Darwin's Paradox

In this book, I will highlight the fact that Darwin and Newton could not both be right. The strange shape and size of ancient animals indicate a dramatic change in our environment since the time of the dinosaurs.

Two things can be noted. First of all, the size of the animals indicate less gravity. Secondly, the shape of the animals indicate less inertia. This second point is often overlooked, yet holds the clue to what has been going on.

Very ancient dinosaurs had clubs of various kinds at the tip of their tails. This was of course extremely useful in fending off predators. However, no present day animal has such an arrangement. Not even more resent dinosaurs had this useful defense mechanism. Why not?

Darwin tells us that all niches that can be occupied by life will be occupied by life, and that the shape and size of the life forms will be the most efficient shape possible. Huge clubs on the tip of ones tail seems like a great idea, yet no modern animal has this. In fact, big animals today have puny little tails. Big animals with big tails don't exist. Nor do we have giraffe sized animals with giant heads flying about.

The explanation for this is twofold. Gravity has increased and inertia has increased. Halton Arp was right about his intrinsic red shift. Inertia increases over time. As a consequence, gravity increases too.
 

Quetzalcoatlus

By Yinan Chen - www.goodfreephotos.com (gallery, image), Public Domain, Link

Ron Paul's Time Machine

In a survey made by Ron Paul a few weeks ago, people voted Bitcoin to be the best ten year investment over gold and dollars.

What's interesting here was the ten year time frame. When it comes to technology, ten years is an eternity, yet most respondents favored the technology based currency over gold.

While a technology can stay relevant over decades, and even centuries, it is extremely rare that a particular brand retains its relevance for more than a few years. Bitcoin has already proved itself impractical as a means of exchange, so my personal bet would be to see its price fall to zero within ten years even if crypto-currencies as a whole remain relevant.

Gold on the other hand is a commodity. It does not depend on the state of technology for its value, as it can always be used to whatever ends are most practical and valuable at any given time. Since it is useful and desired in jewelry and ornamentation, it has a universal appeal that will never go away.

If I were to step into Ron Paul's time machine, there's only one asset I would care to take with me, and that is gold. It is the only dead certain thing. It does not care about time. Ron Paul's time machine could miss-fire and send me 200 years forwards or backwards. I would still be safe.

Don't be a Pig

"Bulls make money, bears make money, pigs get slaughtered" is an old Wall Street saying. Another one that's worth keeping in mind is this one: "There are old traders and there are bold traders, but there are no old bold traders."

Both relate to the pig's desire for quick and easy money. Pigs get into stuff without any clear notion of value. They roam around, sometimes making a lot of money in a short time. However, their lack of due diligence and clear idea of value eventually gets the better of them.

Bulls and bears, in contrast, are good at spotting market tops and bottoms. The bull enters as a buyer near the bottom of a market cycle and leaves near the top. The bear enters as a short seller at the top and cover their shorts near the bottom.

Pigs on the other hand, enter as buyers near the top, when things get manic, and leave at the bottom, or never at all, depressed and broke.

Pigs are attracted to manias. Bulls and bears stay clear.

An important thing to note about bulls and bears is that they have clear price targets based on fundamentals. They do not buy or sell purely based on momentum. They know that things move in cycles, and they make their profits from riding the ups and downs.

A bull and a bear is often the same person for the simple reason that they base their actions on fundamentals. Pigs base their actions on momentum.

Ask a bull or a bear about their thoughts, and there will be talk of historic correlations and expected earnings. Ask a pig about their thoughts and there will be talk of new paradigms and price action.

A good indicator of a market top is the presence of pigs. Their euphoric ramblings are loud and painfully stupid. At the market bottom on the other hand, there are no pigs. It is quiet. Nothing appears to be going on, so the bulls can get in and the bears get out in preparation for the next cycle.

Pig

By Johan Spaedtke - Own work, CC0, Link

The Denarius

The Denarius was the Roman equivalent to the silver Dollar. It was a silver coin of almost 7 grams. It was equivalent to a day's worth of skilled labor, and this relationship remained fixed until the Roman emperors started to debase their currency by lowering the silver content.

What should be noted, is the fact that 7 grams of silver was for many decades equivalent to a day's salary. A small household could sustain itself on this amount of money. Adding to this that the historic relationship between silver and gold has been 16 to 1, we get that 7 grams of gold should keep a household afloat for 16 days, that's about 1/2 a gram of gold per day.

This is the historic value of gold and silver. This is the norm. Great deviations from this would be the exceptions.

It follows that we live in exceptional times. Only in very poor countries can we still find people willing to work a whole day for a few dollars worth of silver or gold. However, this is bound to change in a not too distant future. Gold will gain greatly in purchasing power, and silver will likely gain even more.

By Classical Numismatic Group, Inc. http://www.cngcoins.com, CC BY-SA 2.5, Link

Getting Things Done

Money is agency. It is the ability to get things done.

Money is a strong motivator. We know that it has agency, and we are willing to work hard in order to get it.

This central point seems to be lost on crypto enthusiasts who now believe that central banks will start buying Bitcoin.

Despite its astronomic price, there is very little agency in Bitcoin. Apart from a small group of enthusiasts, no-one is much impressed by it. A computer is needed in order to access Bitcoin. People have to register at exchanges or go through some technical set up. Very few people are prepared to do this when there are simpler and more intuitive alternatives.

Contrast this to gold which can be minted into coins. Who wouldn't work for a gold coin? No registration is needed, no electronic wallet, no computer. Go anywhere in the world with a bag of gold coins, and people will work for you.

Gold coins have the power to move people all over the world. Bitcoin has created enthusiasm among a handful of nerds. There's really no comparison. Money is gold, and nothing else.

But let us for argument's sake explore the idea that central banks would want to buy Bitcoin. What would happen is that a very small group of crypto enthusiasts would be enriched at the expense of everybody else.

Unlike gold, which is widely held by ordinary people all over the world, Bitcoin is held by a few thousand individuals, plus a few million marginal investors. Central banks investing in Bitcoin would simply make a few thousand people immensely rich at the expense of others. Nothing else would be achieved.

The tiny group of super rich Bitcoin holders would subsequently invest their newfound wealth in the stock market. There would be a transfer of wealth from the current super rich to the new group of super rich.

By buying Bitcoin, central banks would facilitate a wealth transfer between two very small groups of people, with no gain to the general public.

By tying currency to gold, on the other hand, a much wider group of people would benefit.

None of these two alternatives are desired by central banks, though. But of the two, buying Bitcoin would be completely insane, and in direct violation of the central banks' self interest, which is to preserve the status quo.

Public Domain, Link

How to Finance an Illegal Operation

Anyone planning to finance an illegal operation would be crazy to use crypto of any kind.

Blockchain is an open ledger that anyone can read, and every transaction is stored on this. As I predicted a few months ago, criminals using the blockchain will soon regret their mistake. The first court cases where the blockchain has been used as irrefutable evidence against a criminal have already been heard.

This means that the old system of using cash, gold and trusted middle men will still be required.

By United States Mint - www.usmint.gov/pressroom/index.cfm?flash=no&action=photo, Public Domain, Link

Possible Collapse of Fiat due to Bitcoin

Despite having virtually no utility, the price of Bitcoin continues to soar.

The total market cap of Bitcoin is now so big that it can make serious damage. Small currencies can be completely crushed if enough people using that currency catch onto the mania.

A case in point would be the Norwegian Krone. It has displayed much weakness over the last year, and with the Norwegian housing bubble having just burst, people are looking for safe havens.

Having for all practical purposes outlawed gold, the Norwegian government has made the gamble that Norwegians would keep their cash in Norwegian Krone. The alternative would be to move money into Euro or Dollars, which are only marginally better stores of value.

However, Norwegians looking to safeguard their cash are now increasingly drawn towards Bitcoin. A run from the Norwegian Krone could easily be directed towards Bitcoin.

If this should happen, Bitcoin would soar even further, and the Norwegian Krone would crash.

To buy Bitcoin, requires Dollars or Euro. A flight into Bitcoin from Norwegian Krone would therefore devalue the Krone, not only against Bitcoin, but against the big fiat currencies as well.

Norwegians without Bitcoin would see their Kroner loose value at an alarming pace. The main transfer of wealth would therefore be from the majority of Norwegians into the hands of the small group who own Bitcoin.

This would trigger enormous sufferings and chaos. The central bank would have to move. It would have to send interest rates higher, or somehow tie the Norwegian Krone to a relatively steady asset, such as gold. Alternatively, the central bank would have to abandon its monopoly on the issuing of money.

If the Krone is not saved, it will go to zero, which would mean that people would have to turn to alternative currencies.

Bitcoin would then be set to the test. Having been chosen as the safe haven asset, the natural next step would be to actually use it.

However, it is already known that Bitcoin cannot actually be used in everyday commerce. The rush into Bitcoin would reverse. Holders of Bitcoin would want to sell it for something that can be used, such as Dollars or Euro.

This would be the moment when Bitcoin collapses.

Norwegians would all suffer as those who stayed with the Krone got wiped out by the ones who rushed to Bitcoin, and those who rushed to Bitcoin got wiped out by the fact that Bitcoin is virtually useless.

In retrospect, it will be clear to most that Bitcoin gained popularity due to the outlawing of gold. The one asset that could have saved the Norwegians was what the central planners barred them from owning.

Sovereign

By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link

Tulip Futures

It's official: The bitcoin mania is now the biggest bubble in history. It has now surpassed the tulip mania that raged in 17th century Holland.

Since a bubble isn't really a bubble before it pops, the above declaration may be a little premature. However, I have not come across any way to value bitcoin that does not end up with a price close to zero:

• If bitcoin is valued as an access to a blockchain network, it should be prices relative to the expected future turnover for that network. Bitcoin is already obsolete as a technology and should therefore be priced close to zero.
• If bitcoin is cash, it should be priced relative to its future turnover as such. Since bitcoin is obsolete, and will never function well as cash, its price should be close to zero.
• If bitcoin is "digital gold" it should be priced as a commodity. Since bitcoin has no utility beyond exchange, it has no value as a commodity.

So what is it about bitcoin that drives the mania?

The clue can be found in understanding the tulip mania.

What has been largely forgotten is that tulip mania was not really about tulip bulbs, but about a completely new way of doing transactions. The tulip bulbs were merely the tokens that floated about in this new and wonderful marketplace where ledgers were kept and futures were honored.

17th century Holland saw the invention of modern financial exchanges. People could buy and sell future contracts, and the first commodity to be traded in this way were tulip bulbs.

People who bought future contracts for tulip bulbs were doing something that had never been done before. They were taking part in a revolution, and they were getting rich, at least on paper.

The way tulips were bought and sold was in such a contrast to the market place at the town square that the fact that what they were trading were mere flower bulbs got lost in the excitement.

People in Holland were no more stupid than people today. They were not getting super exited by tulip bulbs. They were exited about the endless possibilities that futures trading seemed to promise.

Lost in all the excitement about the new technology was the fact that the tulip bulbs were in fact separate from the market mechanism. Owning a tulip bulb did not give the owner a claim on the technology. The tulip bulb was merely a token required in order to take part.

This is pretty much exactly what's going on with bitcoin. People are confusing bitcoin with blockchain. To take part in the decentralization revolution, people have to own a token. They buy bitcoin and other crypto-currencies in order to take part. But they are mistaken in thinking that their participation will give them a claim on the technology. Owning a bitcoin gives us no more a claim on decentralized ledgers than owning a tulip bulb gave anyone a claim on futures trading.

In the end, a tulip bulb is nothing more or less than a tulip bulb, and a bitcoin is nothing more than a fancy number. Everything else is technology that can be replicated and used for all sorts of other purposes at no gain to either tulip bulb owners or bitcoin owners.

Tulip

By Bernd Haynold - Own work, CC BY 2.5, Link

A Completely Useless Commodity

One of the arguments sometimes used to defend the price of gold is that it is in fact quite useless.

The argument is that money has to be stable. The quantity of a consumable resource like copper fluctuates too much for it to be used as a reliable store of value.

Gold on the other hand is rarely consumed. Even when it's used, it is merely transformed into jewellery which can easily be turned back into its pure commodity form. Gold is therefore a good store of value.

Now that the price of Bitcoin is becoming increasingly hard to defend, this argument is again used. The sheer uselessness of Bitcoin is, according to this logic, a reason to value it highly. No-one will ever use it for anything. Additionally, its future quantity is even more limited than gold.

The problem with this logic is of course the claim that uselessness is a valuable quality. The fact that gold is not consumed does not make it useless. People all over the world wear gold jewellery. Gold is used as ornamentation. It is a simple way to show off wealth.

If Bitcoin retains its current price, Bitcoin millionaires will buy gold to show off their wealth, just as much as people who've made millions off of real estate or technology stocks show off in this way.

But there is no corresponding demand for Bitcoin. One cannot discretely show off ones wealth by wearing a chain of pure Bitcoin.

However, Bitcoin is in fact a commodity. So much is true. There is no counter party risk in holding Bitcoin securely offline on a memory chip. But so what? Dangling that chip on a piece of string around the neck of a beautiful woman is not going to impress anyone.

Jewellery

By George E. Koronaios - Own work, CC0, Link

Futures and Hoarders

Bitcoin millionaires have a problem. While they are rich on paper, there is no easy way for them to access their wealth. Since the price has gone up on very thin volume, any large volume selling will send the price down by a lot.

Also, there is strong psychological resistance to selling something that has gone up a lot, and which promises to go up even more. Bitcoin millionaires are hoarders. They treasure the possession of their rare and valuable tokens.

Bitcoin millionaires are also fairly well connected. There is not all that many of them. Bitcoin is not like gold. It's not owned by a large number of relatively ordinary people. Its owned and controlled by a tiny elite of early adopters.

This means that they have tremendous influence on the price. They can pump and dump, drawing in people and frightening them away, thereby achieving the dual purpose of making money and hiking the price.

However, very little money can be taken out of a pump and dump scheme. A few suckers can be fleeced. But it must not be done too aggressively. The net effect must be a gain so that more people can be drawn in.

What all of this means is that Bitcoin has not really made anyone very rich, except on paper. The money pulled in has barely covered the energy cost of mining and transactions.

But now that there are futures being traded in Bitcoin, hoarders have another way of making money. They can sell their Bitcoins without the risk of loosing them. Bitcoin millionaires have finally a safe way to eat their cake and keep it.

The way this works is that the owners of Bitcoins can sell an option for a future delivery. A Bitcoin millionaire can promise to deliver Bitcoins at a certain price a few months down the road. For this promise he receives a sum of money.

Let's say the current price of Bitcoin is 17000 dollars and the future contract estimates the price to be 18000 dollars. The option sold will fetch the seller 1000 dollars. If the seller of the option, also sells his Bitcoin, he has 18000 dollars.

Instead of a risky pump and dump scheme, Bitcoin millionaires now have a risk free futures option scheme. If Bitcoin stays below 18000 dollars until the expiry date, the sellers make a profit. At expiry date, they can buy back their Bitcoin and pocket the difference. If Bitcoin hits 18000 dollars, they can cover their bets by buying back the Bitcoin at no loss except transaction fees and the Bitcoin put into the bet.

The only risk that the seller runs is the price gain above 18000. All other risk is moved over into the hands of the option buyer who takes a loss if the price of Bitcoin does not reach 18000 dollars by expiry date.

An interesting effect of this is that hoarders who sell their Bitcoin in order to buy them back at a profit in the future will no longer want the price of Bitcoin to go up. They will want the price to go down. The lower the price goes, the more money they can pocket while owning no fewer Bitcoins in the process.

This means that there will be fewer Bitcoin millionaires willing to participate in the much riskier pump and dump schemes that they employed to push the price of Bitcoin up. With less pump and dump, prices will no longer be pushed higher. They will either stabilize or fall, depending on how aggressively the hoarders sell into the futures market.

If there are more futures sold than Bitcoins bought, we know that hoarders are selling in the hope that prices will not go up.

As it happens, that's exactly what's going on. There is more futures selling than there is spot buying.

If this trend continues, Bitcoin's astronomic rise will be a thing of the past. There will be no more pump and dump. There will instead be a slow decline, which will gradually accelerate as true price discovery sets in.

Whale

By Michaël CATANZARITI - by Michaël CATANZARITI, CC BY-SA 3.0, Link

The Blow Off Top

The price action in Bitcoin is becoming increasingly insane. Ten percent moves are now a daily occurrence.

The announcement that we had a few weeks ago seem like a distant past. The flash crash that followed seems like a modest correction. The eerie calm that followed is all but forgotten.

The story that has been sold ever since it was admitted by insiders that Bitcoin will never work appears to have worked its magic. Bitcoin will never be everyday currency. Instead it will be like gold, only better.

This is complete nonsense, but Bitcoin has nevertheless doubled in price since this announcement.

This idea that old technology is better than new technology has been so successful that Bitcoin is now outperforming its newer rivals. It appears to be sucking in money from other crypto-currencies. Even gold appears to be dumped in favor of virtual gold. Every time Bitcoin makes a ten percent move up, gold goes down by a percent.

How long this madness is going to continue is anybody's guess. However, we most definitely seem to be heading for a blow off top. When "investors" in this "virtual gold" finally wake up and realize that they have put their savings into something that is neither money nor a viable currency, the rush for the exits will be epic.

In the meantime, sit back and enjoy the price action. What is unfolding is history in the making. This may very well be the biggest mania ever.

By Steve Jurvetson - https://secure.flickr.com/photos/jurvetson/8410385932/in/photostream/, CC BY 2.0, Link

Virtual Gold

Money is gold, and nothing else.
- J.P. Morgan

Gold is in other words the ultimate settler of debt. Nothing else has this quality in quite the same measure.

Debt can of course be settled in other ways than by gold. Silver is fine too. A house can be handed over to a creditor. Labour can be used: Sexual favours, services of all sorts. Any tangible asset or service can be used to settle debt. However, none is quite as liquid and universally appreciated as gold.

Money is by definition the most widely appreciated and accepted settler of debt. It is therefore gold. Anything else is something less as far as currency is concerned.

This simple fact has been all but forgotten by most people today. Currency is widely confused with money. However, modern fiat currencies are in fact debt. They are claims on future production.

Crypto-currencies are claims on dollars and other fiat. They are derivatives created by the use of energy and artificial scarcity. They are fiat derivatives.

The claim that Bitcoin is virtual gold is therefore correct. It is not money, but something akin to the sort of gold found in video games.

Virtual gold cannot be used in the production of anything useful. It cannot be turned into jewellery. It cannot be used in the production of dental crowns or electronics. It can only be used as a claim on somebody else's assets.

Virtual gold is credit. It is only worth something as long as people are willing to part with their assets in exchange for it.

Real gold on the other hand is money. It can be used as jewellery. It can be enjoyed in the here and now.

The consequence of this is that virtual gold is in no way in competition with real gold. It is in competition to government fiat. Should it one day replace fiat, it will be used to buy gold, just like fiat is used to buy gold today. The price of gold in terms of purchasing power will not be much affected. People will still be willing to spend a day or a week of their lives in order to buy a gold ring. A nice little house will still be available at the cost of anything from a kilogram to ten kilogram.

Money is still gold. It is under-appreciated at the moment. People are evidently not in any hurry to settle their claims. However, when they do, gold will again shine, and the current confusion about what money is will be cleared up. No-one will want to hold virtual money when there is real money to be had.

Real money

By George E. Koronaios - Own work, CC0, Link

Price and Production Cost

When it comes to commodities, price is always related to production cost in such a way that the production cost tend to be only a little bit lower than the price of the commodity.

If the price of a commodity goes up, supply is increased to satisfy the demand. If prices fall, production capacity is taken off line.

In the case of mining and other capital intensive industries, the lead time to go online and offline can be substantial, which means that production can at times be very profitable and at times at a loss, depending on the direction of the price move.

However, for crypto-currencies, lead time is very short. It does not require much in terms of investment to set up a crypto generating computer. The main hurdle is motivation and some technical skills.

This means that as long as crypto-currencies are trading at huge margins relative to production cost, crypto generating computers are coming online at a tremendous rate. The only thing that will bring down the number of these computers is a re-pricing of either crypto or energy.

Only when the price of crypto "mining" becomes roughly equal to the price of crypto generated will the "miners" take computers off line.

The fact that there is only a limited number of tokens to be found for each crypto currency will not alter this fact. As long as new crypto-currencies can be invented, miners will continue to mine, and there is no reason to believe that crypto-currencies will not evolve and move on indefinitely if demand for this type of currency persists.

This means that we are headed for some sort of crisis. Energy prices must either go up by a lot, or the price of crypto-currencies must come down by a lot.

Cryptocurrency mining farm

By Marco Krohn - Own work, CC BY-SA 4.0, Link

Reasonable Price of Bitcoin

The following was posted as a comment by JoJo Kracko on Zerohedge. It is well worth reading as a fine example of clear headed analysis in a time of mania:

Would it be fairly accurate to say that there are 13 million bitcoins in existence today?  

At $17,000 per coin, that implies that the existing coins are worth $221 billion US dollars.  How high can we reasonably expect the value of a bitcoin to go?

Assuming 10? years from now we have 20 million of the possible 21 million in existence, could they be worth $50,000 per coin?  $100,000 per coin?  $1 million per coin?

20,000,000 x $50,000 = $1 trillion

20,000,000 x $100,000 = $2 trillion

20,000,000 x $1,000,000 = $20 trillion

I should point out that there is only $7.6 trillion worth of coins and bank notes in the world today.  If Bitcoin were to replace ALL of the circulated money used in the whole world today, there would be no need for it to be worth more than $7.6 trillion dollars.  If we can accept this, lets put a top cap on the value of what Bitcoin can logically max out at.  7.6T / 20M = $380,000 per bitcoin.    This would of course require every country in the whole world to adopt it to replace their own currencies, and would require every country to also ban the use of any other digital coin offering as a currency.

If you are thinking bitcoin could be a replacement for gold, well there is less than $7.6 trillion worth of gold that has ever been mined, if we use a $1250/oz USD value.   Is it a currency?  Is it a store of value?   Will it replace both?   Will it even be the dominant alt-coin in a year or two?   Draw your own conclusions.

A ten-fold of the current price of Bitcoin is in other words out of the question from a perspective of utility.

Furthermore, we can from the above estimate a reasonable current price of Bitcoin. We know that Bitcoin is sometimes used in transactions. Those transactions are rare. To say that as much as one in a thousand transactions are made with Bitcoin would be generous. Yet $7.6 trillion divided by 1000 is a mere $7.6 billion. That is a fraction of Bitcoin's current market cap of $220 billion.

Our generous price estimate puts a price tag for Bitcoin at $600. That's a far cry from $17000.

Meanwhile, gold is trading at $40 a gram. That puts the price of all above ground gold in the world at $6.4 trillion. Since no more than a third of this would be used as money under a gold standard, the price of above ground gold would have to go up by at least 300% in order for a new gold standard to be implemented.

Brass token currently priced at around 17,000 dollar

By Steve Jurvetson - https://secure.flickr.com/photos/jurvetson/8410385932/in/photostream/, CC BY 2.0, Link

Bitcoin Futures

The price of Bitcoin has been very volatile lately, going up and down more than ten percent in the space of hours.

The reason for this is that Bitcoin is a technology with very limited value. It can be used as a way to escape government meddling in the economy. However, it will never be used as a currency in everyday transactions. Its current price is therefore pretty much detached from its true value. Gross miss-pricing results in volatility since there is nothing supporting the price but hype and hope.

Also, there is nothing physical involved, so there is no way to accurately judge if the price is roughly in line with its value. With gold and real estate, it's far easier to know whether the price is way out of wack or not. An ordinary house should not take a lifetime to afford on a regular salary. A gold ring should not take a year of earnings. A Bitcoin... well... its a number. Who knows what it should be worth?

However, Bitcoin has nevertheless become a commodity of sorts, and there will be futures traded in it starting this coming Monday.

The hope is that this will smooth out the price fluctuations and set Bitcoin on course to become a regular commodity like oranges, copper, pork bellies or gold.

My feeling is that price fluctuations will in fact be smoothed out quite significantly by the futures contracts. However, if futures contracts do indeed help as a price discovery mechanism, it will soon become clear that Bitcoin does not deserve the price it is currently trading at.

Prices will quickly go down to a little above production cost, where it will trade for a while before continuing down to zero.

Bitcoin is not a commodity. To treat it that way is silly. The futures traded will be a short lived adventure.

Without the State

If it was not for the state's meddling in the currency markets, demanding central banking and fiat money to be accepted by all subjects, gold would have been money today just the way it used to be. Crypto was invented with the sole purpose to circumvent the state's fiat money. It is in other words a reaction against the state. It is a rebellion.

The ironic thing about this is that the rebels who are currently betting on Bitcoin and other crypto-currencies, are often big believers in the state, with no objections to fiat and central banking. The minions that are confronting the state in a head to head battle are largely state worshipers of various shades.

Adding to the irony is the fact that none of the crypto-currencies will ever function very well as currency. They are simply too energy demanding, and easily forked into new versions. If the rebellion against the state and its central bank were to succeed, and the state let the free market once again decide on what to use as money, gold would be back within days. The crypto minions are in other words doomed if they win, and doomed if they lose.

Meanwhile, no one is paying attention to the gold price, nor the fact that Goldmoney now has a payment system that delivers the exact service that crypto was meant to provide. It is possible to buy a cup of coffee for a fraction of a gram of gold, with hardly any transaction fee. Try that with crypto, and see how well that goes. The waiting would be for minutes, if not hours, and the transaction fee would be several times the price of a cup of coffee.

Public Domain, Link

Technology as a Store of Value

The main problem with crypto is the fact that it is technology rather than a raw material.

While raw materials are limited by God, and impossible to improve, technology is something continuously evolving. What is high tech today is obsolete tomorrow. However, a raw material remains a raw material. The demand may vary with time, but its fundamental properties can never become obsolete.

The idea that technology can be a store of value is naive, if not right out insane. When did technology ever store any value? Why do people think that crypto can compete with raw materials as a store of value? It's simply baffling.

Bitcoin is already an outdated technology, and will never function as everyday currency. Yet, its price keeps going up.

Windmills

By Willard84 - Own work, CC BY 3.0, Link

Gold and Freedom

The anarchists that invented crypto were right about money and freedom. Without freedom to choose the money we use, there is no real freedom.

By this standard, one can easily determine the relative freedom enjoyed by people all over the world and through the ages.

When gold is heavily regulated or outright banned, there's little freedom. When it's free of tax and regulations, people are free.

Public Domain, Link

Central Bank Induced Insanity

When money is corrupted, people go insane.

History is full of examples of this.

The collapse of the west Roman empire was a direct consequence of bad monetary policy. As the currency collapsed, people went literally insane. Money was cheap. Life was short, and everything was free. People could not spend their money fast enough. There was no point in working. Only slaves and dogs work was the saying of the time.

The east Roman empire, where money remained sound, lasted another 700 years after the west Romans had disappeared into history. Work and thrift was valued and rewarded. Virtue made sense.

It took the west Romans about 100 years to completely destroy their currency. That's about the same time it has taken the Fed to debase the US dollar by 97%.

The US appears to be the modern day version of west Rome. A once proud, industrial and virtuous people have decayed into profiteering and mindless consumption.

There is no fear. There is no regard for value. There is little virtue, only consumption and a sense of entitlement. There is peek consumption and peek speculation. Productive work is undervalued. Thrift is punished through debasement of money. Vice pays and virtue is frowned upon.

Peak insanity is setting in. Unless drastic measures are taken to rein in the central bank and its power to create money from nothing, the end may be as chaotic and insane as it was for the west Romans.

Rome

By Canaletto - Web Gallery of Art:   Image  Info about artwork, Public Domain, Link

If Bitcoin Ten-folds From Here

If Bitcoin ten-folds in price from its current price level, it will have a total market cap of 2 trillion dollars. That's an awful lot of purchasing power.

Since this purchasing power is conjured into existence through capital destruction rather than capital creation, nothing of value has been created in the process. A lot of energy has been consumed, but no product has been produced.

It follows then that the 2 trillion dollars worth of purchasing power will come in addition to the purchasing power already in existence through fiat currencies.

This is a classical example of monetary inflation. The money supply is expanded by 2 trillion without any form of compensation in the form of a tangible asset or service.

Should Bitcoin holders be successful in convincing retailers to accept their money as payment so that all this extra purchasing power is put into circulation, massive price inflation will follow.

I personally doubt that Bitcoin will ten-fold, and I don't think it will ever be put into circulation. However, if it should happen, the result will be dramatic. Fiat will crash and only tangible assets will be safe.

If Bitcoin becomes a big success story, gold and silver will go through the roof.

Should Bitcoin crash, as I think it will, gold and silver will also go up, because the flight from crypto will be to precious metals rather than fiat.

(Thanks to Peter Schiff for pointing this out in his latest podcast.)

Price Action vs. Value

According to this article in Zerohedge, the total flow of money into Bitcoin has been a mere 6 billion dollars.

This relatively small amount has moved the price of Bitcoin all the way up to a market cap of 200 billion.

The article concludes that if any of the big institutions were to move into Bitcoin, the price would go even more parabolic.

The same day, also in Zerohadge, this article wrote of a pole dance instructor that now is a crypto guru.

Among her list of advice to potential investors was this little gem: "The good thing is when it goes down, you can buy some more, and you know it's going to go up at some point."

That's a sure fired recipe for disaster, unless the fundamentals for the investment object is rock solid and one's time horizon is decades into the future.

What both articles have in common is that there is no regards for fundamentals. There is not even an attempt to value Bitcoin in any other way than money flow and price action.

What the fundamentals tell us is that Bitcoin is obsolete and of no practical value. Furthermore, we know that Bitcoin mining consumes billions of dollars in electricity every year.

This means that we have something of no value, consuming energy at a rate equivalent to the total inflow of money.

This is capital destruction at a massive scale.

For all the headline numbers, close to no-one has made any money on Bitcoin. All the money made has been consumed by the electricity bills. Whoever has made money on this has done so at the expense of others.

Bitcoin is an energy consuming monster that will eventually collapse to nothing. The fact that it may go even more parabolic in the short to medium term does not alter this.

The ultimate result will be that there are a few people who got out in time and a large number of people who didn't. As a whole, Bitcoin owners will have a net loss equal to the electricity bill.

Cryptocurrency mining farm

By Marco Krohn - Own work, CC BY-SA 4.0, Link