Crypto Bubble

[Lootman]

Well here's a bit of synchronicity. I just looked up the dollar price of bitcoin, and Google came up with a figure of $41,771.

And on this day in 2021, it was... $41,771.

Of course, it's been above $68,000 in the meantime. Early November 2021, in fact. But hey, what's a 39% unrealised loss between friends?

So is that hodling or hobbling?

BJ

Or Coinbase whose IPO was at a reference price of $250 last April, and has been as high as $430, but is now below its launch price at about $235. At its peak its market cap was approaching $100 billion.

[TheMotorcycleBoy]

Well here's a bit of synchronicity. I just looked up the dollar price of bitcoin, and Google came up with a figure of $41,771.

And on this day in 2021, it was... $41,771.

Of course, it's been above $68,000 in the meantime. Early November 2021, in fact. But hey, what's a 39% unrealised loss between friends?

So is that hodling or hobbling?

BJ

The thing is, how many less loaves of bread or pints of milk can you buy with ten dollars (or pounds) since that date? Strikes me that initial big rise in BTC started to happen round about when the US, UK, Eurozone etc. started on their massive money printing campaigns:



Matt

[GoSeigen]

Well here's a bit of synchronicity. I just looked up the dollar price of bitcoin, and Google came up with a figure of $41,771.

And on this day in 2021, it was... $41,771.

Of course, it's been above $68,000 in the meantime. Early November 2021, in fact. But hey, what's a 39% unrealised loss between friends?

So is that hodling or hobbling?

BJ

The thing is, how many less loaves of bread or pints of milk can you buy with ten dollars (or pounds) since that date? Strikes me that initial big rise in BTC started to happen round about when the US, UK, Eurozone etc. started on their massive money printing campaigns:

OMG

GS

[Urbandreamer]

You might all want to look at the chart of the money supply in the worlds reserve currency (the US dollar).

I can't do the insert image thing but here's a link.
https://tradingeconomics.com/united-sta ... -supply-m0
OMG, it does look rather like it might back Matt up doesn't it?

I confess that a picture has a thousand words. I was aware, but the chart makes it obvious doesn't it.

[TheMotorcycleBoy]

Well here's a bit of synchronicity. I just looked up the dollar price of bitcoin, and Google came up with a figure of $41,771.

And on this day in 2021, it was... $41,771.

Of course, it's been above $68,000 in the meantime. Early November 2021, in fact. But hey, what's a 39% unrealised loss between friends?

So is that hodling or hobbling?

BJ

The thing is, how many less loaves of bread or pints of milk can you buy with ten dollars (or pounds) since that date? Strikes me that initial big rise in BTC started to happen round about when the US, UK, Eurozone etc. started on their massive money printing campaigns:

OMG

GS

Que?

That sort of thing matters a fair bit to folk like me... paying kids Uni expenses, me and Mel's shopping baskets... building materials for house projects. From my convos with others, my concerns are shared.

Matt

[TheMotorcycleBoy]

You might all want to look at the chart of the money supply in the worlds reserve currency (the US dollar).

I can't do the insert image thing but here's a link.
https://tradingeconomics.com/united-sta ... -supply-m0
OMG, it does look rather like it might back Matt up doesn't it?

I confess that a picture has a thousand words. I was aware, but the chart makes it obvious doesn't it.

Indeed especially at the 5Y view setting, MS explosion at about March 2020, coincident with the BTC ascent, (which considering it had a damn *good* chance of crashing to zero in spring 2021, then reclimbed and broke the next resistance point, doesn't have the price chart shape of Tulip or the Mississippi company bubbles).



Matt

[TheMotorcycleBoy]

Let's have a recap:

Historic bubble shaped charty things:

Tulips from Amsterdam


Mississippi mud pies


Note: the bubble pops once

Less likely to be bubbles. The timespan and the ability to gain new highs seem the most apparent differences to me; not that I have 20-20 vision.





Matt

[Aegis]

Let's have a recap:

Historic bubble shaped charty things:

Tulips from Amsterdam


Mississippi mud pies


Note: the bubble pops once

Less likely to be bubbles. The timespan and the ability to gain new highs seem the most apparent differences to me; not that I have 20-20 vision.





Matt

I have seen it claimed before that bubbles only pop once, but I genuinely don't know where this is coming from. We all know about things like dead cat bounces, and if nothing else that's an indication that bubbles can at least partially inflate again after bursting. All that's required for something to be a bubble is for price to inflate far beyond any increase in fundamentals. As there are no fundamentals for bitcoin or any other crypto asset (beyond entitlement to work with some coins), it's hard to see how this can be anything other than a bubble. How the bubble then deflates isn't part of the definition, and a rise after a fall isn't in any way indicative of non-bubble behaviour.

[TheMotorcycleBoy]

Hi Aegis,

I have seen it claimed before that bubbles only pop once, but I genuinely don't know where this is coming from. We all know about things like dead cat bounces, and if nothing else that's an indication that bubbles can at least partially inflate again after bursting.

Regarding financial assets (not soapy water) I understand your concerns. Note also, however, that in the bouncing dead cat phenomenon, correct me if I'm wrong, the bounces reach lower peaks. That is, one could assume them to be an artefact of the single deflation phase. These bounces are certainly apparent in the South Sea (Mississippi company) bubble.

All that's required for something to be a bubble is for price to inflate far beyond any increase in fundamentals. As there are no fundamentals for bitcoin or any other crypto asset (beyond entitlement to work with some coins),

But that's interesting, isn't it, since what then is the difference between fundamentals and beliefs? The USD was backed by the value of gold in the Twentieth century until 1971, henceforth the link was broken. However now its fundamentals seem to be a belief in America's economy, its global hegemony and the Fed's ability to print more dollars. Is it possible that the rise in crypto assets is due to this belief withering? If crypto assets didn't exist would we have witnessed something similar in the prices of pieces of art?

Matt

[Urbandreamer]

All that's required for something to be a bubble is for price to inflate far beyond any increase in fundamentals. As there are no fundamentals for bitcoin or any other crypto asset (beyond entitlement to work with some coins),

But that's interesting, isn't it, since what then is the difference between fundamentals and beliefs? The USD was backed by the value of gold in the Twentieth century until 1971, henceforth the link was broken. However now its fundamentals seem to be a belief in America's economy, its global hegemony and the Fed's ability to print more dollars. Is it possible that the rise in crypto assets is due to this belief withering? If crypto assets didn't exist would we have witnessed something similar in the prices of pieces of art?

Matt

This is one of the arguments that I always find surprising. As you imply, what fundamentals? Gold has a small intrinsic value, but what of tobacco or shells? Both have been used as money in the past. Some seem to assume fiat has "value", but history would seem to argue it's more nuanced. All I can think is that those who make the argument see a lack of fundamental value with bitcoin et-al, but go no further to consider what they compare it against.

What is the fundamental value of an IOU? No that was a serious question and not an insult. IOU's play a huge part in fiat, be it from the state or people to fund their homes. This is the fractional reserve banking system. Indeed, didn't the mortgage side of this cause currency problems back in 2007-8?
IOU's are entering the crypto system (staking), but bitcoin is not yet created by IOU's as far as I know.

It is argued that money has three functions.
1) a unit of exchange
2) a unit of account
3) a store of value.

Bitcoin has struggled with the first. However everyone knows that $'s and £'s have had problems with the last.

Ignoring crypto, can I recommend the book "This time it's different: eight centuries of financial folly", which was published before bitcoin existed.
https://smile.amazon.co.uk/This-Time-Di ... 159&sr=8-1

[ursaminortaur]

All that's required for something to be a bubble is for price to inflate far beyond any increase in fundamentals. As there are no fundamentals for bitcoin or any other crypto asset (beyond entitlement to work with some coins),

But that's interesting, isn't it, since what then is the difference between fundamentals and beliefs? The USD was backed by the value of gold in the Twentieth century until 1971, henceforth the link was broken. However now its fundamentals seem to be a belief in America's economy, its global hegemony and the Fed's ability to print more dollars. Is it possible that the rise in crypto assets is due to this belief withering? If crypto assets didn't exist would we have witnessed something similar in the prices of pieces of art?

Matt

This is one of the arguments that I always find surprising. As you imply, what fundamentals? Gold has a small intrinsic value, but what of tobacco or shells? Both have been used as money in the past. Some seem to assume fiat has "value", but history would seem to argue it's more nuanced. All I can think is that those who make the argument see a lack of fundamental value with bitcoin et-al, but go no further to consider what they compare it against.

What is the fundamental value of an IOU? No that was a serious question and not an insult. IOU's play a huge part in fiat, be it from the state or people to fund their homes. This is the fractional reserve banking system. Indeed, didn't the mortgage side of this cause currency problems back in 2007-8?
IOU's are entering the crypto system (staking), but bitcoin is not yet created by IOU's as far as I know.

It is argued that money has three functions.
1) a unit of exchange
2) a unit of account
3) a store of value.

Bitcoin has struggled with the first. However everyone knows that $'s and £'s have had problems with the last.

Ignoring crypto, can I recommend the book "This time it's different: eight centuries of financial folly", which was published before bitcoin existed.
https://smile.amazon.co.uk/This-Time-Di ... 159&sr=8-1

The other argument I have heard put forward is that a currency (legal tender) has value because it is what you need to pay your taxes and you are in trouble if you don't pay your taxes. Other currencies, gold, crypto-currency, commodities then gain contingent value to the extent that they can be converted into that legal tender. As far as I am aware bitcoin is only accepted as legal tender in El Salvador.

https://www.bbc.co.uk/news/technology-58473260

Fear and excitement in El Salvador as Bitcoin becomes legal tender

[Aegis]

All that's required for something to be a bubble is for price to inflate far beyond any increase in fundamentals. As there are no fundamentals for bitcoin or any other crypto asset (beyond entitlement to work with some coins),

But that's interesting, isn't it, since what then is the difference between fundamentals and beliefs? The USD was backed by the value of gold in the Twentieth century until 1971, henceforth the link was broken. However now its fundamentals seem to be a belief in America's economy, its global hegemony and the Fed's ability to print more dollars. Is it possible that the rise in crypto assets is due to this belief withering? If crypto assets didn't exist would we have witnessed something similar in the prices of pieces of art?

Matt

This is one of the arguments that I always find surprising. As you imply, what fundamentals? Gold has a small intrinsic value, but what of tobacco or shells? Both have been used as money in the past. Some seem to assume fiat has "value", but history would seem to argue it's more nuanced. All I can think is that those who make the argument see a lack of fundamental value with bitcoin et-al, but go no further to consider what they compare it against.

What is the fundamental value of an IOU? No that was a serious question and not an insult. IOU's play a huge part in fiat, be it from the state or people to fund their homes. This is the fractional reserve banking system. Indeed, didn't the mortgage side of this cause currency problems back in 2007-8?
IOU's are entering the crypto system (staking), but bitcoin is not yet created by IOU's as far as I know.

It is argued that money has three functions.
1) a unit of exchange
2) a unit of account
3) a store of value.

Bitcoin has struggled with the first. However everyone knows that $'s and £'s have had problems with the last.

Ignoring crypto, can I recommend the book "This time it's different: eight centuries of financial folly", which was published before bitcoin existed.
https://smile.amazon.co.uk/This-Time-Di ... 159&sr=8-1

The other argument I have heard put forward is that a currency (legal tender) has value because it is what you need to pay your taxes and you are in trouble if you don't pay your taxes. Other currencies, gold, crypto-currency, commodities then gain contingent value to the extent that they can be converted into that legal tender. As far as I am aware bitcoin is only accepted as legal tender in El Salvador.

https://www.bbc.co.uk/news/technology-58473260

Fear and excitement in El Salvador as Bitcoin becomes legal tender

I think the argument should be that the currency has short-term stability because you pay taxes in that currency and your government borrows based on the stability of the currency, hence they can get a lot less service if their currency value is out of control. As such, the country in question has a range of monetary and fiscal policies that it can use to try to maintain an acceptable range of inflation, and the stronger an economy the more weight they can throw at this problem.

The issue is this idea of the store of value. To my mind, that means that if I set aside £100 to settle my tax bill next year, it should be the same as if I set aside £100 the month before the tax is due. Currency doesn't achieve this, because of inflation, but the effect over a relatively short term is not really that impactful (unless we go into a period of hyperinflation). The solution to this in the long term is to buy a hard asset (e.g. property or a commodity) or an asset which is designed to provide an inflation-linked total return (e.g. equities). Some people want to enforce this by returning to the gold standard, for example, but I feel that just comes with its own range of problems.

Crypto assets are essentially designed to be pseudo-commodities in this sense. They offer scarcity, as long as you only consider the tokens belonging to a certain network, but to my mind this isn't enough, in that the tokens need to have some sort of utility. This is something being addressed by a number of networks where they're trying to make it so that each token can be redeemed for something, which gives each token a level of intrinsic value. Nevertheless, it's still too close to commodity investment for me, so I just can't see myself participating.

[Urbandreamer]

The other argument I have heard put forward is that a currency (legal tender) has value because it is what you need to pay your taxes and you are in trouble if you don't pay your taxes. Other currencies, gold, crypto-currency, commodities then gain contingent value to the extent that they can be converted into that legal tender. As far as I am aware bitcoin is only accepted as legal tender in El Salvador.

https://www.bbc.co.uk/news/technology-58473260

Fear and excitement in El Salvador as Bitcoin becomes legal tender

You are right that at present El Salvador is the only place that it is legal tender. However very many countries (including El Salvador in the past) have had problems with their "legal tender". Indeed since we mention El Salvador, previously they made the US $ legal tender (2001) as they were having problems with their legal tender. They are not the only country to have decided to outsource their legal tender, just the first to pick bitcoin.

Many who travel will have visited places where there is an "official" exchange rate for the local currency and the rate that you can get. This obviously exists because the state fiat currency has less value to people who live there than other currencies, despite being the one used for taxation.

I would suspect that many in Turkey would desire to save in some other currency than the one used to pay taxes.
Palastine has problems with the "official" currency. There are limits to how much of it that bank's are allowed to hold. Those who can, save in other currencies.

Many countries have had financial repression in the past, including our own. Ownership of foriegn currency being restricted. We see a similar repression with crypto. Fortunately this is not currently the case in the UK, but as I said, it was and still is with some countries.

Legal tender may have a "value", because there is no alternative for many.

[tjh290633]

I was in Argentina in 1979, at a time of very high currency depreciation. I was told by one acquaintance that, as soon as he was paid each month, his wife converted that into US Dollars, which were then reconverted as and when needed. That was the only way they could cope.

Whether it is a practicable process in Turkey or elsewhere at this time is debateable. The Euro might be a suitable alternative there.

TJH

[TheMotorcycleBoy]

I was in Argentina in 1979, at a time of very high currency depreciation. I was told by one acquaintance that, as soon as he was paid each month, his wife converted that into US Dollars, which were then reconverted as and when needed. That was the only way they could cope.

Whether it is a practicable process in Turkey or elsewhere at this time is debateable. The Euro might be a suitable alternative there.

TJH

My work colleague is Argentinean. They are now taxed very heavily if they try to convert pesos. He rents his old flat in Buenos Aires. Every 2 weeks him and his tenant renegotiate the price of the rent.

Matt

[Lootman]

My work colleague is Argentinean. They are now taxed very heavily if they try to convert pesos. He rents his old flat in Buenos Aires. Every 2 weeks him and his tenant renegotiate the price of the rent.

That tax on selling pesos in Argentina presumably explains why countries like that often have large black markets for trading currencies and other things. I have heard similar things in nations like Turkey, plus Greece and Italy pre-Euro, as governments desperately try and force its citizens to hold and use its hopeless currency.

China used to have two entirely separate currencies - one for its citizens and one for foreigners, But when I was there shops and market stalls would gleefully accept US dollars at a better price, and I was sure to always carry a bundle of them around with me.

We even used to have exchange controls in the UK, whilst Americans still cannot open a domestic bank account in any currency but US dollars.

The point for crypto being that there is value in holding a "currency" that the government doesn't know about and can't track or tax. In countries like that the anonymity of crypto is a significant part of its value to people. It is a digital black market that the government cannot track, tax, devalue or manipulate. You could say the same about gold or diamonds, but being physical they have drawbacks as well, whilst crypto is more like an invisible monetary bearer bond.

[TheMotorcycleBoy]

I was in Argentina in 1979, at a time of very high currency depreciation. I was told by one acquaintance that, as soon as he was paid each month, his wife converted that into US Dollars, which were then reconverted as and when needed. That was the only way they could cope.

Whether it is a practicable process in Turkey or elsewhere at this time is debateable. The Euro might be a suitable alternative there.

TJH

My work colleague is Argentinean. They are now taxed very heavily if they try to convert pesos. He rents his old flat in Buenos Aires. Every 2 weeks him and his tenant renegotiate the price of the rent.

Matt

I just looked it up. 35%.

https://news.bloombergtax.com/daily-tax ... -purchases

[Aegis]

The point for crypto being that there is value in holding a "currency" that the government doesn't know about and can't track or tax. In countries like that the anonymity of crypto is a significant part of its value to people. It is a digital black market that the government cannot track, tax, devalue or manipulate. You could say the same about gold or diamonds, but being physical they have drawbacks as well, whilst crypto is more like an invisible monetary bearer bond.

I've argued previously that it's like a future contract for a commodity where the strike date is so far in the future that it will never actually be exercised. This seems pretty similar to the idea of an invisible monetary bearer bond.

[JohnB]

Kosovo ban cryptocurrency mining after power outages. https://www.theguardian.com/technology/ ... oin-miners

Iceland turns away miners for similar reasons. https://www.ndtv.com/business/landsvirk ... ls-2650373

[TheMotorcycleBoy]

NYC Mayor Eric Adams to receive first paycheck in cryptocurrency via Coinbase
Jan 20 (Reuters) - New York City Mayor Eric Adams on Thursday said his first paycheck, to arrive on Friday, will be automatically converted into cryptocurrency via Coinbase Global Inc (COIN.O).

The salary will be converted to Ethereum and Bitcoin, the statement added.

The mayor last year said he would take his first three paychecks in bitcoin and signaled his intention to make his city the "center of the cryptocurrency industry".

“New York is the center of the world, and we want it to be the center of cryptocurrency and other financial innovations,” Adams said in a statement.

Coinbase Global operates an exchange that enables people to buy and sell cryptocurrencies.

After his election in November, Adams also suggested that New York schools teach courses on cryptocurrency and blockchain technology, and, following a similar pledge from Miami Mayor Francis Suarez, promised to convert his first three paychecks to bitcoin.

Radical man!

from https://www.reuters.com/world/us/nyc-ma ... 022-01-20/