” should be written as:
          ¼ = Alt + 0188
          ½ = Alt + 0189
          ¾ = Alt + 0190

      • DawnsEarlyLight says:

        Funny man Jeremy

        • DawnsEarlyLight says:

          Windows Key + . (period), and under Ω (symbols)∞(math), there are plenty of fractions.

    • Joe says:

      What is ECDSA?

    • DR DOOM says:

      The wise words of Riddik from the Chronicles of Riddik are ringing in my ears. ” You should’ve taken the money Tooms , should’ve taken the money”.

  2. Mike Guidry says:

    Agree totally as with most of your articles. It reminds me of tulips. Sent you a fiver. Would be more, but I’m not a Bitcoin Billonaire. 😁

  3. polecat says:

    I’ll wager 100,000,000 Triskelion quatloos for your book “How to Preserve Man”. Let the Gaming begin!

    ‘;]

  4. Cobalt Programmer says:

    Dogecoin is real though. Recently it went up 500% to $0.06. The symbol is a cute meme dog. Even Elon Musk tweeted that the dogecoin is the crypto of the masses. All jump in before the coin shoots to $5. Everybody in reddit hail the doggo! Just invest your extra $5000 bucks. What the worst can happen at this point?
    Woow, woow.

    • Kenny Logins says:

      Well I’m still up thousands of percent, have taken 20x profits in the mean time, and even if it ‘crashes’ 4x I’d still have over 50x initial investment.
      I bought for convenience not to make money. I actually expected to make a loss.

      There is only a problem here if you buy into the hype.

      Nothing wrong with bitcoin per se, just idiots buying on hype.

      • roddy6667 says:

        There are winners at every casino. In the end, mostly losers.

        • intosh says:

          And just like with the casino, the stock market or any other gambling/speculation, the players only talk about their wins. Now that bitcoin shot through the roof, you see people popping up everywhere bragging that they bought. But when it crashes, nobody admits owning any of it.

          I think it’s called the survivorship bias.

        • Depth Charge says:

          Except the people who brag about winning in the casinos don’t mock and insult those who aren’t gambling. The crypto shills are some of the most disgusting people I’ve ever seen.

        • The criteria separating winners and losers in a casino is time spent playing. In the stock market time is your friend, because the casino pays out at rates greater than 100% of the money they take in. The only time you get in trouble with stocks is when you leave the casino after the game has turned against you. You were unable to buy the dip. Now that people live longer players never need leave the casino, they simply tap a line of credit against their winnings. The implicit guarantee is they will never be marked to market. The only downside of a +100% payout and no table limits on losers doubling down, is that profits will never exceed the expansion in the money supply, which is boy howdy pretty good right now. The casino is rather more like a pension fund assuming outrageous liabilities, and then smiling ever so cleverly when inflation makes those numbers work, even if they do represent a level of impoverishment for their members, as all casinos do.

        • Digital Nomad says:

          I bought in 2013 when it was a few hundred dollars per bitcoin, now I live wherever I want and work from anywhere. I sold off half and bought silver and gold. The rest I will let ride into six figures in the next twelve months.
          I guess I was one of the winners in the casino.

      • Joy says:

        Wolf,
        Thank you so much for the update on the Bitcoin. I am on the same page as you. I was lured at $800. Then at $8K. But in the end Better to be happy what you have. They can keep you out even if know the P.W. ????

      • economicminor says:

        It is to volatile to be a store of any value. If I had bought in last week, I’d already have lost over 10% of my capital. It has very little usefulness as I can not buy a cup or coffee or a meal at my convenience. I can’t buy much of anything at my convenience with any crypto. It appears much easier to purchase than to sell unless you are just purchasing the ETF which isn’t the same as ownership. If I put my crypto on a flash drive, I could lose it. I already have to have a list of my passwords because I can’t remember them all so then I am susceptible to hacking and losing it.. With no governing body, I have no one to even complain to. The users/owners fund its existence thru their own power bills. When it becomes universal and I can use my retina scan as access then I will probably be forced to have some.. Otherwise I like my gold and silver in a safe.

    • c1ue says:

      There’s a /sarc right?
      I mean, how can a crypto wannabe currency started as a joke, be anything but legit?
      /sarc

      • Cobalt Programmer says:

        Yes, Dogecoin was created as a joke. The price at that time was so low.
        Now, if bitcoin which is based on nothing can be traded at 50K why not our doggo? I know you are fan of “Wolf” and thus hates my doggo.

        1. Crypto folks claim to be an alternative for paper currency. They why cheer if the paper currency value goes up?
        2. Crypto folks claim the fed manipulates dollar values. Bitcoin prices are also manipulated. no body cares
        3. Dollar is based on nothing they say. Yet bitcoin or dogecoin is also based on nothing.
        4. Mining for bitcoins creates bitcoin. Nothing of value or no work is done.
        5. If bitcoin is outside dollar currency system, then why care about the value of bitcoin in dollars?

        • c1ue says:

          So you weren’t being sarcastic.
          The difference between Bitcoin and all the altcoins is: the institutions aren’t buying the altcoins at all.
          The altcoins benefit from Bitcoin rising but the dynamic is fundamentally, completely different.
          This isn’t Coke vs. Pepsi or AMD vs. Intel – it is actual Elvis vs. the Japanese cosplay Elvis.
          Again, not that money can’t be made – but be aware that buying into the imitators is far more risky even than buying into the Ponzi original.

        • Some Rando says:

          Some altcoins double as governance tokens, (like AAVE) or are required to participate in markets (like SNX). You can doubt the value of the underlying ideas (AAVE = loan money at interest backed by collateral, SNX = synthetic assets much like derivatives in traditional finance), but to say they have no value is to ignore what value means. For ‘value store’ coins like BTC, yeah, less value, in my eyes, but what’s going on in the defi (decentralized finance) space is a play to disintermediate banks (AAVE, COMP)/investment houses (DeX plays) and the like. And they know it which is why they are attempting to embrace it lest it extinguish them in the long term.

        • Salome says:

          Re 3. : All the dollars have value because of the farms, houses and labour that can be exchanged for it. That the amount of dollars gets excessively inflated is true but does not mean that the social hack called money becomes useless.

  5. polecat says:

    ‘Dogecoin is real though’ … like a hound rolling in catsh!t ..

    • VintageVNvet says:

      U NAILED it pc!
      Don’t understand how any reasonable AND rational person can ”invest” is something that certainly appears to have even less anchor in reality than the USD..
      And, equally, never have understood how my otherwise wise and worldly canines have the lust to roll in the most stinky stuff they can find.
      Maybe similarity of thinking/reaction, but I really don’t want to insult the dogs who are otherwise usually fairly sane/rational at least most of the time!!!

      • Anthony A. says:

        My dog likes to roll in DOGSHIT and favors the most recent deposits! Something about being territorial. Kind of like the FED.

      • Lisa_Hooker says:

        Investing in any fauxcoin is simply investing in the expectation of someone else’s future stupidity.

    • SpencerG says:

      Some kid on my Facebook feed was trying to push DogeCoin a couple weeks back. He would not listen to any arguments to the contrary.

      “You don’t understand… it is just going to keep going up-and-up-and-up.”

      Same words I heard from my sister in 1999 about internet and chip stocks.

      Same words I heard from a Navy Reservist in 2005 about the Orange County CA real estate market.

  6. JK says:

    Bitcoin makes sense. I agree with the younger generation and I’m in. What backs up the dollar? The full faith of the US Government? Gold that has no audit? Meanwhile, the printer goes “brrrrrrrrrrrrrrr.” You gotta be kidding me. Anything with a limit of production and unable to be tampered with is game for me. BTC & Litecoin. Have some Ethereum too, but small amount. Another one that is interesting is Monero which can’t be traced like BTC.

    Always can be wrong, but I’ll take my chances. At least I’m diversified for whatever it’s worth.

    • Michael Grace says:

      People always agree that a gamble makes sense if they make money…until it doesn’t…..its mind control facilitated by information manipulation

      • Kunal says:

        USD is also a gamble. Its backed by white lies and can be printed indefinitely. At least Bitcoin cannot be printed at the whim of politicians. Its only logical for intelligent people to use a currency than cannot be stolen limitless.

        • Thomas Roberts says:

          As someone who studied economics and computer science, I can say with absolute certainty and no hesitation that the National Security Agency, could in many ways destroy Bitcoin, on a whim. They could attack some of the exchanges, undermining confidence and zero everything out to undermine bitcoin, they could manipulate it wildly with transactions, or just go in for the kill and take out the network. They’re many ways they could pull it off. There is literally zero chance, bitcoin could survive an assaullt by the NSA or any major government or many other organizations. A few rogue employees at a major tech company or even a single highly skilled hacker could pull together a botnet/alot of company servers and take bitcoin down. The main defense by those in bitcoin community as to why such an attack by an individual or small groups wouldn’t occur, is because “it wouldn’t make financial sense”, ahh yeah right.

          Because of the way that bitcoin works there’s no way to simply roll back changes, unlike if say a hacker attacks a bank.

          While if bitcoin could actually work, I would be all for it. It simply cannot work on a large national/global level currency. The network itself could be taken down and it doesn’t live upto promises. One of the alleged promises is privacy, this is extremely the opposite. While certain agencies, if they follow alot of rules, can be anonymous, an average person simply cannot. For many countries, if bitcoin was widely adopted in a country, there would also be many national security risks. This is not counting all the many economic reasons why bitcoin wouldn’t work for modern devoloped countries.

          It’s a fact that the US government created and funds the so called Dark Web, they don’t hide that. They did it so they could communicate securely and so people couldn’t track them. Many wonder if the US Government also created bitcoin so that they could send money securely and anonymously (following a bunch of rules). There are negatives with bitcoin such as North Korea using it for randsomware attacks to bring in money. Bitcoin though, also enables capital flight out of China and China is where most bitcoin mining happens, this is where alot of the money flowing into bitcoin originates. Because of things like capital flight out of China, bitcoin could be seen as a net gain by the NSA.

          Any semi-modern country could prevent people from buying into crypto currencies if they wanted to.

          Just like any asset in a bubble, bitcoin/crypto currencies could cause some to become extremely wealthy or make many a bit of money. But, eventually it will come crashing down. It might eventually go way past 100k and hold value for years or maybe blow past 100k very soon in a frenzy. Or the network could be destroyed and it goes to zero immediately. It might enable the development of some villages around the world. It might temporarily, enable many things, but, it will never become the new global currency and it could come crashing down in an instant. China actually banning bitcoin, could be one such trigger. While, that won’t likely eliminate bitcoin in the same way an NSA strike could, it will be the end of an era. If that does happen though, maybe it will trend again in the future?

        • eg says:

          Actually, $USD is backed by guns. Lots of them. Oh, and police and prisons too.

        • ru82 says:

          That is not true. The U.S. Government has $225 Trillion in wealth. via Federal Land, mineral rights, government buildings. I could sell a portion of Alaska and easily pay off the Government debt.

        • Eutico says:

          Is Back by the US ARMY!

        • Single Poster says:

          This is my first ever comment on this site but two things that have consistently been missed, by everyone, are worth pointing out.

          1) There are only a handful of mining companies that manage the network. Google the “51%” rule (which is currently a soft word agreement by the way) and see what happens if that rule is breached
          2) The code is maintained by a handful of developers. What controls are on them?

          Currently it is in the interest of the above 2 groups to keep everything going. Any one party could easily be coerced into no longer being noble about maintenance

        • Some Rando says:

          Lots of misinformation here. Bitcoin, and other POW coins are susceptible to 51% attacks but the general computing power required is immense, though with the bulk of mining concentrated in about 5 ‘pools’ due to the immense cost, its must easier to gain control of 51% of computing power. Could the NSA mount an attack? Sure. Would they? I doubt they give enough of a shit.

          POS (ironic acronym, I know) coins and especially POS coins with things like cryptographic sortition as a validation scheme (like ALGO) are FAR more immune to this as one must control 51% of all PARTICIPANTS in the network, not simply the computing power, controlling millions of computers is non-trivial, more so as thousands of new ones pour in constantly and old ones drop off.

          As for ‘attacking the network’, that makes little sense in peer to peer systems, I mean they could target specific nodes or inject a bunch of bad actors but the entire point of crypto is to be immune to the Byzantine general problem specifically, so bad actors are expected and planned for.

          One could only theoretically ‘wipe out’ the accounts if one has centralization. Current exchanges (not DeX) ARE centralized and do pose such a risk. DeX exchanges are not and do not. Part of the entire blockchain ledger existing on millions of machines is that there are essentially a million backups. Your bank does not have a million backups of its financial data on a million unrelated machines. In fact they probably have some in-house and potentially some in cloud like AWS, but having N copies only mitigates centralization risk if N is very high.

          As for the ‘few devs’ argument most all crypto is open source, so not really an issue unless no one finds value in the platform anymore, but that’s not different than any software platform. If people find value in it, it remains, if not, it doesn’t.

          As for attacking the fundamentals, I suppose if the NSA has crack public key cryptography then that’s possible, but at that point everything you do online is at risk including every ‘traditional’ financial transaction currently occurring.

          In the end is crypto some panacea against all foes, no, of course not. Is it at least as safe (if not considerably more volatile) than any fiat currency? Yes.

        • Thomas Roberts says:

          Some Rando,

          The reason I bring up intelliigence agencies, is that some actually believe bitcoin, could replace the US dollar in international trade. If that ever started to happen (which it can’t), the US government would take bitcoin out.

          As for a 51% percent attack, it would be easier than you think. One thing to be aware of is a virtual server, on servers it is very common for servers to run multiple instances of an operating system and divide up the resources of the host hardware. Each virtual server can serve a bitcoin node. The specs of the hardware vary and determine how many virtual servers could serve as nodes on 1 physical server. Some older servers cannot handle this and can only be 1 node, however, new not that expensive servers can have a 64 core 128 threads processor and easily handle upwards of 60 nodes.

          This means that a 51% attack doesn’t require the same number of servers as there is nodes. There might be a 100,000 bitcoin nodes out there, some amount of them are already run by the intelliigence agencies. The number of physical servers actually required to pull off a 51% attack would be under 2,000 if using only newer servers. The National Securiity Agency and many other organizations have vastly more than this. Google alone, years ago was estimated to have between roughly 500,000 and 1 million servers (mostly low end). Botnets can have infected computers numbering in the millions in their control.

          Besides a 51% attack, to undermine the actual network, a botnet, or an agency could infect the existing bitcoin network and cause it behave maliciously. There are many ways to do this. Because, of the peer to peer nature of the bitcoin network for a advanced hacck, you could infect from one node to the next.

          One way to do this, is to take advantage of the “Intel management engine”. There are small computers inside your phone and computer that run certain parts (this is very useful and important, however some of them are security hazards and are unnecessary). The most ominous one if you have an Intel motherboard is the “Intel management engine” (IME), it’s a small computer on nearly all Intel motherboards that is designed to do legitimate things that are necessary as well as having complete control of your pc, act as a backdoor, enforce DRM, among other ominous things. It’s capable of in ways that are impossible to detect on your computers interface, of sending and receiving instructions and programs through your network card directly to remote computers and directly reading and writing to your ram. It can take over your computer and is nearly impossible to figure out. It doesn’t matter what OS your computer runs. No anti-virus program or anything else can stop it. US intelliigence agencies and certain governments, but nobody else, can order computers with this chip disabled. The only way an average person can maybe partially disable this, is to directly interface a second computer to the pins of the IME and try to delete most of its firmware and then only run Linux (windows might try to reinitialize it). AMD has a counterpart called the “AMD Secure Technology” that some BIOS’s, allegedly let you partially disable, but is normally on. The IME is always on, even when your computer is off.

          Trying to break the encryption would require quantum computers and currently isn’t possible and potentially may never be possible. Unless, some unknown AES vulnerability is discovered (unlikely).

          As for being more secure than fiat, that is simply not true, if a bank is haccked, they can roll things back and try to retrieve the money. This isn’t possible in bitcoin. Also, if i forget my bank account number or password, I don’t lose everything.

        • Some Rando says:

          Most modern mining is done with ASICs (like these: https://www.bitmain.com/products/antminer/), the idea that VMs have enough power to outcompute them vis-a-vis the work done in minining / validation is just way off. It’s like saying because you own 10 pintos you can competitively race against a formula 1 car. You can’t. Changing that number to 100 pintos doesn’t change the underlying reality.

          As for a 51% attack against a POS network with randomly chosen validator sets, uh, sure, if you want to stake 51% of the entire value held in the network and also can control millions of nodes and ensure they are always the entirety of every validation set. Seems unlikely, but nothing is impossible given infinite resources and time (ignoring NP complete problems).

          I have no reason to believe any crypto coin will ever became a mainstream payment mechanism, just like most YouTube singers won’t become global megastars, doesn’t mean you can’t make money on YouTube or in crypto or that the stuff happening in defi isn’t going to gut most of the banks lending arms. Why let the bank lend your savings money and pay you nothing / next to nothing when AAVE offers a 10% APR on USD deposits with a 750% over collateralization requirement (meaning lenders defaulting because their collateral value drops is mostly impossible unless it drops by 750%, at which point you have bigger problems like the thermonuclear war that probably just happened). Really all defi aims to do is to allow you, the capital holder, to benefit in all the ways the bank (read: rentier/middleman) currently does today.

          That said, since one can now easily go long or short on crypto I suggest all the anti-crypto folks go short it and reap the windfall (nows actually a good time as the markets are a bit puchdrunk).

          Could the govt destroy its value if they really wanted to? Probably, but they can do that for any asset class, to think otherwise is odd.

        • Thomas Roberts says:

          There are different kinds of 51% attacks, the crypto community prefers to mention an attack on the hashing power, because they are better positioned against it. Intelliigence agencies, can very easily outhash bitcoin if they want to. The point is very simply, that bitcoin to those wondering, can never replace global currencies.

          As I said above, you certainly could make money off of crypto, but, it’s in a bubble that resembles things like Pokémon cards and baseball cards. The value could almost entirely disappear and never come back (very possibly it might come back a bit, but probably not). It will be a roller coaster along the way.

          It’s not the same kind of asset as say land, property, precious metals, and stocks; which while they can be overvalued, will always retain some value (diversification might be required in some of these asset classes).

          So if you know what you are doing, go ahead and try to make that money, but, be aware of bitcoins limitations.

        • ram says:

          That “Thomas Roberts” dude really hits the nail on the head. I’m surprised he mentioned “No Such Agency”.

      • Millie Brown says:

        Fiat apologist.

      • Cas127 says:

        “mind control facilitated by information manipulation”

        If you don’t think those factors have played an enormous role in propping up the continually debased USD, I have $1 million Confederate dollars to sell you for $100k (in gold).

    • Alberta says:

      Keeping the vibes positive JK!

      Have a 2 back up generators , a dozen batteries w/distilled water for panels and wmill, the propane tanks topped off so when the grid goes down, oh wait …. THAT will never happen.

      Better still stash some fiat (just in case) cuz it’s a pain in the a** trading for eggs, coffee, and fuel with no e lec tri ci ty.

      I get it, fiat is bankrupt and crypto is new kid on block, however, there are big kinks in the grid that need to be steamed out before I put my faith and trust in an electrical current, perhaps owned by a foreign enemy.

      • JK says:

        Positive like BTC for the year-so far. :)

        Regarding big kinks in the grid, I hope you don’t live in Texas. You got bigger problems then a hypothetical foreign enemy.

    • Dale says:

      I have some residual concerns about bitcoin that frankly nobody on Twitter has been able to assuage. Maybe somebody here can help. I have a PhD in engineering and lots of algorithm development experience, so I’m prepared to wander into the technical weeds if required.

      Background:
      1. Most miners (~70% afaict) are in China, and therefore under the control of the CCP.
      2. The miners appear to be the network, at least to the extent of validating transactions and creating new bitcoin.
      3. The ECDSA signing technology (not the SHA hashing) is highly vulnerable to quantum computing (QC), if and when that is realized at scale.

      Concerns:
      1. What prevents the miners from modifying the code to allow themselves to issue more bitcoin after the hardcoded limit has been reached?
      2. What prevents the miners from refusing to validate some transactions, e.g., all of those originating from countries with whom the CCP has a grudge?
      3. With QC (again, not yet realized but highly anticipated), it will be possible to break Bitcoin ECDSA private keys. What is the plan for transitioning to other approaches? (Note: whoever does this will be the first to have access to $100Bs worth of bitcoin that have been inactive, which is plenty of motivation.)
      4. I’m also interested in the response to @Stuart Davis’ question about miner incentives once the bitcoin limit has been reached. I know there is a transaction cost capability, but will that be enough motivation? And if it is enough motivation, will it detract from bitcoin’s attractiveness?

      • VintageVNvet says:

        Good points D, as are many of the points raised by TR above!
        Question for both of you is with re Carrington Event effect on BC and any other such entity.
        And, similarly, what about the effect of some man made attack similar to a CME?
        Thank you.

        Old guy in cash and RE for balance and convenience as has been suggested on here by folks either very intelligent (easily discernable by how much they agree with my thinking, etc.) and/or much more so and apparently much better informed.

      • ru82 says:

        I have the same questions on all 4 you asked.

        1) In theory, all you need is 50% of the majority of the miners to accept a code modification. and they could create more BTC. Never say never.
        2) China is preparing to roll out a Crypto Yuan. They already did a million coin test I believe. Maybe they are behind some of this run and then work on destroying BTC. I am just not sure what country owns the most BTC but China is where most of the mining is going on. China could also be sucking up USD by selling the BTC. There is to much unknows for me.

        The white papers says it is a new form of peer to peer currency transaction to bypass the banks. This was true at first but then BTC did not scale well and the transaction costs are high. So now it is being pushed as a store of wealth. Which may be correct….I do not know.

        Now I think the narrative is get rich quick?

      • David says:

        What prevents the miners from modifying the code to allow themselves to issue more bitcoin after the hardcoded limit has been reached?

        This would result in a chain split, as some portion of participants would not accept the new issuance. Exchanges would likely list both chains as separate tokens. Chain splits can be messy, but review what happened with Bitcoin Cash as your guide here.

        What prevents the miners from refusing to validate some transactions, e.g., all of those originating from countries with whom the CCP has a grudge?

        Transactions are valuable to miners based on the fees they pay. If some miners refuse to validate a transaction, other miners will happily take that fee instead. The 30% of non-Chinese mining is more than sufficient for this.

        For Quantum Computing resistance, see https://en.bitcoin.it/wiki/Quantum_computing_and_Bitcoin.

        In the absence of a significant block subsidy (new bitcoin issuance), there is a market between miners and fee-payers. The fee-payers will pay whatever fee they need to so long as it doesn’t make their transaction uneconomical. The miners will deploy hashpower based on weighing the capital and energy costs against the value of the transaction fees. The only concern is that said value ever becomes low enough that it becomes feasible to perform a 51% attack against the Bitcoin network.

      • Clarke Acton says:

        Good points

        1) as soon as this happens BTC loses all of its “limited supply” value. We would then see how much of its value is speculation and how much is technological faith in limited supply. I would guess it drops 75% and unless the coders had a way of systematically cashing out the scheme would not make much sense other than to kill the concept. Most miners do not have a huge margin so an unrecoverable loss in value could put them in a loss position
        2) again as soon as this happens word is out and value goes down due to loss of technical integrity. With some pretty harsh swings on very minor potential validation problems I would say this would drop BTC 80% instantly again defeating the purpose of the scheme
        3) yeah this ones a doozy. Way beyond me but I’ve read some pretty convincing things about BTC’s ability to overcome QC. And again if someone transfers everything to themselves its known immediately as a breach in this case bring value to ZERO! So who’s gonna buy? As in 1 & 2 it could be done but its a self-defeating scheme
        4) The mechanics are a bit beyond me but the players all have an incentive in the ecosystem working and the value not degrading. Also if BTC worked as a store of value in place of ZIRP treasuries, dollars and bank reserves the frictional costs in the current establishment system are enormous. I think the nodes would place themselves where their fees were high but not high enough to endanger the ecosystem and their holdings

        • Dale says:

          Thanks all for weighing in. Excellent food for thought.

          And thanks Wolf for the extremely high quality of your research.

      • Lynn says:

        *If* the CCP is invested then it is accomplishing 2 things. 1. An easy way for those within the upper echelons of the CCP (& friends and family) to get money out of the country. 2. Destabilizing other countries by buying & therefore inflating asset prices and buying up key businesses. If others than the controlling families use it for capital flight as well then perhaps ??? the CCP somehow makes $ on fees plus more of #2. They *have* cut off a lot of other avenues. In theory.

        There’s a reason foreigners can’t buy land in China. I’m not even sure citizens can yet. Thus, the reason why capital flight out of China buys up overpriced R.E.

        Also, US citizens who buy RE in the US (unless they are a hidden LLC) have to account for money that is spent. Foreign buyers do not have to account for their money. Another attraction for capital flight.

        If you think the economy here is hollow, look at some of the mini documentaries on ghost cities on youtube. The ones where they actually take the camera inside those crumbling empty buildings and explain how investment on those buildings works.

        We really should put a cap on foreign investment in US housing stock. Whether it’s foreign money in REITs or direct buying. The US politicians are fools and are also selling off our housing to prop up the stock market. But, maybe they think razor wire around the capital is easier on their own pockets..

      • ram says:

        The problem of solving for the ECDSA private keys is isomorphic to the factorization of the product of large prime numbers problem. There is NO PROOF that the factorization of products of large primes is an intrinsically hard mathematics problem.

        It may also be the case that more than one (perhaps many, perhaps easy to find) private key generate the same public keys.

        Think about that.

    • Winston says:

      80% of bitcoins are mined in China and whales pump and dump the market. That’s as plain as the this 3rd stock market bubble in 20 years where fools say “this time is different” every time and buy, buy, buy because the market is going up. Just look at the bitcoin price history to see the huge, totally unjustified by anything other than a buying mania swings. Also note how close it got to the $3,000 mining cost in China before it magically turned around. Pump and dump and pump and dump and pump and dump…

      • China has a digital currency which is government sanctioned. Mass adoption is inevitable, the US media would rather pump the PT Barnum story.

        • ru82 says:

          If you read up on China, they want to be the reserve currency.

          Not the USD and not BTC.

          That is a little concerning?

        • Nels Nelson says:

          China is well along in developing a CBDC, Central Bank Digital Currency. In addition to a regular digital currency, they have conducted trial runs in Suzhou of what are called digital red packets. These are e-yuan that must be spent by a certain date at which time they expire. This is what is referred to as a demurrage currency. The concept was developed by a German-Argentine economist name Silvio Gesell as a means of increasing the velocity of money.
          To quote Gesell: “Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether. For such money is not preferred to goods either by the purchaser or the seller. We then part with our goods for money only because we need the money as a means of exchange, not because we expect an advantage from possession of the money. So we must make money worse as a commodity if we wish to make it better as a medium of exchange.”
          Keynes was influenced by Gesell’s idea of demurrage on currency, but used inflation of the money supply rather than fees to increase the velocity of money in an attempt to expand the economy.

          In no way does China want the renminbi to become the global reserve currency. In order for a country to have the reserve currency, it must run a trade deficit. China does not want to run a trade deficit, they want to continue to run a trade surplus.

        • Zantetsu says:

          My theory is that the USA will do something similar soon (with an officially sanctioned digital cryptocurrency) and that they don’t mind running up the debt to epic proportions because they know that that all of those debts, payable in USD, will be paid back in worthless script once they convert the entire financial system over to a new digital currency.

          There is a thing called “USDC” – check it out. It’s a cryptocurrency directly tied to the USD value. It is audited by real world financial companies; all it will take is for the USA to start accepting USDC in lieu of fiat.

          Bitcoin is not a real currency and it’s not a long-term store of value either. I used to think back in 2011 that it could look like and work like a real currency but quickly became disillusioned when I discovered the technical limitations that prevent it from actually being useful as a form of currency (to this day it’s still only a couple of dozen transactions per second TOPS and those transactions are very costly in fees). Unfortunately I did not foresee that it would become a huge bubble because I was evaluating it on its technical merits, not its ability to satisfy FOMO and greed. As a result I only bought 3 bitcoin for $100 and used two of them in 2013 to buy an Aeron chair once they had made it to $600 per coin. I thought a 20x return was pretty good at the time.

          I would have used the third bitcoin too but I “lost” that one in a digital wallet snafu. Just recently I did some digital spelunking on some of my old archived files and I recovered that bitcoin. So yay I found $50 grand on my hard drive. It’s not the retirement fund that I was hoping for in 2011 but I will take it.

          Right now I am more interested in Solana because its technology actually *can* achieve the transaction speed and low transaction cost necessary to effectively work as a currency.

    • Paulo says:

      I’ll bet there are a lot of readers on WS who als0 wish they had bought some decent property in selected locations about the same time Bitcoin started up. Sure, everyone wishes they bought Bitcoin at opening, but at $50K? I wish I had bought gold when it was $30 oz. I wish my in-laws hadn’t lost their homestead up by Edmonton, the one full of oil that made everyone else rich.

      To me, ones and zeros held together by electricity and accessed by secret passwords with values determined by future prospective buyers….is just too much to process.

      People need a place to live, they need work, they need food, they need companies to ensure all of the above. They don’t need Bitcoin or leveraged stocks. The future rise of Bitcoin predicates that this society continues on with its foolish fluff trajectory in the face of overwhelming debt, increasing wealth disparity, and climate disruption. From my years of reading WS comments, and before that T Pit, I don’t believe most readers on this site are totally committed to the Musical Chairs we call investing.

      regards

      • c1ue says:

        Are you really 70+ years old? Because gold hasn’t been $30 for at least 50 years, and you can’t buy a lot of gold as a baby.
        I’d also point out that $30 in 1970 is not the same as $30 today or even 30 years ago.

      • 728huey says:

        I bought one bitcoin back in 2015 which at the time was just under $300. I bought about another $300 each in Ethereum and Litecoin in the summer of 2017 just as the second wave was rising. All of those crashed just after the start of 2018 but I didn’t sell. I was somewhat surprised it crashed so deeply at that point, only because it was barely registering in the mainstream media. To me I thought the true sign of a bubble in cryptocurrencies would come when TV cop shows had major storylines involving stolen cryptocurrencies, a slew of infomercials suddenly came on TV pushing get rich quick schemes with cryptocurrencies, and the latest hip-hop single topping the charts was about sexy ladies wanting a piece of my bitcoin.

    • c1ue says:

      I wish you well, but Bitcoin has scaled heights before and then plumbed depths.
      Maybe you can afford to put 5 or 6 digits into something which goes up and down 50%-90% every 3 or 4 years – but then again, maybe not – this is assuming you can handle that much personal wealth volatility.

    • intosh says:

      “What backs up the dollar?”

      What backs up bitcoin? Newsflash: bitcoin is measured against the dollar. The day you can no longer exchange it for dollars, it becomes worthless.

      “Anything with a limit of production and unable to be tampered with is game for me.”

      Except crytocurrency isn’t it. You can fork and create an infinite number of said coins, as it is being done now. And it has been shown that it can be tampered with by 51% attacks.

    • Jeff T says:

      To really lose money, lets buy a crypto based on gold exploration.

    • Wolfbay says:

      I’ve bought Bitcoin and etherium with money I can afford to lose and I think it’s better odds than blackjack. With all the stimulus coming and CNBC pumping Bitcoin the odds may be good that prices will rise at least for a while. If I cash out with a profit and then it keeps going up I need to remember not to follow Newton’s behavior during the south seas bubble.

      • c1ue says:

        @Wolfbay
        Better odds than blackjack means better than a game architected for the players to lose?
        Ok, I agree.

    • CryptoMoon says:

      Bingo. Nailed it JK!!!

  7. Michael says:

    Wolf,

    Ponzi scheme. Different name, same results

  8. Bob says:

    Wolf,

    Would it be correct to sum up your opinion as “one of the greatest Ponzi schemes of all time”?

    • Wolf Richter says:

      “One of…”?

      • Cas127 says:

        Wolf,

        To hate on Bitcoin specifically is to miss the forest for the trees – the terminal distrust of USD stewardship that decades of DC degeneracy has finally achieved.

        If not Bitcoin, it will be something/anything else that allows savers to diversify away from the continually debased, infinite supply fiat of DC.

        Hating on any one fixed supply/fixed growth currency is to hugely miss the much, much bigger story.

        Sooner or later, one or more non-fiat currency is going to stick – and the carp factor about their potential weaknesses will pale in comparison to the repeatedly proven untrustworthiness of DC dollar stewardship.

        Do you think savers will forever wait for a majority of US politicians to act with integrity/insight when it comes to US finances?

        • Winston says:

          “the terminal distrust of USD stewardship”

          And for that reason jumping from the frying pan into the fire. Dumb…

        • Cas127 says:

          Winston,

          If you are forever long 100% USD, you are already *in* the fire…you have just stopped noticing it due to a lifetime of cigarette burns from DC.

          And the whole point of print driven ZIRP is to drive savings, at bayonet pt, into riskier, higher volatility investments (Pseudo BBB debt, doomed CCC debt, housing bubbles, equities with 50+ PEs, etc.).

          Hate on BC however much you want…sooner or later an alt currency will come along that a critical mass of savers trust more than DC’s systemic degradation dollars.

          Every DC failure/abuse brings that day closer.

        • Tom S. says:

          If the USD takes a crap, we got way bigger problems than the price of a character string.

        • intosh says:

          “one or more non-fiat currency is going to stick”

          It’s not a currency if no one (figure of speech) is going to spend it. Bitcoin is a speculative store of value (much like stocks, art, baseball cards, comic books, etc), and as such it cannot be a currency. People own bitcoins in hope its value increases — so why would they spend it?

        • Cas127 says:

          Intosh,

          Bitcoin (or fractions therefore) has always been intended to function as both a reliable store of value (no at political will dilution) and as a currency.

          The speculative increase in Bitcoin prices right now are a gamble on Bitcoin’s future ubiquity in both those roles…the whole Bitcoin ecosystem is set up to reward those earlier adopters who help popularize/propagate use of Bitcoin.

          The same exact thing happens when the G issues unbacked currency…there is huge value to so called seigniorage .

          The difference is that the G keeps *all* of that early adopter/issuer value for *itself* (and issues more and more unbacked money forever and ever).

          Bitcoin grants seigniorage value to early adopters and is designed to only issue a *finite* amount of money (hiking the per unit value of Bitcoin relative to infinitely dilutional USD).

        • intosh says:

          “Bitcoin grants seigniorage value to early adopters and is designed to only issue a *finite* amount of money”

          So few people will want to spent it. Thus, not a practically viable currency.

    • NotMe says:

      It is more correctly a mania. Ponzi schemes are where dividends are paid out to old subscribers out of the capital of old and new subscribers, not out of investment returns.

      A mania simply is where a supply of something is temporarily limited driving up supply. To whit, beanie babies, tulip bulbs, baseball cards.

      So, not a ponzi scheme. Madoff did that. So did Ponzi.

  9. Ravi Masand says:

    The FED will not backstop Bitcoin. They will prevent a systemic collapse by bailing out – not making whole – the big guys whose failure could have system-wide repercussions. And let the coin and the two-bitcoin players go to hell. The US of A has no interest in a competing ‘currency’.

    • Cas127 says:

      “The US of A has no interest in a competing ‘currency’.”

      Of course not…a non-dilutable alternative would expose DC’s failures instantly…and destroy almost all of its power in the next instant.

    • Wolf Richter says:

      The US of A has a number of competing currencies, actual currencies, the largest of which is the euro. The euro works well as a currency. You can buy all kinds of stuff with it.

      • Cas127 says:

        All the fiat competitors are subject to G dilution at will…why trade one dominatrix for another (savers are thinking).

        But fixed supply/fixed growth rate alt currencies provide a distinct advantage over fiat (certitude, once alt established).

        This is the advantage that precious metals (with *their* shortcomings) offer. Fiat volatility has yo yo’d PM prices over the decades…but PMs still have significant value against fiat.

        They do so because fiat is definitionally unreliable.

        • Jack 07 says:

          Cas127

          You’re fighting a losing battle my friend!

          If you haven’t figured it out yet,
          BITCOIN:

          – is NOT a currency.

          – NOT a Störer of value.

          – will NEVER be adopted on any international trading system.

          – is a figment of a bunch of Anarchist who like all good old anarchists has done is throw the world into chaos and watch it burn.

          – sonny, a coin that has the magic capability of fluctuating between Hades and high heaven’s for a simple reason of Musk twat tweeting is No good no matter how vehemently you defend it.

          Yes sure, and by all means profit from the bubble, use the hype, but never ever preach its

          “SOUNDNESS as a Currency or A VALUE STORING ASSET”

          if you have a moderate understanding of computer & cyber technology you’ll understand what I mean.

    • Juanfo says:

      Why does crypto continue to be available? Why have .gov not yet pulled the plug?
      .gov knows something is up and plays some kind of sick twisted game. I’m guessing 2 possibilities: it’s too big and they know it can’t be stopped or they are letting it grow to a specific size.

      • Juanfo says:

        FULL DISCLOSURE: I personally *own* a negligible amount of crypto.

      • intosh says:

        Prohibit something and more people will flock to said thing. Right now, there’s no reason for governments to rush and do something about it. In fact, they will use the technology and make an official digital currency and that’ll be the end of those “unofficial” ones. That’s what China is doing.

        “it’s too big and they know it can’t be stopped or they are letting it grow to a specific size.”

        It doesn’t need to be stopped completely. They just need it to remain fringe, a non-factor. “They” didn’t need to completely wipe BitTorrent or Napster off the face the earth, did they?

  10. Mr. Wake Up says:

    Technically you can earn up to 8% interest rate holding Bitcoin on the BlockFi exchange.

    My understanding is the cost to mine one BTC is approx $3400

    My Bitcoin PTSD story.
    I had a client back in 2013 made a deal offer to pay me a bonus for services rendered I had a choice 200 bitcoins or $20,000 USD.

    Like Wolf I can testify I turned down. Every time it hit a insane high like going from $100 to $1000 his words after rejecting the bitcoin: you will never forget this day. And it will haunt you. I thought to myself if you know something why not educate me on the error I was making instead.

    We talk occasionally on an annual how are you of sorts but never any mention of Bitcoin all these years. We just talk Real Estate.

    Well when it hit 30k all these years later I called to talk bitcoin and he asked me will you buy it now? I told him I should of bought when you offered. He said you still have a chance. I said well not at $30,000. Guess what? He hung up the phone on me lol!

    Even if I had 200 I would have never held them to the moon. I would probally have 5 or 10 max.

    I have to say the fact that it’s all over CNBC everyday and everywhere else just naturally makes me more skeptical all at the same time
    Irrationally a believer will go to $100k so go figure…

  11. Yancey Ward says:

    I think, ultimately, the cost of processing the transactions is going to be the fatal problem with Bitcoin itself. It apparent takes an increasing amount of power to process any transaction, however small or large it may be.

    • Has the same problem as gold: after a while, no one will spend the pretty coins. See Gresham’s Law for details. We don’t use gold cuz you get hoarding and lack of spending and then deflation and REALLY BAD DEPRESSIONS.

      • intosh says:

        Bingo!

        That’s why bitcoin will never be a real practical currency. It’s not a curreny if no one wants to spend it.

        As for the cost of transactions, it’s horribly non-scalable. Its relatively minuscule amount of transactions, compared to other “traditional” networks, is already seeing performance issues. In fact, the bitcoin gurus admitted that much by creating another layer of network and technology to bypass the bitcoin network — it’s called the lightning network.

    • Pete Koziar says:

      The cost of processing transactions is a known problem, and other cryptos have been developed to try to solve that problem. See, for example, Stellar Lumens (XLM).

      Bitcoins are only the most visible/hyped cryptocurrency. There are dozens, maybe hundreds of others, most more amenable to conducting business.

  12. Jim S says:

    I love reading Wolf Street and I’m pretty sure I have a different opinion than most of the people that subscribe to this page. I have noticed that anytime the discussion of bitcoin comes up, all of the tulip/ponzi/scam comments come out of the woodwork. If you go back and reread the Wolf Street articles and/or comments you will see how dismissive they were of bitcoin. Fortunately most of us that ignored the tulip/ponzi/scam comments and spent time reading books and articles on blockchain and bitcoin have created generational wealth as a result of our crypto investments.

    • It’s my belief that bitcoin is a morally superior investment. In addition to being honest and upfront about what it is (unlike Madoff who lied to investors), bitcoin is not a rent-seeking mechanism, like the big 3 investments: equities, real estate, and bonds. They can be thought of as a way to make other people work for you, so the rich can keep growing their wealth while at the same time having a large number of slaves working for them.

      However, to say you “created” generational wealth seems a bit of a stretch. You’ve taken other people’s wealth and made it yours. Clearly, we’d be wealthier as a society if we hadn’t wasted so many resources on cryptos. You only got richer because other people got poorer as a result (they are called the bagholders). Bitcoin creates a highly exaggerated wealth inequality among the hodlers. Unlike gold, where nature makes the rules, bitcoin overwhelmingly favored the early adopters at the expense of latecomers by design. The promise of unbelievable riches lured people into bitcoin and out of competing investments. It’s why the Bitcoin reddit group has 2.5 million members versus 40k members for gold. If everyone was thinking rationally, they’d all say “wait a minute, I wanna be on top of the pyramid, so I’ll only buy if I’m one of the first investors and I want someone else to be the late adopter…”

      • Jezabeel says:

        Clearly, we’d be wealthier as a society if we hadn’t wasted so many resources on …. maintaining the USD as reserve currency. I mean… how many aircraft carriers do you need?

        • If we start with the premise that working is virtuous and that we want as many people as possible to be employed, we’ll keep inventing more wasteful projects and large bureaucratic organizations, whether it’s cryptos, an oversized military, an oversized prison system, an oversized healthcare system, an oversized educational system, or a drive to connect every light bulb and refrigerator to the internet.

      • Winston says:

        “bitcoin is not a rent-seeking mechanism”

        Correct, it’s a “greater fools” mechanism that provides imaginary paper wealth [until converted into less imaginary fiat currency wealth] by playing on greed and the same factors involved in all bubbles/manias… and in the casinos in Las Vegas.

        • There’s another important aspect to Bitcoin that I find fascinating. It’s one of those things it has in common with silver and gold. It’s the faith demanded of the followers. By itself, it says little about the potential or the merit of bitcoin, but it does speak to the tunnel-vision of a very large fraction of the adherents. You’re not supposed to ask too many questions. The gospel is to be accepted at face value. See the article https://bitcoinmagazine.com/articles/debunking-misconceptions-from-the-bit-short-inside-cryptos-doomsday-machine.

          The Catholic Church created a special term to describe ideas it deemed threatening: heresy. If you read the article, you’ll see that the bitcoin community has its own term: FUD. Fear, Uncertainty, and Doubt is a great threat that must be eradicated.

        • c_heale says:

          How is it morally superior? It uses large amounts of electricity and resources (to build the computers). And releases a lot of heat. Tbh when I hear the words morally superior it’s time I reach for the bullshit detector.

      • ru82 says:

        When BTC goes up so do other cryptos. The generational wealth is somewhat correct. I think a lot of interest in cryptos is because only Central Banks or Governments could print money. Now anyone can print cyrpto money? A smart person would create a new crypto every year and see if one sticks?

        But your statements are very good.

        BTC is close to $1 trillion in wealth yet other assets have not sold off….to move into cryptos. Stocks, Bonds, Real Estate are also hitting ATHs. So right now, has it redistributed wealth? I am guessing a lot of money going into BTC is from stimulus checks?

        If BTC crashes…you will be spot on.

        • You mean if bitcoin does not sell off, then it has created wealth out of nothing? We can imagine a simplified financial system with 100 despised fiat dollars and 100 ounces of gold where the gold is valued at $1 per ounce. The Fed prints another 100 dollars. But someone creates 100 bitcoins touting it as the new gold and the price of bitcoin stays at a permanently high plateau of $1 per bitcoin. The goldbugs cling to their gold and it continues to be valued at $1 per ounce, so bitcoin steals nothing from the gold holders. So has bitcoin created wealth? If you ask me, I think it helps to think of everything as a currency. A house is not a place to live in so much as it is money that can be redeemed for other things. That’s why 80 year old crap shacks can sell for millions. If the market cap of global equities increases from $100 trillion to $120 trillion, it dilutes (maybe only temporarily) all other “currencies” that appreciated less.

        • Trailer Trash says:

          Orthodox wrote, “I think it helps to think of everything as a currency”

          It helps me to think of currency as a contract. And like any other contract, it can be broken. Which is what the Fed is doing.

        • Pete Koziar says:

          Is it wealth, or an asset? If it’s wealth, you can spend it directly, if an asset, you have to sell it first.

          I would vote on “asset” since it is not a stable store of value, and I can’t use it to buy very many things yet.

      • cb says:

        @ Orthodox Investor –

        ” rent-seeking mechanism, like the big 3 investments: equities, real estate, and bonds. ”

        ________________________________

        an interesting perspective. What do you consider orthodox investments? What do you invest in?

      • c_heale says:

        How is it morally superior? It uses large amounts of electricity and resources (to build the computers). And releases a lot of heat. Tbh when I hear the words morally superior it’s time I reach for the bullshit detector.

    • c1ue says:

      Bitcoin is a ponzi and a scam, but it doesn’t mean you can’t make money on it.
      Just like you could make money if you had the talking Furby early on.
      How much are talking Furbys now?

      • Anthony A. says:

        Bitcoin reminds me of Jim Jones except that the kool aid has not been poisoned yet.

    • intosh says:

      “spent time reading books and articles on blockchain and bitcoin have created generational wealth as a result of our crypto investments”

      Oh please, don’t try to convince us that you made money on bitcoin due to the fact that you know how blockchain works. You made money because of gambling and speculation, just like those who bought GME early. Period.

    • Trailer Trash says:

      “blockchain and bitcoin have created generational wealth”

      Yeah, that’s what taxi drivers were thinking when they borrowed $100,000 for right-to-operate medallions. Then Uber came along. Then the evil virus finished off their business. Now they only have “generational debt”.

      It never ceases to amaze me how financial engineers can turn most any piece of paper (and now character strings) into an allegedly valuable asset.

    • JK says:

      Jim. You are spot on! These guy read Wolf’s commentaries on a regular basis and still believe in the dollar.

      Let them eat cake.

  13. Yancey Ward says:

    I did think about buying some Bitcoin around 2010 or 2011 when I first heard about it. I seem to remember the price was only around 4 or 5 bucks. However, it really doesn’t matter- like Wolf, I know I never would have held onto any of it long enough to realize the total gain to today. At best, I would have sold half at $50, another half at $500, another half at 1000, 2000, 3000 until it was basically all gone. I might have made $20k to 30k max, and probably not even that.

    • Depth Charge says:

      I became aware of it around that time and was talking to a guy about it, but decided it wasn’t for me. I just couldn’t get around the fact that you can create an infinite number of cryptos, so how could they ever be valuable? I bought none, and still have no interest.

  14. Yancey Ward says:

    The only people who realize nearly the entire gain to present day are the people who lost the electronic wallet on a thumbdrive for 12 years before finding it in a sock drawer this morning.

    • c1ue says:

      You don’t need to have bought bitcoin at $1 or even $1000 – you could have bought bitcoin for $3000, 1 year ago.
      Or $13000 on November 1.

  15. Bobber says:

    The only thing I know for sure is that $1 will be worth a penny in 50 years or less.

    • Wolf Richter says:

      $1 will still be worth $1, so to speak, but it won’t buy much anymore. It already doesn’t buy hardly anything anymore. But it sure is easy to use to buy stuff with :-]

  16. Rcohn says:

    Counter party risk

  17. khowdung Flunghi says:

    Y’all need ti be buyin “bean coins” – you can at least trade them for a beer in a local New Orleans bar!

    “It’s called Bean Coin, and it’s based on a form of community currency tailored to the immediate needs of local bars. The program is designed to work as a prepaid bar tab, providing credit that supporters can redeem later while generating cash that bars need now.”

  18. jm says:

    A dollar is “legal tender” which you can use to pay your taxes, or to buy about anything anywhere. Though it’s value will slowly fall with inflation, the Federal Reserve commits to keeping that rate around 2% per year.
    A bitcoin cannot be used to pay taxes, and nothing regulates it’s value. It is a greater fool investment, worth only what another fool is willing to pay you for it.
    Although the vaunted “blockchain” technology on which it is based is touted as secure because there are multiple “miners” holding copies of it, most of those miners are in China, because mining is profitable only with very cheap electricity. To sell a bitcoin, you need to have the sale verified by a miner. Supposedly there will always be a miner somewhere to do that.
    Your mileage may vary.

    • Dave says:

      You can pay taxes in Miami in bitcoin. They are going to start paying City wages with it too. If staff request it.

      • ru82 says:

        That will be interesting, because when you get paid, you will have to remember what the price of BTC was that day if you ever convert to cash because it will be treated like a stock transaction and filed in your taxes. So if one is paid weekly, there will be a lot of paperwork by the end of the year?

        Anyway….i like these crypto conversations and debates. It helps me learn.

        Right now…..cryptos look like a good investment.

        But technology changes won’t a better designed cyrpto come along that can actually be used efficiently (low energy and transaction costs).

        • Pete Koziar says:

          There are already tons of cryptos out there, some of them with lower energy and transaction costs.

          I keep going back to Stellar Lumens only because I just did some research on them (and bought a very small position in them). They aren’t mined, but a fixed number were created and are in circulation, so there’s no energy costs. That’s a completely different strategy than Bitcoin, and there are others out there.

          I can’t predict the winners at this point. It’s akin to picking penny stocks.

        • Depth Charge says:

          So you joined a mania. Cool.

      • nodecentrepublicansleft says:

        As of 10 days ago, the city of Miami decided to “Study” the issue.

        As somebody who works with municipal govt all over the state of FL, trust me when I say you shouldn’t get excited because a mayor, city council person or county commissioner thinks something is a good idea.

        These are just people. Some are smart, some are not. Just sayin’!! :)

    • Cas127 says:

      “commits to keeping that rate around 2% per year.”

      Backed by the integrity and competence of Washington, DC.

      Does anyone, ever, need to say more?

      The past 60 to 70 years of history is almost one continuous record of DC failures, especially in the management of national finances.

      • nodecentrepublicansleft says:

        Has DC done anything right over the past 60-70 years?

        I don’t like the govt more than anybody else but I’m getting a little bit tired of the way overhyped talking point that govt is the enemy.

        If anarchy is so great….why did we form a United States in the first place?

        Instead of rooting for it to fail (as our enemies, like murdering criminal Vlad Putin wants)…why not use the “system” to vote in people who will fix the broken govt?

        Have you not seen the examples around the world of Govts that function pretty well and actually help all their citizens and not just the 1% and corporations?! Not many….but there are a few!

        The GOP MO these days appears to be: govern like crap and then turn around and say “Look, govt sucks! Give everything to the corporations to handle.”

        It’s not a winning strategy for anybody but corporations. Yves over at NakedCapitalism is saying AOC didn’t do enough for Texas to make a big difference.

        That’s not the point…the point is that AOC did a helluva lot more than Ted Cruz did! She raised millions of dollars to help Texans while he ran away to Mexico for a vacation with his friends and family.

        If you can’t look at that example and see the difference….you are beyond help.

        • Cas127 says:

          “why did we form a United States in the first place?”

          The reach and power of government has changed enormously over 240 years and America ascended to greatness during periods when G involvement was greatly more circumscribed than now.

          And, in general, the periods of greatest G involvement were periods that saw the greatest relative decline (relative to other nations).

          This is particularly true of the last 60 years.

          The root problem seems to be political and administrative unaccountability, where policy failures and bureaucratic corruption are not responded to with reform, but greater conquest of the private sector space (this is particularly true of the last 20 years, where ZIRP has in essence taxed away 75%-100% of the earnings power of private savings in order to stave off any consequences of DC’s habitual policy failures).

          If the G aimed at doing less, it would accomplish more.

          But that political philosophy/objective is alien to DC, where the skim is maximized by maximizing the throughput/extent of control.

          All you have to do is look at the relative energy that DC puts into Appropriations (where the dollars are doled out and influence thereby purchased) and Oversight (where actual results, rather than mere recitations of lofty objectives, are supposed to be examined and policed).

          Anybody who works in DC will tell you where the power lies. And anybody in US who has to live with the consequences will tell you where the power does not lie.

        • cb says:

          @ nodecentrepublicansleft –

          who said: “I don’t like the govt more than anybody else but”
          ___________________________________________

          quite obviously ,,,,, you do

    • Brant Lee says:

      ANYTHING is only worth what another ‘fool’ will pay for it. I’ve made a few bucks since the first of the year. So far for me, crypto is easy to convert back to cash, it’s all about the timing and not being greedy. If it’s legal and making money, who cares what it is. I would buy some tulips if I can jump in, then out before the usual evening news herd shows up.

      • RightNYer says:

        Well, of course, but by definition, not everyone can get out and make profits.

        That’s the problem with our “economy.” We aren’t doing anything productive. We’re just trading assets and skimming off the top.

        • Cas127 says:

          To go off on a small, but serious tangent.

          (On an issue I’d like to get your educated opinion on).

          I agree that the US seriously needs to improve its intl competitiveness regarding physical production (if for no other reason than eternal trade deficits must eventually collapse into high import pdt inflation once the US has run through its accumulated domestic asset base that it is currently trading away).

          But the very hard question is what product industries could the US actually become pre-eminent in again, given the cost and brain advantages that a number of foreign countries have over us.

          China, et al are annihilating the US in terms of smart phone and computer production (the core of their trade surplus with the US). It really doesn’t matter if they are merely “assembling” or building from the ground up…the US is doing neither.

          If the US is hopeless in such a “high tech” (or high tech adjacent) industry…where the hell else can the US hope to compete (besides, maybe, low value add agri products…that won’t dent the trade deficits).

          Ditto autos from Japan, SK, or, soon, China. Nobody in their right mind would freely choose a GM over a Toyota unless the Japan premium hits 25%+ plus.

          Sadly, it is very easy to go down a huge list of US product industries and not find many/any ntl champions.

          Open to the board…what pdt industries could the US actually prevail in?

        • Anthony A. says:

          Cas127

          I spent 1/2 my career in manufacturing…..making non-ferrous products such as copper water tube, condenser tubing, strip, rod, wire, engineering shapes, etc (worked for Anaconda Metals). Those plants are ALL closed and the products are made elsewhere (Europe, Asia, etc). – 100 year old industry gone…..including the competitor companies here. Steel is dead too.

          The other half was spent in Oil & Gas, which is pretty dominant here and we do have the best technology of getting hydrocarbons out of hard rock. We are also good at burning the stuff!

          But thinking out loud, I suspect the U.S. could be a world leader in producing ICE CREAM if it came right down to brass tacks!

        • RightNYer says:

          Cas127,

          The problem is that we’ve let our plants and knowledge base rot for so many decades that we’d basically have to start from the ground up. But I generally think that we could have a somewhat self-sufficient economy if we put import tariffs on goods produced in countries without similar labor rates/rules.

          Over time, the people would learn to be “handy” again and manufacturing would come more naturally.

          I don’t know specifically what industries, but it’s not good that we make virtually NOTHING.

      • VintageVNvet says:

        VERY good points IMO BL, and thank you.
        Keep trying to figure out if it is at all prudent to invest in these kinds of very well publicized newfangled financial things.
        SO far, still staying in cash and RE,,, but still hoping to understand the potentials for these new things, so as to at least try to help my off springs, and spouse when she cannot go to work every day, etc., etc.
        SO far, in spite of the very very good analyses by Wolf,,, and the very very good commentariat on Wolf Street,,, I am not a believer in any of them as a safe safe safe place to put our spare cash,,, YET.
        But, really and truly, many thanks to Wolf for his articles of clear communications, as well as all commenting on here.

    • Jim S. says:

      There are several crypto-forward jurisdictions where they are accept bitcoin directly for paying tax obligations. It started overseas and now there are jurisdictions in the United States where you can pay taxes with crypto.

      • nodecentrepublicansleft says:

        I’m curious about this…could you please name a few, Jim?

        I tried using the google machine and couldn’t find any.

        However BC turns out, it’s going to be an interesting story to follow!

  19. CRV says:

    Fiat currency’s are defended by men with guns.
    Precious metals are defended by men with guns.
    Central bank crypto’s will be defended by men with guns
    Private crypto’s will be attacked by men with guns.

    Who can guess which will survive and which will not?

    One thing i wonder i can’t figure out. Is it a good or a bad thing (for the powers in place) when all the ‘value’ stored in crypto’s gets eliminated by the men with guns? Is it a good thing these dollars and euro’s get destroyed or not? It would take away a lot of ‘pent-up inflation’. Would it not? At the moment the currencies going into bitcoin and the like are not inflating other prices but those of the crypto’s.

    • polistra says:

      That’s a good point. Bubbles, like wars, are a good way to consume inflationary excess without the appearance of hyperinflation. Bitcoins and ETFs and mortar shells are “things” that vanish and dissolve when used.

      • cb says:

        except buying bitcoin doesn’t consume inflationary excess. It just transfers dollars from a buyer of bitcoin to a seller of bitcoin. Then that new owner of bitcoin spends, invests or saves those dollars as he sees fit. Those dollars are still in circulation. Dollars never leave circulation just because they are used to buy bitcoin.

        • cb says:

          should read – Then that OLD owner of bitcoin spends, invests or saves those dollars as he sees fit.

    • Cas127 says:

      “Private crypto’s will be attacked by men with guns.”

      Yes, but men with guns have largely failed to control the physically embodied drug trade…how much more impossible will it be for them to police the disembodied world of AltCurrency, viewed with much, much, much more approval, utility, and justification by that much, much larger army of Men with Guns (too) – the US citizenry.

      • VintageVNvet says:

        C’mon c10,,, every school person knows the ”illegal” drug trade is operated and protected as one source of ”black money” for many persons connected closely with the guv mints at all levels in USA.
        One of the very clear reasons it takes months and months to transition the pot biz from ‘street’ to store is the maneuvering time needed for the various politically connected players to change their connections from dark to legit. And that happens only after WE the PEEDONs insist by referendum, etc., that pot be made legal.
        Have talked personally with former DEA folks who were fired and their families threatened when they got too close to major players and refused to back off. Told, of course, to keep after the amateurs.
        Several major importers, the kind who were bringing in ”stuff” by the container load, were able to arrange to have short sentences, keep at least some of their RE by agreeing not to testify against their LE buddies. This is not new, been going on since all the stupid prohibition of booze and weed began, not to mention coke and opium. Oregon now at least getting back to sanity and treating addiction for what it is, rather than a source of funds.
        Keep in mind that before the ”cartels” took over, the two major drug teams in USA just happened to be the blues and reds, eh?
        They are still operating every day in every major city from what I read, just more or less subservient to the cartels now.

        • nodecentrepublicansleft says:

          It’s working as well as the “prohibition” of alcohol did! :)

          I say this as a person who sadly spent a night in jail in Gainesville, FL for possession of one (1) small joint of pot.

          I guess folks felt safer with me off the streets! Just like I did when those twin menaces to society, Chong and Martha Stewart got sent to prison! What a relief to know they were behind bars!! I stopped locking the doors at night…..

      • c1ue says:

        It is actually pretty easy for a government to take down decentralized crypto. Just block all IP addresses of exchanges, miners, apps, wallets etc.
        The thing is – even bitcoin at $1 trillion market cap is a nothing burger in the grand scheme of things.

        • Cas127 says:

          But so long as there is one nation (with a FX mkt) that doesn’t run a totalitarian internet, those blocked cryptos can always be re converted to any nation’s fiat.

          And…a domestic fiat mkt in off shore cryptos will always exist (how is domestic oppressor supposed to halt all internet traffic containing anything that *might be* a coded crypto? The fiator would have to shut down the entire internet.

          In essence, off shore crypto would operate on a “claim check” system…with the claim checks infinitely disguisable.

        • c1ue says:

          I’m afraid that you can’t live “in any nation”.
          There are still things like passports and residency permits.
          Furthermore, people have to live somewhere. If the country you live in has strong control of the internet (cough China), it isn’t so easy to just meander off to foreign nations to convert your bitcoin to foreign currency, then to convert to your own currency, to buy milk.

        • Cas127 says:

          C1ue,

          You don’t have to live in the one free nation…you just have to have a bank acct there.

          You then can convert BC into any fiat you wish…perhaps even to pay the taxes of the domestic G members pointing a gun at your head if you don’t use their currency to pay their taxes.

          And maybe at some pt in this process, you re-evaluate what your G actually *is*.

        • c1ue says:

          @Cas127
          You clearly don’t have actual experience of what you are talking about.
          If you live in the US – your foreign account is FATCA eligible, meaning you have to declare it.
          If you don’t declare it – you better be in a nation which doesn’t have a tax treaty with the US. They exist but there aren’t too many of them.
          And if the IRS really wants to crack down on you – all they need to do is check your ISP and/or mobile providers logs of your activity – unless you never log into your wallets from the US, your computer or your cell phone, ever.
          You can also break other laws by constantly flying to and from the magical other country, bringing in more than $10K in cash.
          It can certainly be done but it isn’t for the non-expert.

    • flashlight joe says:

      “Fiat currency’s are defended by men with guns.
      Precious metals are defended by men with guns.
      …”

      There is a subtle difference between the meaning of “defended” in these two instances.The first statement means the fiat currencies’ VALUE is defended by guns.

      The second statement means the POSSESSION of the precious metals are defended by guns. Not the same meaning of “defended”.

  20. eg says:

    Bitcoin is an electronic gambling token.

    • roddy6667 says:

      Also, gambling is a tax on ignorance. The two go together.

      • Old school says:

        I think you hit on it. There is $520 Trillion in paper assets Fed has helped inflate this number. Now what happens if income stream is so small that people want to put a percentage of assets into a 20 trillion gold market or 1 trillion bitcoin market?

        • ru82 says:

          I am curious, where did you get the $520 trillion in paper assets.

          I read total wealth in the whole world is $330 trillion.

          Total global narrow currencies printed is only $15 trillion. (cash, bank accounts, savings)

  21. ACDC says:

    Cryptos are catching peoples attention,
    People love to be in on the latest big winner,

    • nodecentrepublicansleft says:

      I saw a very interesting display on land scams in the Tavares, FL municipal bldg (near Orlando) about 20 years ago.

      In the 1920s, scammers seeking to PROVE to people up north that the land they were selling was legit, unfurled long rolls of tar paper across vacant land and took aerial shots from planes.

      “See folks, the streets are already constructed (along with sewer, water)…”

      A century later, the scams continue….

    • Joe says:

      Sheldon Addelson welcome to hell!

  22. davie says:

    Wolf,
    While your skepticism is spot on, your bitcoin analysis is full of false analogies.
    Which is illustrative, but verges into motivated reasoning.

    Bitcoin is a digital asset, with a publicly verifiable transfer network.
    It really isn’t any more complicated than that, and once you think of these crypto tokens as assets, it starts to make more sense.

    Some of the alternative crypto assets do perform functions on the network, and that might be tied to a value some day. And there is a financial system developing around the transfer and use of these assets already.
    You are right to stress that a crypto-currency is hardly a currency, not merely because it’s not as easy to purchase goods and services with, but mostly because at the end of the day the federal government wants you to pay taxes, and will make life difficult if you don’t pay them.

    • c1ue says:

      Bitcoin is an asset much as a talking Furby is an asset: which is to say – the term is meaningless.
      If people want to consider a photograph of naked man’s genital organ wrapped in barbed wire as art and pay $50,000 for it – this too is an asset but clearly it means something very different than what you imply.

    • Wolf Richter says:

      davie,

      I’m not sure I used any analogies in describing bitcoin. I don’t think I said, “bitcoin is like….” That would be an analogy. But I explained what bitcoin isn’t and doesn’t do.

      Anything can be an asset if you call it that. Toilet paper can be an asset if that’s what you call it, and prices soared in the spring, before collapsing.

      I called bitcoin a “gamble,” but that’s not an analogy. It’s a basic underlying fact. In terms of the market place for bitcoin, I called that a “casino,” and that’s also a basic fact, given that bitcoin is a gamble.

      • Sunny129 says:

        Investing in the Stock mkt when the Mkt cap to GDP ratio is over 180%, is like gambling in a casino run by Fed!

        Price discovery is suppressed along with price of the REAL capital!

        Money itself is a concept, a shared belief. So is the ‘stock share’ price/value and also a BIT COIN!

        Yes, it is risky and volatile but better continued persistent debasing of purchasing value of US$! Even the price of GOLD is volatile these days! WE all know it is being manipulated!

        Tesla made a profit of 1 Billion$ on bit coin purchase better than the earnings in 2020!
        Digital currency accounts are being opened in major banks (Melon Bank NY, Signature Bank++)

        Don’t like bit coin or other crypto currency don’t buy it.

      • davie says:

        Thanks wolf,
        I see your point, but to be specific an “…is like…” statement is a simile.
        The rest of the way you spoke about it, and compared it to stocks, or currency, or physical commodities, etc, and analyzed it, is what make’s it analogous language.
        Your toilet paper asset analogy is actually more spot-on, to understanding it, especially if toilet paper also had a digital transfer network and limited supply.

        To be more well rounded and analogous to other digital assets, you should look into the way Team Fortress Hats, or EVE Online space ships created a market, with it’s own corresponding bubbles.

        (also, small addendum to previously, I meant the federal government will only accept taxes in their own denominated currency, which is what makes it a currency. If the feds accepted other currencies to pay your taxes, you can bet more businesses would accept other currencies)

    • c_heale says:

      Correct me if I’m wrong, but isn’t bitcoin much more difficult to sell than buy. If this is true it is more akin to ponzi than a currency.

      • sunny129 says:

        Buy Greyscale trust weighted Bitcoin – GBTC ( 10 coin index with bit coin being dominant) 1 GBTC share is 1/1000th a BIT COIN.
        Being sold and bought at many brokers. So are other – BITW, ETHE, RIOT etc.
        It is very small part of uncorrelated section of my diversified portfolio with cash being 40-50%! ( Been in the mkt since ’82. retired)

        Yes they are volatile and risky. so is the stock mkt at (buffett’s indicator) Mkt cap to GDP of over 180% – a record!
        To each his own

  23. Ulev says:

    SO…how many crypto’s would a vaccine ‘jab’ be ‘worth’ ?
    Before, or After, Crypto ‘Herd Immunity’
    Becomes ‘Real….

  24. TheHeilReasonBerg says:

    Bitcoin is a ponzi. Period. Nobody buying it now is doing so for any other reason except they expect someone else to come along later and pay more for it. They’ll say ‘it’s a new currency’. It isn’t. It’s essentially useless transactionally, and the bigger the blockchain gets, the worse it becomes. “It’s a store of value’ they’ll say. It isn’t. A store of value holds its value, it’s doesn’t appreciate exponentially. Face it, bit fans. If you’re honest with yourselves you’re only buying it because you expect a ‘greater fool’ to come along later and pay your a ‘generational wealth boost’. Like all ponzis, it will collapse when it collapses (usually when it gets taken down legally, or the supply of patsies runs out. And everyone dreaming of Ferarris and beach condos will end up broke, because it’s not you little guys who get out alive, it’s the founders and early adopters. Disclaimer, holding BTC since $300

  25. Stuart Davis says:

    Can one of you bitcoin experts please explain to me, who will maintain the digital ledgers when all the coins that are going to be created, have been created?

    When the incentive to ‘mine’ coins is gone who will pay these very substantial electricity bills that seem to be necessary and how will the cost be distributed?

    • Jim says:

      You pay a fee to make a Bitcoin transaction. The miner who creates the block keeps the fee.

    • Cas127 says:

      I am not a BC expert but,

      1) The ledgers are heavily distributed – there is no one central database (this provides security…no single point of failure/corruption due to cross checks),

      2) The vast energy demand relates much more to bitcoin *creation* (of which it is an intentional feature, engineered in…in order to limit growth and ultimately absolutely freeze the supply of BC…anti inflation), and

      3) the overhead costs of the distributed ledger system are much less than I think you are thinking (see 2) but in any event, like any other BC related admin support, they can and will be paid for by a tiny BC fee charged per transaction).

      Experts…let me know if I got anything wrong.

    • ru82 says:

      It was a couple of weeks ago but I did some quick calculations.

      At the time the BTC transaction fee was about $30. What was interesting to me if I calculated the number of daily transactions,( the total transactions by the average fee), the total fees were around $130 billion.

      The total market volume of BTC that traded that day was a little over $300 billion.

      Basically, fees added up to almost 30% of the traded market volume. Some body is making serious money on transactions. Right now it would be over $100 billion a day? That makes wall street brokerage fees look puny.

      Now I am not sure if my calculation were correct but I think they were.

      • ru82 says:

        Sorry….my memory was wrong and I was way way off.

        Here are some calcs from yesteday

        Daily transactions (350k) x $27 (fee) = $9.4 million.
        Total Market volume roughly = $700 million.

        13% of market volume generates fee revenue for somebody.

        • Cas127 says:

          Trying to follow along…are you dividing 9.4 million in fee revenue by 700 million in mkt value?

          If so, wouldn’t that be closer to 1.3% rather than 13% in transaction costs?

          1.3% would be in the ballpark of the 1% mentioned elsewhere.

  26. Cashboy says:

    This YouTube explanation of how corporations are investing in Bitcoin and the effect on the balance sheet and profitability of the companies and the potential crisis if Bitcoin became worthless or crashed substantially.

    Probably Wolf will take this off but hope he watches it because it is interesting and relevant.

    • Wolf Richter says:

      I removed the link to YouTube, but you can go to the original website with the video by googling: Is Bitcoin Going To $1,000,000 Or $0.00? (Answer Will Shock You!)

    • c1ue says:

      Real corporations will never put their cash reserves into an asset that fluctuates by +- 90% on an annual basis and +- 10% on a weekly basis.
      Microstrategy is showing just how real a business it is – it has raised 1.2 billion to buy more bitcoin. That’s not corporate cash management anymore – that’s a bitcoin fund masquerading as a company.
      Tesla is most likely looking to do the same. The one thing Elon is consistently after is the ability to raise funds…

  27. Bruce Sammut says:

    Bitcoin is payable in dollars. How about other currencies?

    Also, what happens if and/or the internet breaks down or is shut down? Not to mention hacking risks.

    I hope it all works out for the Bitcoin investors/holders. But, it looks too much like the South Sea and Mississippi bubbles. Maybe tulips.

    And, lastly: “The foreseeable future is an oxymoron”

    Cheers,

    b

    • c1ue says:

      If the internet breaks down – we will be in a zombie apocalypse. Gold or anything but food won’t matter.
      Note the internet was specifically designed to function in case of nuclear war.
      There are all sorts of risks with bitcoin – that’s why GBTC – the Grayscale Bitcoin trust has a 20%+ premium…

      • John says:

        The premium has been less than 10% for a while now. I’m in the camp that very much enjoys this site and generally agrees with Wolf, but find Bitcoin to be far more analogous to gold than to tulips.

        • c1ue says:

          Gold doesn’t consume as much electricity as Argentina every year to have value.
          I have made a lot of paper (digital) profit with this bitcoin bubble, but it doesn’t mean I don’t understand fundamentally what it is.

  28. Yaun says:

    Bitcoin is the ultimate risk-on asset on steroids, the pinnacle of the speculative mania. It’s no coincidence that it started its existence the year after the biggest monetary experiment in US history began and that the worst time to hold bitcoin was end of 2017 to mid of 2019, or exactly the time that the FED tightened the money supply.

    Technologically it’s one of the worst currencies given the massive energy need for transaction. So if it wants to establish itself for a longer term future its best chance is ironically to use the speculative mania to become too big to fail just like the banking system it was setting out to replace. If companies start shifting parts of their balance sheet into it and pension funds, underwater from stellar yield predictions and not so stellar treasury yields, start buying it in yield seeking FOMO panic, the dream may come true. Will the FED eventually have to print trillions to save Bitcoin from crashing? It would be the ultimate irony.

    • Cas127 says:

      “Technologically it’s one of the worst currencies given the massive energy need for transaction. ”

      This is simply wrong.

      The energy consumption relates to BC creation/mining *not* transactions.

      BCs become progressively harder (more costly in energy terms) to create precisely in order to limit and ultimately *end* growth in the supply of BC (ie, inflation).

      The same energy-intensive algorithmic *mining*/creation has zero to do with subsequent transactional use of BC.

      The BC ids will become longer (infinite, distributed tracking of transactions) and the number of worldwide transactions may grow to be huge…but those functions are not algorithmically *designed* for vast energy consumption (the opposite in fact).

      Bitcoin creation vs. use are subject to very, very, very different energy consumption rules.

      You are conflating the two.

      • Yaun says:

        Mining and transaction are part of the same process. Miners use their computational power for proof of work of block validation (which in effect is transaction validation). They are only called miners because they are currently rewarded with newly ‘minted’ Bitcoin. Another part of the reward are transaction fees that are paid in order to gain transaction priority. The latter will be the sole source of income once the last Bitcoin is minted. Regardless of minted or non minted miner income, the validation process is at the very core dependent on being expensive in terms of energy use or else it would be prone to tampering. I’m also a friend of decentralization but Bitcoin is the wrong way to do so.

        • Cas127 says:

          “the validation process is at the very core dependent on being expensive in terms of energy use or else it would be prone to tampering”

          I won’t argue that Bitcoin is flawless, but this specific statement seems questionable to me.

          Energy intensity is engineered in to limit/end BC inflation.

          BC transactional validation is much, much, much less energy intensive…again engineered in (to facilitate transactional use…and because inflation isn’t an issue here).

          Any third party BC experts who can opine?

        • c1ue says:

          @BC
          The computational intensity is designed to make it extremely expensive for an outside to gain 51% of the mining capacity – which in turn would enable said outside to take control.
          It has nothing to do with the supply of bitcoin – the mining intensity and reduced bitcoin awards for mining are all set in the bitcoin architecture.
          Structurally – the mining thresholds have all been exceeded to date – i.e. the estimate date for mining reward reduction has been far ahead of all early estimates. No doubt because bitcoin mining is a huge business.

        • Cas127 says:

          C1ue,

          But the ultimate supply of BC is fixed…faster mining just means the date of that ultimate, finite supply is closer.

          (This limited, ultimate supply of BC was engineered into it from the beginning).

        • c1ue says:

          @Cas127
          The finite amount of bitcoin have been achieved doesn’t stop the requirement to keep processing transactions.
          Bitcoin without transactions is how it goes to zero.
          That and if it comes out that it was created by am Intel agency ;)

      • c1ue says:

        @Cas127
        You are wrong: The energy intensity of Bitcoin is exactly the cost of transactions.
        The point of having an extremely compute and energy intensive architecture is to make it extremely difficult for any one entity to achieve 51% of all transactions.
        This is what decentralized consensus entails.
        Only if bitcoin were to change to a permissioned or centralized consensus will the energy consumption ever level off. In fact, one of the open questions is what happens after the bitcoin rewards end as has been designed in. Full bitcoin transactions today are costing well over $20 – and this cost is only going to increase going forward.
        How will miners get paid without the fiat bitcoin issuance? How will the 51% attack be prevented if there aren’t mad scrambles of miners everywhere seeking the bitcoin fiat handout?

        • Cas127 says:

          Your version of transactional energy intensity is wholly at odds with my reading on Bitcoin.

          I’ll revisit my research and I’ll look into your $20 transaction fee claims (and the reasons behind this amt).

          Would also like to hear if anybody else supports this version of BC design/economics.

        • Yaun says:

          @Cas

          Search for a paper with the title “The Cost of Bitcoin Mining Has Never Really Increased”

          They give an estimate for transaction costs necessary to protect the system from tampering.

          A quote:

          “[…] in order to keep the Blockchain system secure from double spending attacks, the proof of work must cost a sizable fraction of the value that can be transferred through the network. We estimate that in the Bitcoin network this fraction is of the order of 1%.”

        • Cas127 says:

          Yuan,

          A 1% transaction fee to safeguard integrity of alt coin system doesn’t seem prohibitive…particularly when compared to a fiat system with explicit 2%+ inflationary goals…further funded through explicit taxation of much higher percentages.

        • SnotFroth says:

          Cas,

          My understanding of bitcoin is that systems use compute power to competitively hash blocks of transaction records and the system that computes the winning hash commits those records and gets the mined coins. In fact embedded in the transaction record block is the transaction that grants the mined coins. Thus mining and committing transactions to the public ledger is the same process.

          Because this is a competition of compute power, and the process is intentionally very inefficient (to make it a challenge), a lot of extra energy to burned for the sake of decentralization to keep everything going.

        • c1ue says:

          @Yaun
          The paper is wrong because if the network is too small – it opens the window for a mass influx of miners to achieve 51%.
          Today – the cost to do so is literally astronomical.
          However, without the fiat bitcoin issuance – the incentive for bitcoin miners to buy, deploy and maintain massive numbers of custom FPGA mining rigs decreases dramatically.
          This *will* lead to mining capacity going offline which then opens the door to the 51% attack – both from offline rigs being brought back and because the systemic capacity is likely to fall dramatically.
          The paper assumes there are no bad actors out there – there definitely are.

  29. joe2 says:

    Theoretically Bitcoin had a utility value in anonymously storing and moving wealth internationally.

    I tried that out a while back to see if I could buy, sell, and transfer anonymously. Didn’t work. I tried paper wallets. Bitcoin ATMs, required ID verification. And Coinbase does Know Your Customer with a vengeance. Add in fees and time delays that are orders of magnitude greater than Robinhood frontrunning and volatility up the wazoo and it just doesn’t work. I paid fees and taxes just like anything else.

    It is possible to use Bitcoin if you stay totally in the dark world, but high risk of getting busted or ripped off. Not what i wanted it for.

    BTW, you are right. Bitcoin in the hands of TBTF players is really a gun to the head of the FED. Ramp up something from nothing and get bailed out – ie, paid for nothing. Used to be called extortion back when we had laws. Print fiat from the air. Stealing a page from the FED’s book.

  30. Beardawg says:

    Bitcoin may perish some day, but the Gubment has already hinted at co-opting Blockchain tech for a digi-dollar. In the end, it will likely be the company or industry that provides the trading platform which will go to the moon…..denominated in fiat, of course.

    • Cas127 says:

      The appeal of blockchain for the G is that it will allow it to track *every single transaction a given DollarCoin has passed through since the beginning of time*

      Makes you wonder if the G’s next step would be to “legally” confiscate *any* DollarCoin *ever* involved in a transaction the G didn’t like.

      No more “good faith”, holder in due course defense…the G could destroy DollarCoin supply essentially at will (if a prostrate judicial system signs off…unless DollarCoin buy in agreements eliminate even that necessity).

      In a way, such a power would provide the G with an anti inflationary tool it doesn’t really have now (it is very, very difficult today to eliminate hidden physical dollar supplies/lending).

      Right now it is much easier for the G to print inflation than it is for it to stop it.

      By making destruction as easy as creation, such a tool might make the G much, much aggressive in printing inflation (today they have to fear…somewhat…a loss of control).

      • Jezabeel says:

        Blockchain technology when applied to digital currency without decentralisation or finite supply is a waste of time. So the G will definitely go for it

  31. c1ue says:

    I posted many months ago about what Harris Kupperman was writing regarding bitcoin in the near future.
    Is bitcoin a scam and ponzi? Yes. But so are a lot of things.
    Kuppy has been spot on with bitcoin so far – it is pure technical factors causing its rise.
    Elon’s running to the front of the crowd and calling it a parade is just the latest, but Kuppy specifically said that as bitcoin rose – pressure would keep increasing on the remaining hedge fund holdouts to put money in.
    Note corporate cash purchase of bitcoin is not going to happen, but hedge funds getting redeemed for failure to catch the bitcoin train is very much the reflexive Ponzi that Kuppy described in November explicitly and alluded to earlier.
    And his final prediction was that all of bitcoins free float (estimated at 6 to 8 million – the rest are lost or held by HODLer faithful) would be in CUSIP accounts by the end of 2021.
    FYI, Wolf, Kuppy thinks highly of Wolfstreet. I dinner with him at the end of January…

    • Wolf Richter says:

      Wolf Street thinks highly of Kuppy, is in contact with Kuppy, and has republished some of Kuppy’s articles:

      https://wolfstreet.com/author/kuppy/

    • Robert says:

      ” it is pure technical factors causing its rise.”

      I like Kuppy too, but technical factors do not control the value of anything. They only work in hindsight.

      • c1ue says:

        Given that he was writing about this *before* bitcoins jump – it would appear that your belief is incorrect.
        There are a lot of analysts out there who are corrupt, stupid and/or incompetent which is likely why you have the view stated above.

  32. Robert says:

    No one NEEDS a Bitcoin.

    You need dollars to pay your taxes. You may even need gold or silver to make some jewelry. Commodities or real estate justify their value (even though inflated) by their obvious utility.

    Bitcoin’s primary utility was that it was an anonymous form of payment. This is no longer true if you read the IRS opinion on the matter.

    Bitcoin’s scarcity is self-imposed. An infinite number of Bitcoin alternatives can be created with a few keystrokes. Bitcoin’s utility is therefore zero. Saying that Bitcoin is an alternative to dollar debasement is idiocy in the extreme. Dollars are limited and at the very least they are a claim on US tax revenues and the full store of value of everything on US territory.

    I’m still hoping my hamster wheel based coin will take off. Every hundred spins of the wheel get you one Hamster coin.

    • cas127 says:

      “Dollars are limited”

      This is completely false.

      What the hell do think multiple rounds of Quantitative Easing were?

      How the hell do you think the Fed pays for every single addition to its engorged balance sheet?

      • Robert says:

        @cas127

        At any given point in time the supply of dollars is limited. You or I cannot print dollars while I can start up my own bitcoin alternative at any time. The supply of digital currencies is infinite.

        You are forgetting that the US dollar actually represents real tangible assets. How much coal, gas, oil, gold, real estate are on US territory? That’s only part of what backs dollars.

        Bitcoin has no value , unless you somehow harness the hot air of the people pumping it.

        But you are correct in QE debasing the dollar, but it’s likely it’s this very excess money that is flowing into bitcoin. You could also buy paper napkins at $1000 a napkin and call each napkin a $1000 bill.

        • Cas127 says:

          “You are forgetting that the US dollar actually represents real tangible assets. How much coal, gas, oil, gold, real estate are on US territory? That’s only part of what backs dollars.”

          Each additional dollar printed by DC alters the ratio of USD/existent real assets, by definition inflating the price of those real assets (*not* adding a single real asset to the world, just a bunch of paper).

          Those real assets you mentioned…not a single one of them explicitly back the USD (DC likes this because explicit backing by anything with finite supply would handcuff DC’s unlimited printing power).

          What does like behind DC’s “full faith and credit” is DC’s implicit/explicit threat to tax/seize any US sited real asset legally/illegally.

          But that MMT’er/”all your wealth is the G’s” mindset is wholly, wholly alien to the US’ foundational, Constitutional concepts of limited government.

          It is the mentality of a mafiaoso or a warlord, not a citizen centric Constitutional republic.

        • Jezabeel says:

          Wow so many wrong statements. Let me correct them for you:
          At any given point in time the supply of Bitcoin is limited. You or I cannot print Bitcoins, while I can start a fiat alternative anytime. The supply of fiat currencies is infinite.

        • Wolf Richter says:

          The supply of cryptos is infinite. There are already over 4,300 cryptos, up from zero 15 years ago. Far more than fiat currencies. Anyone and their dog can start a crypto. Wolf Street too might some day start a crypto just to poke fun at this whole thing, and we all will have a good laugh :-]

        • sunny 129 says:

          Wolf:

          ‘Bitcoin’ stands apart from other (any name >1000 crypto currencies) and is a standard reference to other coins.
          21 Million coins will be mined. 18.7 Millions have been mined. The last mining I think would be around 2040. No more mining of THAT coin.

          GBTC (greyscape trust) is tradble crypto of 10 index coins out of BITCOIN is it’s lion’s share. It almost corresponds to 1/1000 th bitcoin. Another index coin is BITW.

          It’s current volatility will shake of a lot loose hands, along the way. It is inversely correlated with the confidence of FIAT currency, being debased everyday.

          It is definitely NOT for every body. It is another UNCORRELATED asset like metals, commodities including Agriculture and farm lands!

          Yes, I am speculating with tiny fraction of my over all portfolio. Yesterday and today I successfully mitigated the declinepf bitcoin/cryptos by buying significant PUTS on RIOT. Cannot affird thefutures mkt!
          To each his/her own!

  33. c1ue says:

    One more note: the JPMs and various talking heads trying to tamp down the bitcoin frenzy – they aren’t doing it out of altruism.
    I know for a fact that this is because the ones who have missed out are trying to keep from getting redeemed in favor of the ones who didn’t.
    Again, I’m not bitcoin religion nut – just someone who has direct insight into how the game is being played now that bitcoin has put the old school hedgies on their collective back feet.

    • sunny129 says:

      Good observation and I agree with you. JPM analyst wrote 4 articles decrying bitcoin while it’s price hit $58K last week.

      Fed’s insane credit creation and CONTINUED debasement US$, will ensure the growth of cryptos, with volatility along the way! Block chain technology is part of Finx industry, already. ‘Stable’ coins are already accepted as a tool in the banking industry and the SEC!

      Fed and CBers have NO other tools left except QEs+ZRP or NRP! Repeat & rinse since ’09!
      The same old, same old in a changing digital world!

  34. richard benfield says:

    I only gamble when the odds are in my favor. Long term guaranteed to be a winner.

    • sunny129 says:

      Like investing in the current Stock mkt with Mkt cap to GDP over 180%, right?

    • c1ue says:

      The implicit assumption you are making is that the odds you think you have are accurate.

  35. Bobber says:

    I find it interesting that gold has been dropping as Bitcoin has been rising fast. Also, gold rose today as Bitcoin dropped significantly. There does seem to be an inverse relationship, at least for now.

    • sunny129 says:

      IMHO Gold prices are manipulated via Futures mkts. by vested interests, for decades! Especially CBers who don’t like a challenge to their FIAT ‘currency printing at will’ policy! Libor rate is well known to be manipulated by major banks. So, Why not gold?
      BIT COIN is beyond their grasp. So don’t expect a good word from them!

      Once the rich clients at JPM,GS and BAC demand to open ‘digital currency’ accts offered at other banks ( Melon NY, Signature, Paypal) they will be drawn in. Trust in Crypto is INVERSELY correlated US$ fiat!
      Wait & See1

  36. David says:

    I would genuinely urge people to throw away their prejudices and look in depth at what Bitcoin represents and what it seeks to be. Many comments here reflected from what I see a lot in the media. By any definition Bitcoin must be the complete opposite of a ponzi (not centralised, has no marketing or promotion, most original investors didn’t make much money as they sold out or lost their keys) and how many times has a bubble popped and then recovered to new heights; certainly didn’t happen to tulips, south sea etc which were all over in 2-3 years max. Not 10+ years.

    Telephones, email, Facebook had very little value when they first appeared. The value is in the network affect i.e. Metcalfes law. Applications are now appearing that enable functions like immediate fiat to fiat transactions at very low cost using Bitcoin as the backbone. The end user never actually owns Bitcoin in the process. That alone has to be revolutionary as it cuts out the entire banking system.

    The interview on YouTube between Michael Saylor/Ross Stevens. Also the Bitcoin Standard is a good read, although it is not really about Bitcoin or crypto, only the last chapter.

    And I don’t see volatility as an issues if you are willing to hold for at least 2-3 years. No one who has done that to this day is down on their investment.

    Government banning it; well only if they shut of the internet realistically

    • MonkeyBusiness says:

      Banned in China. You see people flaunting it?

      And the Internet is still up over there.

      You can apply Metcalfes law to anything. Tulips, and all kinds of flowers. I think everyone agrees that nature is beautiful. Does not mean they’ll pay 100K or whatever whenever a day passes.

    • C says:

      David,

      I’m on board…….it’s a new world! Few people I converse with believe anything I say these days.

      I’m also with Wolf this is a strange phenomenon for sure but in this new financial world we are either going to adjust or we’re going to fade away. Old investing mantra will no longer work.

      C

    • Robert says:

      “Telephones, email, Facebook had very little value when they first appeared. ”

      All of those things clearly have utility. Bitcoin is nothing but hype. At best it is a payment system, which is useful although easily reproduced.

      The US government will never allow the dollar to be displaced by Bitcoin. You use it at the pleasure of the US government. If it becomes serious competition then it will be banned.

      • Cas127 says:

        Sure, they’ll try.

        But ever wonder why countries with even less reliable currencies have very little success stamping out “black mkt” USD use?

        People ain’t dummies…if they think they are being played for fools by their “governments” they will react, adapt, and fight back regardless of whatever label a crooked gvt slaps on an activity.

        This fighting back is particularly successful when it is passive/sub rosa…as in private commercial transactions.

        *Compelling* people to do/use something is a *lot* harder than it looks.

        • c1ue says:

          Countries have no problem stamping out USD use if their own kleptocrats/oligarchs weren’t wanting the USD also.
          Outlaw all the exchanges and let police get a percent of all USD seized in a raid – and see how well the “black markets” survive then.
          But of course, the elites don’t want that to happen which is why it doesn’t.

  37. MCH says:

    Wolf,

    I was seriously anticipating the announcement from WS indicating a move into ethereum, Bitcoin is so last year. We could use a bit more pump.

    More importantly though, I noticed you have resumed the underling title… I am happy now knowing that bliss has returned to WS media empire.

    🤪

  38. lenert says:

    Where are the free adult befridges?

  39. Xavier Caveat says:

    Big cave-in @ Bitcoin mines today, 1,457 investors are trapped.

  40. 1) Bitcoin is decentralized, there can be many bitcoins, as long the end users agree on the same platform
    2) Bitcoin is not a store of value, when you are done using Bitcoin you park the excess value in anything you like.
    3) The US government uses the dollar for financial repression of it’s enemies. These enemies will always seek a work around.
    4) Taxes are a form of financial repression, the partisan extermists began moving money offshore two decades ago.
    5) If all the Bitcoin was redeemed today, and it entered the monetary base, the drain on the US treasury would be significant.
    a) The Fed sees money leaving the system and seeks to replace that is deflationary.
    b) Those watching see a double printing of currencies and scream inflation.
    6) US has been running twin economies for two decades. Domestic economy is in depression, global and financial economy is at record highs due to currency devaluation. Rules of the game.

    • c1ue says:

      If all the bitcoin were redeemed: which will never happen because at least 10% is lost, another huge chunk is owned by the”founders” and has never moved at all, and the HODLers would never sell – but even then, the price will drop to nothing.
      The main dynamic bitcoin has is that people use it less for transactions when it is going up so this reinforces positive price action.
      In the past, when it went down, the hoi polloi who got suckered in just abandoned their cryptocurrency accounts/wallets.
      The question is how the hedge funds will act. No real institutions are going to put significant (I.e. trajectory changing/survival scale) money into bitcoin although they’re happy to CUSIP for the suckers

  41. Xavier Caveat says:

    What could one procure with Bitcoin, that you couldn’t with a Visa credit card?

  42. Yort says:

    Keep the finger on the sell button for Bitcoin, as both the Fed and Treasury have the ability to regulate it into oblivion, when they feel the timing is right for a transition into their central bank “safe” digital currency.

    Per CNBC today:

    “Yellen sounds warning about ‘extremely inefficient’ bitcoin”

    “I don’t think that bitcoin … is widely used as a transaction mechanism,” she told CNBC’s Andrew Ross Sorkin at the New York Times’ “DealBook” conference. “To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”

    Mining bitcoin requires users to solve complex mathematical equations using high-powered computer setups. The electric consumption used in the process leaves an annual carbon footprint equal to the nation of New Zealand, according to Digiconomist.

    • Anthony A. says:

      “The electric consumption used in the process leaves an annual carbon footprint equal to the nation of New Zealand, according to Digiconomist.”

      Could that be the real reason us in Texas were short on power last week? We couldn’t even get our Tesla’s powered up for a run to the gin mill!

      • MCH says:

        That’s right, first, it’s global warming, then it’s climate change (cause you know, polar vortex makes global warming sound stupid), and now, it’s time to blame the cryptos,

        Anything to keep the dollar number one even as we inflate its value away. If you have a problem, we have a target for you to blame.

  43. Sir.PiratePapirus says:

    Titcoin, is the newest digital currency hitting the markets right now. It is a store of value in that it stores the value of your digital currency in the inter web for an equal sum in USD, and payment can be done through our app Titer. Tit’s up already, by quite a lot actually so…why wait for Elon to twit about Tit, buy now and you too can become a digital billionaire. If not, there’s always Herbal Life.

    You are welcome.

    • Hernando says:

      Or Essential Oils… Is Elon pushing that too as a digital currency? At least it has citrus oil in it.

  44. roddy6667 says:

    What will Bitcoin do when some cryptography wizards hack it?

  45. Malibu says:

    Location of Bitcoin nodes around the world is not mainly China.
    https://www.cryptoglobe.com/latest/2019/02/74-of-all-bitcoin-nodes-are-located-in-10-countries-data-shows/.

    The first question in the Bitcoin vs. dollar argument is are you ok with the Fed printing 15-20% more dollars for possibly 5 years?

  46. wkevinw says:

    Some history-

    AOL bought Time Warner, which turned into a fail within 2 years. TSLA could buy GM or F.

    CSCSO: perfectly good company. It has yet to overtake its dot.com stock price, and in real terms, is down about 40%.

    So, these speculative episodes result in some pretty strange prices.

    • ru82 says:

      CSCO is a good example for current tech valuations.

      CSCO, has not hit the ATH $80 stock price during the dotcom bubble.

      At that time CSCO revenue was about $10 billion or so. Now it is $48 billion and the stock is at $45 and still 40% below it peak while revenue has grown 400%.

      • Stephen C. says:

        I’m not a stock market type (still love this site, though.) But wouldn’t what you said about CSCO make it a screaming buy? Well, at least soon after this mania passes?

        • ru82 says:

          CSCO dropped all the way from 80 to 15 about 9 years later where if finally had a PE that represented its growth.

          That was when it was a buy. So over the past 10 years the stock price has increase about 200% but is stagnant now as the revenue growth has been flat for 3 years.

  47. Jdog says:

    100 years from now, when they write the history of the worldwide mega depression of the 2020’s, people will look back in amazement at how stupid we really were.
    We will make the investors of tulip bubble look like rational investors in comparison.

  48. Hernando says:

    And the feeding frenzy continues. When will we be satiated?

  49. Russell says:

    Does a method to short bitcoin exist? I want in!

    • Wolf Richter says:

      Bitcoin futures allow you to bet on bitcoin price declines.

    • BaritoneWoman says:

      You can trade bitcoin futures through the Commodity Mercantile Exchange (CME)

      However, you really have to be a heavy roller to play at that table.
      Currently, the size of 1 contract is 5 bitcoin, and you need nearly $110 grand in margin and nearly $100 grand in maintenance just for that 1 contract.
      Also bear in mind that as of now, there are no “mini-contracts”, “micro-contracts” or options available.

      • Lisa_Hooker says:

        No problem. Just borrow the $210k at 0.25% interest. Or less. Win, win.

    • sunny129 says:

      Buy puts on RIOT crypto as a proxy to mitigate the decline in Bitcoin and other crypto currencies. A lot easier getting into futures mkt!

  50. Mora Aurora says:

    A small but important point.

    Gold is a vital high tech metal because of its unique properties to not corrode or tarnish, unlike copper or silver. So for important electrical connections that cannot fail gold is used in communication devices, computer networks, cell phones, ABS brakes, air bags, car keys, lab and medical equipment, smoke detectors, pacemakers, satellite dishes, TVs, jet engines, fuel cells, military devices and other applications.

    In that regard cryptos require gold, however gold does not require cryptos.

    • MonkeyBusiness says:

      Exactly. Gold is also real. If you have gold in hand it does not matter whether there’s electricity, etc. Its properties don’t change through time.

  51. RedRaider says:

    I bought gold coins 15-20 years ago at a cost basis of $450/oz and simply held for the long term. This works out to 8.5%/year give or take. We could also say gold remained constant and the dollar was devalued 8.5%/year.

    Would that make the inflation rate over the period 8.5%/year?

    One underappreciated difference between gold and bitcoin is the following.

    Total amount of gold in existence increases approximately 2%/year. Another thing that increases 2%/year is world population. This means per capita gold is a constant. Just like the speed of light. Bitcoin on the other hand has an upper limit to supply. As world population increases we can imagine a point in time where demand outstrips supply. Per capita bitcoin enters a death spiral which, in turn, places the world in a permanent deflationary wave.

  52. Bob Hoye says:

    Wolf
    Good review.
    Bitcoin reminds of the Mississippi Bubble in Paris in 1720. John Law was the wizard banker and promoted his paper currency. Not gold backed.
    And for a brief period did have his currency at a premium over gold and silver coinage.
    And despite having about 8 printing presses running in Paris, the stock bubble collapsed. After the crash ordinary people demanded to see the printing plates destroyed.
    Printing presses could not keep the mania going.
    England was on a bi-metallic standard, so could not “print”. The South Seas Bubble of the same year was inflated with credit inflation.
    Until it crashed.

    • Hernando says:

      I love the story of the French Banking System of John Law.
      There was a debate about the sub treasury scheme in the late 1830’s regarding the National Bank. The whigs used the story of John Law’s for why it was a bad idea: (This is from the 1836? newspaper the Globe)

      “The result of this state of the paper currency was, that the precious metals entire disappeared; they were either buried sent out of the country, to the value 100,000,000. So great had become the appreciation of specie, or the depreciation of paper, that 9,000 livres were paid for mark of gold, which originally costs but 60.

      All credit, public and private, was destroyed, and a universal distrust prevailed; for no one could estimate the value of another property. The prices of articles were quadrupled. Workmen were unable to find employment. Manufactures and commerce were suspended. Rents and dividends were not paid. Severe distress oppress the people, while a few luxuriated in their wealth, amassed by Law’s banking system of credit.”

  53. Xavier Caveat says:

    I like Bitcoin as it is obvious their 0’s & 1’s are worth the premium over lesser 0’s & 1’s online.

  54. breamrod says:

    seems everyone has a bitcoin story. Back in 2011 I believe it was I was watching the kaiser report and Max and Stacey were pounding the table on bitcoin and how it was the coming new currency, etc. It was 11$ so I thought what the hell I’ll buy 100. Well this old guy is so technology challenged I couldn’t grasp how to do it. Next thing I know it’s on its way to 1000. I sure would have sold somewhere along the way so don’t feel bad Wolf. Misery loves company! lol

  55. NotMe says:

    It has been pointed out that cryptocurrencies may simply be a means of government to rid the monetary system of excess cash, with trillions of extra cash flooding the system.

    All the government needs to do, is ban crypto transaction. Excess cash shorn from the sheep. Monetary excesses cleaned out without harming the stock markets or real estate.

    Not sure that I agree with this premise, but I do admit to liking it.

    • NotMe says:

      One more thing.
      I am not aware of any means to generate a loan off of crypto holdings. Unless crypto can be used to secure a loan, it offers little risk to the monetary system when repudiated.

      Once crypto can back loans, then it becomes high powered money and repudiation can lead to collapse.

    • ru82 says:

      Good point. Let BTC absorb a lot of this excess liquidity to keep it from going into the stock market or housing. Maybe that is why the Central Banks are not saying or doing anything versus a possible competitor.

      Just think if the 1 Trillion sitting in BTC was unleashed on the stock market or housing. We would probably see prices at least 10% to 20% higher than they are now?

  56. RightNYer says:

    To me, the idea of Bitcoin being a “currency” is discredited very simply.

    Outside of contraband (drugs, illegal guns, etc.), no one prices transactions in Bitcoins. In other words, while you might be able to buy a house with Bitcoin, the number of Bitcoins the seller will demand will be the actual number of Bitcoins that equal the dollar amount he is asking.

    If something is truly a currency, then people will price their goods/services in such thing irrespective of what its value is relative to other currencies.

    Bitcoin is not a currency. It’s a speculative asset.

  57. billytrip says:

    The number one most important feature of any currency would have to be price/value stability. Bitcoin has none of that. It is basically a classic Ponzi scheme that will look great until too many people decide to cash out.

    Yes, lots of people who got in early and got out in time will make profits. A lot more will lose their asses.

  58. Photon says:

    I agree that buying Bitcoin and cryptocurrency in general is like a playing in a casino but right now I feel the same way about most other major asset classes. Sure there are metrics on which the value of stocks can be measured but with valuations so deviated historically, it’s hard to make sense of where to invest capital. Everything seems speculative right now!

    The thing that has always kept me away from Bitcoin, until last year anyway, is the cult-ish and aggressive/bullying behavior of many of its supporters (fanboys, pumpers, HODLers), particularly on Twitter and other social media. They are zombie-like with their red laser eyes and have no ability to remain objective when evaluating the short-term and long-term merits of cryptocurrency.

    There are a few analysts/investors I follow who are bullish on Bitcoin but are capable of using data and reason to support their arguments. Neither believes strongly that bitcoin or any other cryptocurrency, not issued by a central bank, will ever become money. The main propaganda peddled about is that it serves as a store of value. Some even think it could one day serve as a reserve asset. But mainly, they all view it as a potentially good trade. That’s how I view it. An asset to buy with some fiat money with the hope of selling it at a later date for even more fiat money. Speculation. As with any speculation, timing is key. I would not enter now. But many will.

    I do believe there are merits to blockchain technology and tokenization that will take many years to play out. It’s very early but there is such a thing as name recognition and network effects. Although there is no way to ascribe a precise value to either of those, as long as enough people believe there is merit to owning cryptocurrency, there will be “value”. Certainly at least a price.

  59. Michael Gorback says:

    Would you accept bitcoin as payment if you weren’t trying to hide what you’re doing? If you’re an assassin for hire or an illegal gun runner, sure.

    But what if you’re a grocer or a gas station owner? Do you want to deal with the hassle? How many
    businesses even understand it?

    I wouldn’t accept bitcoin as payment for my services since by the next day I might be up 10% or down 10%. I place a fixed value on my services. If I want to gamble I’ll go to Vegas.

    The gun analogy is interesting. The only tool the government has is coercion, and they do it very well.

    They can force you to pay taxes in dollars. They can take away the house you thought you “owned”. They can imprison you for not paying what they say you owe them. They can definitely mess with your crypto in a variety of ways. The only thing that will spare crypto is if the government can tax it.

    “All political power comes from the barrel of a gun.” – Chairman Mao.

    • Beardawg says:

      It is already taxable via a 1099-B. I received my first one last week from Cash App.

  60. sunny129 says:

    cryptocurrencies” are actually a cryptographic technology applications.

    They differ from each other in their business logic and only share the use of Blockchain. Bitcoin is a completely different application tan Tezos for example and are utilized by different investors and users for different purposes.

    There is currently a certain degree of “gambling” going on in this space, largely by investors who wish to participate in the new wave, but lack in depth knowledge.

    There is also criticism and generalizations made by people who also do not understand it, but prefer to opine.

    Many investors believe the decentralized nature of Bitcoin along with its structure, i.e., the way the code is written, prevents manipulation by a central authority. The decentralized nature of the DATA BASE behind it (blockchain) creates a unique, decentralized, infrastructure.

    Indeed bitcoin is not scaleable to compete with FIAT currency. It is a store of value. However, there are OTHER cryptocurrencies that aim to compete with FIAT more directly. Other cryptocurrencies represent actually a new computing paradigm where individual participants lend the power of their computers into a virtual cloud and get compensated in a particular cryptocurrency. Among that group there may be nescient “netflix”, Amazon, spottify, etc. this is one of the reasons behind the frothy bubble.
    h/t Yuri Vizitei

  61. rick m says:

    I’ve not heard much new, except,
    “Generational Wealth “. It’s a good thing?
    And the generation getting your loot is getting an object lesson in the virtues of speculation versus working hard and earning your keep. Greedy fingers get burned and fools forget the blisters. I’ll stick with the truth of history and precious metals, they’ve smiled back at men ( and women) for a very long time

  62. Depth Charge says:

    What’s most sickening to me is listening to people blinded by greed try to justify Bitcoin as a new currency, etc., when the only reason they bought it is to try to get rich. Just shut the blank up already and admit you’re just gambling. Don’t try to BS me.

    • sunny129 says:

      No one is trying to BS, any one. Either you get it or don’t.

      Money is a value based on shared belief. So is Bitcoin. I have silver and gold coins. Will I spend them? NO. They have store value(steadily increased) since I bought them 2-3 decades ago!

      It will be very volatile and risky for most, eyeing through pre-digital era and is being derided as speculative. But it is the ‘store value’ in contrast continued debasing of fiat currency.
      To each his/her own!

  63. reader says:

    It may look unpopular there but a price of BTC is probably covered by cost of mining. If You use the same digging equipment, You will probably earn similar money, despite rise of price. New digging equipment, even if You have a “free” solar power is costly.

    In fact the BTC is cheap compared to how much money FED have printed. You should say thank You to Europe, Japan and Chinese that they still want $, not other money for their products, and they wanted swaps last year. Relatively compared to Africa countries that wanted to print money You are in very good position – earning more, often having own car, living in a home/apartment that have electricity, and doesn’t look like tent from sticks. Most of You from printing money, have new shiny HD, 4K, 8K TV, while in Africa having a CRT is considered as modern home.

    • c1ue says:

      Pretty incoherent.
      The cost of bitcoin operations today is enormous: the entire annual electricity consumption of Argentina.
      Cash doesn’t have this. Gold doesn’t have this. Visa, MasterCard and American Express put together don’t have this.
      Nor is it clear to me why BTC is better in poor countries when the actual transaction cost is so high. Is buying a $1 sandwich with a $20 bitcoin transaction miner fee really a good deal?

  64. Matt says:

    It now takes the equivalent electricity to run the bitcoin casino as Argentina uses. Of course, the speculators have the right to gamble under any conditions they determine themselves.

  65. Cashboy says:

    There is too much in the MSM and You Tube about Bitcoin. That is the time that it usually reverses.
    Gold hardly gets a mention and has been falling so I have been buying physical gold for the last four weeks.

    • sunny129 says:

      Wonder why the gold is falling? It is easily being manipulated at the future mkts, by vested interests, for decades. With all the talk of Fed trying to monetize the debt, the gold should be going up. Crypto currency but especially underlying technology includig block chain will leap ahead.

      • Mora Aurora says:

        Ask yourself, what are ‘they’ more worried about, what is the bigger threat, why do ‘they’ hoard it, guard it in vaults and why do ‘they’ let the knew kid on the ‘block’ run wild?

  66. Saltcreep says:

    Although I do myself hold and trade BTC and other cryptos, I agree that they should be considered speculative betting chits that surge in environments that encourage high speculation, such as we have today, and fall apart in environments where people are liquidating speculations and seeking safe havens.

    For my part I currently maintain a modest maximum percentage of my investment pool as denominated in my local currency in a crypto trading account held on an exchange that is sanctioned and supervised by my local financial conduct authority, and when the amount surpasses my percentage limit I transfer the excess balance in local currency to other accounts for other purposes. Today I buy into any significant dips, and gradually sell my holdings down to some limit as the prices rise again. But once I perceive the current macro environment to be changing to one where e.g. everyone starts liquidating speculations and running to bonds and gold again, whilst rates and growth hopes start falling, then I’ll sell everything (except for a small residual amount, just in case I’m wrong and things go mental again) until the next speculative environment kicks off.

    I imagine that I’m not alone in that mindset, and that those institutional buyers now coming in will be out like a shot when things turn against them in a more sustained way. So I suspect the fall could be very rapid once it gets triggered in the right sort of environment and sets off a deluge of selling that is not quickly wiped out by dip-buying…

    So far it feels like easy money for those involved in it, though, and I get the psychological effect it has on people who see some amount they put in apparently balloon without them needing to contribute any effort, and then those outside get the FOMO and pile in too. As we know, it works the other way around, as well, though.

  67. breamrod says:

    gold is falling because interest rates are rising. If the Fed institutes yield curve control I think you’ll then see gold start to rise again.

  68. Lisa_Hooker says:

    The price of Bitcoin will soar to the sky when the governments require payment of taxes in Bitcoin. /s

    • sunny129 says:

      Bitcoin price will increase incrementally with blips along, while the Fed keeps on printing Trillions $ out of thin air(GUARANTEED!) , for deficit spending each year. going forward.
      I might as well speculate a bit with bitcoin against’ insane credit creation” by Fed/CBers

  69. Henry says:

    I’m too old to be the one writing this so those better informed please correct my errors. Here is a brief explanation of the use of cryptos such as Bitcoin. If you think of it as a large data base with functionality like excel that any business or bank might use, but here, unlike the common misconception (see the very interesting Silk Road saga) it is open for anyone to verify and since other such data bases require a “trusted” entity (that can be a problem in this day and age) to verify, bitcoin pays “auditors” miners to compete against each other to mathematically verify any changes to the data base. This redundancy and accuracy is slow and expensive so only useful for larger transactions though quite useful as collateral, so other cryptos can bundle data into blocks large enough to make the transactions worthwhile. Now those can be any type of transaction anywhere in the world at anytime of day. Thus you can think of one of those cells in the spreadsheet as a spreadsheet itself and can talk with the other cells plus of course offer some benefit, like higher transaction speed. Fortunately this is all happening in an open source environment so despite the complexity, change is happening too fast to keep up especially for the regulatory agencies. Thus not only do you have the risk of startups with all there volatility, but also the opportunity for scams, not the best place for the uniformed to invest, yet since many of these legitimate businesses try to follow Bitcoin’s lead and let anyone invest from the start there is a lot of venture fund type investing and a lot of that has and is going to be lost though some will make huge profits. The main value of these networks like any network comes from the fact that the more people that are connected to it the more value that is added, similar to Facebook, Google, Amazon etc. So what are some of the features that have been added? First the value of a token can be based on any asset, dollars, gold, a piece of art. Since this is still a free market you can create your own and back it with your smelly socks if you want. Some will do better than others and because of the network effect that may not necessarily be the “best” ones, something like Facebook comes to mind. The use most will find valuable is the ability to transfer funds anywhere in the world with minimal transaction fees and almost instantaneously (see Visa and other’s investment in this space). Since they are verified data bases, businesses can track supply chains and payments in real time. Instead of having your stock held in the brokers name and to be used as collateral to bet against you, with crypto we can go back to stock certificates that you actually own and you can be the one to get paid if you want to loan it out. It is also easy to make derivatives that follow whatever for example the value of the dollar, such as stable coins, some “backed” by dollars others a pure mathematical derivative. It is even possible to earn up to 8% interest on something tied to the value of the dollar so hopefully not too volatile. Coming soon credit cards, mortgages, car loans, business loans. Much of this like the internet is not made of physical tangible things, but knowledge, procedure and connections, which needs a whole new set of metrics to value, though ultimately in a “capitalist” system it will mainly comes down to if they generate $ in the longer term. Just like guns, the government could ban them, but I don’t think the threat is so great that it will be worth the backlash especially if they haven’t banned the derivatives market which is completely opaque and about a trillion times larger. Yes, there are even bills in several states to allow you to pay taxes using cryptos.

  70. Lawrence Smith says:

    Wolf I agree with almost everything you say, but I have to tell you that you somewhat misunderstand Bitcoin. You say that it is a rigged market, but how are currencies issued by countries any different than bitcoin? Where are the financial metrics on dollars? In the case of bitcoin, there is limited quantity, just like there is limited quantity of real estate in New York.

    The theory around bitcoin is that it will be a usable currency at some point in the future and that you want to accumulate it today at a lower price, rather than in years from now, at a much higher price. There was a movie about the financial crash where the head of the investment bank says something like “there are three ways to get rich. Cheat. Be Smarter or Be First.” This is simply about being first.

    The main issue I see with bitcoin is that it is a very poor digital currency for actual transactions. The energy consumed for the limited amount of transactions is ridiculous. That is going to be the downfall of bitcoin. A better digital currency. But I dont see any better digital currency and I also dont see any evidence that governments will do anything except deflate their currencies.

    So how can a person protect against the ravages of currency devalution? If the dollar takes another run down in value, there might be alot of smart investors looking to protect the downside.

    Yes, it will be interesting if bitcoin really crashes and risks the whole financial system. But doesnt that say more about the fragility of the whole financial system, rather than just bitcoin?

  71. R. Beard says:

    I enjoyed this discussion! I want to thank everyone, and Wolf for having such a forum.

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