Thursday, December 07, 2017

Bye Bye Bitcoin Bubble

It's all about the mackerel.

In the American prison system, prisoners use packages of mackerel as a medium of exchange because 1) the supply is inherently limited because prisoners can only buy 14 "macks" per week, and 2) no one wants to eat it.

In other words, prisoners collectively decided to use a useless item as a medium of exchange and store of value because its supply was inherently limited.  Sound familiar?

In a real sense, Bitcoin is even more useless than prison mackerel because at least prison mackerel is used to process transactions.  Bitcoin is barely used as a means of settle transactions; all the action is in speculative investing.

As I write this, Bitcoin just past $16,000 in value.  I would bet any amount of money that on December 7, 2018, the price of Bitcoin will be below that value.*

Everything about the situation just screams bubble.  I'm very bullish on blockchain, but Bitcoin?


Now, just because a medium of exchange lacks any inherent value doesn't mean that it's doomed to crash.  Gold remains a valuable (though bad) investment even though its usefulness as a conductor and jewelry material doesn't justify its price.  But gold also has millenia of history as a valued medium of exchange, a luxury Bitcoin does not.

In contrast, mackerel became a prison currency because the prior currency, the cigarette pack, ended up getting banned by the prison system in 2004, which means its history is barely a decade old.  Which is why it wasn't surprising when the value of the "Mack" crashed at one prison:

"I'll never forget the day where the macks lost all their value almost overnight. Someone had a huge amount of money macks and they got confiscated and the administration left them sitting in a bucket. They essentially introduced hyperinflation. They flooded the market with money macks."

Bitcoin prices have been rising because speculators are buying Bitcoin in hopes that prices rise further--the greater fool theoryDuring my current trip to Japan, Bitcoin has risen from $10,000 to $16,000.  Not coincidentally, I was pitched two different ICOs at an event where I spoke.

Inevitably, Bitcoin is going to hit a limit as the market runs out of greater fools, a point that I think is fast approaching, and some of the big holders (the Winkelvii?) will sell, flooding the market, and setting off a downward spiral.

There's even a catalytic event--on Monday, the Cboe will start trading Bitcoin futures, meaning that people will finally have a chance to bet against the currency, once again proving that Trading Places is both one of the funniest and most educational movies of all time.

I'm off to buy some futures contracts!




* UPDATE: Someone must have posted this to Hacker News, because it went viral.  Scott Walker even offered to bet me $1,000,000.  I admire his conviction, though I disagree.  But he does make a good point that I'm not *really* willing to bet any amount of money; I just didn't think someone would offer to bet me $1,000,000.  Therefore, I'm going to cap the bets I take at $10,000 per bet.

** UPDATE: I have received legal assurance that this doesn't count as illegal gambling, provided no money is "pooled" up front, so it's game on!

7 comments:

My Agapic Life said...

I literally can't even explain the instrument and I have a next door neighbor who works for a company that exclusively covers it and have a Wharton MBA and CPA.

Anonymous said...

It’s pretty easy: a bunch of mafia thugs hired a techies to invent a ponzcheme.
Add hype and that’s it.

Anonymous said...

It is a revolutionary technology similar in nature to the invention of the cash register. The invention of the blockchain eliminates fraud by providing a verifiable accounting ledger. The blockchain is secure from the certain types of frauds and manipulations such as creating new coins without computing the P.O.W., double spending coins, and being able to backdate transactions.

Anonymous said...

The only reason why everything seems to inflate is because nobody trust dollar nomore..

Anonymous said...

So in order to offer futures these companies need to buy MASSIVE amounts of bitcoin. The volume of institutional money coming into this space is enormous and its difficult currently buying any reasonable amount of bitcoin.
How do you see the price being lower with this sort of demand....
Agree on the Winklevoss bros, however they have already clearly said they see this as a long term investment so why would they sell when its still just getting started.
Bitcoin is not a bubble, its the Pin!

Anonymous said...

>> The only reason why everything seems to inflate is because nobody trust dollar nomore..

And here we are - in a world, where the dollar is accepted by almost anyone anytime.

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