Buying Bitcon

If you believe in conspiracy theories or disbelieve in conspiracies, or if you invest in gold as a diversification hedge or if you hate gold, or if you fear for the future, fear inflation, fear deflation or fear for the value of the Dollar…, now is the time to invest in Bitcoin.  – The Lonely Realist

I recently decided to buy a chunk of Bitcoin. I know, I know. I’m the last person on Earth you expected to buy into cryptos. That’s because I’m the guy who counseled you not to. I was joking! Hahaha. So what if Bitcoin went from 14,000 to 60,000 in less than 12 months. It’s only money! Hahaha.

OK, OK. Mea culpa! And, yes, I’m also the guy who kept saying “Too risky, too risky” and “It’s all a sccaaaammmmmm,” echoing Warren Buffet, Robert Shiller, Jamie Dimon, Nouriel Roubini and so many others. Sure. But that was then and this is now! That was when I expected the U.S. Government, whether by hook or by crook – by rule, regulation, Fed policy, IRS fiat or Congressional action –, to outlaw cryptos. It was also when a far smaller cross-section of the public even knew what a crypto was and too few Americans were buying into the Crypto Craze. Now everyone’s a buyer! I was well-intentioned…, but I was wrong.

There. I said it.

China has been wise enough to outlaw cryptos. It recognizes that they’re a threat to its currency, the Yuan – particularly to the incipient digital Yuan –, and has addressed that threat head-on. It has a well thought-out plan for domination of the fiat currency world and that plan doesn’t include cryptos or the US Dollar.* It includes only the Chinese digital/crypto-Yuan. Several other countries are outlawing cryptos too. Unfortunately, at least for the U.S., America’s government is not that smart. It continues to believe that the Dollar’s “exorbitant privilege” as the global reserve currency will continue forever despite whatever actions that it or the Fed may or may not take that have the effect of undermining it  … and despite the potentially corrosive impact cryptos have on Dollar value and U.S. economic supremacy. The U.S. simply has decided to remain passive to the crypto threat and is taking its time before deciding whether a Digital Dollar would make sense. Of course it can take its time! There’s no rush! America reigns supreme and it and the Dollar always will! Absolutely! And as a result, America never needs to take any action to address currency cryptos and, frankly, I’m reasonably confident that it won’t …, ahem, that is, I’ve become reasonably confident that it won’t …, at least for awhile.

Having certainty about anything these days, whether economic, financial or social, is a sure sign of hubris. So …, call it a belated best-guess and we’ll leave it at that, hahaha.

In any event, that’s why I decided recently to buy Bitcoin!

Bitcoin has taken a nosedive this month, which for some is another indication of Bitcoin’s failure to provide owners with a stable store of value – an essential attribute of a “currency” they say –, but for others (including me) it’s presented a buying opportunity. Always buy the dip, right? Bitcoin has had any number of similar dips and has consistently rebounded (which reminds me of the new-age maxim that “What goes down must always bounce back up,” the investment mantra of 2021! Hahaha). Over the first weekend of December, Bitcoin lost one-fifth of its value and has rattled around that bottom for the last two weeks. Yeah, yeah, yeah, I know that the dictionary defines money as “a store of measurable value that can be widely used and accepted in transactions involving the transfer of goods and services” and that the wild swings in Bitcoin’s value technically disqualify it as “a store of measurable value” because measurements change sooo quickly and all-too-often …, but who created that definition? Bitcoin IS recognized by a whole bunch of investors as a “store of value” even if its measurement varies more than other currencies (except, for example, the Turkish Lira, hahaha). That’s why they’re buying it! And that’s why China’s government fears it!

Bitcoin for a great many is a “new currency” – a new form of money –, and it’s Bitcoin’s newness that makes it extremely volatile. The fact is that, like so many private companies that go public, a relatively small number of investors own a relatively large percentage of the Bitcoin float – they were the smart “early money” – and when they sell in any significant quantity, Bitcoin’s price naturally dives. Bitcoin’s small float means that it takes time for the public to absorb the large quantity of Bitcoins being sold. Some have speculated that this is what happened that first weekend in December when Bitcoin dived by almost 20%. What that means is that the Bitcoin market is “distributing,” a term used to describe what often happens when a new, privately-held investment asset hits the public markets. The public listing allows the founders to unload their equity which distributes ownership to public shareholders. For that reason, Bitcoin’s volatility more accurately should be viewed as the normal early stage in a maturing investable asset. It’s another reason to be a Bitcoin buyer!

OK, OK, so that also means that Bitcoin has been cornered by its early owners who now are promoting – and, quite possibly, also manipulating – the hell out of it in order to turn their Bitcoins into maximum Dollars. They’re getting out, which some Bitcoin-haters have characterized as a Ponzi-formula exit …, but then no one said that buying Bitcoin wasn’t a risk! Those who hold the bulk of outstanding Bitcoins bought into the Bitcoin Bubble early. Buying Bubbles Early is a proven-profitable strategy … as long as it’s coupled with selling them relatively early as well. That also may be what is happening with Bitcoin this month.

Yeah, I recognize that Bitcoin is closely-held and also isn’t widely-used – not yet, at least – and also that it isn’t accepted in very many transactions involving goods and services, but that’s an evolutionary process. It takes time for a new currency to be accepted in commerce and, importantly, cryptos continue to be the currencies of choice in the metaverse. Bitcoin payments currently also are accepted in the real-world by Tesla, Microsoft, PayPal, Whole Foods, Overstock, Starbucks, Home Depot, Burger King and many others. Bitcoin is gaining commercial traction!

Those who argue against Bitcoin insist that it’s a bubble. They compare it to historical bubbles like Tulipmania, the South Sea Bubble and the Mississippi Bubble (previously discussed here) because, in the final analysis, there is no underlying asset supporting it – no “there” there. For them, Bitcoin’s value is based on following the leaders, a mass delusion rather than an analysis founded on underlying asset value (referring to the 1841 classic Extraordinary Popular Delusions & the Madness of Crowds).

Ahh, but in that respect Bitcoin differs little from fiat currencies like the US Dollar. The value of fiat currencies – that is, government-issued paper – is based on the belief that the governments issuing them are legitimate, that those governments will continue to pursue sound fiscal policies, and that those governments’ political and military policies will be supportive of their currencies. The Dollar, after all, depends on belief rather than on the underlying value of the gold held at Ft. Knox …, which is worth less than $300 billion, a drop in the bucket compared to the tens of trillions of Dollars of U.S. obligations. All so-called national “currencies” are pieces of paper. Like Bitcoin, they are subject to belief … and because the world apparently has passed the tipping point on its belief in Bitcoin, I’ve climbed aboard!

Hmmmm. Wait! As has happened before, perhaps my climbing aboard is the sign of a top!

———–

* As The Economist noted in its conclusion to a December 11th editorial, Chinese President Xi is “is certainly doing everything in his power to develop an alternative [to the US Dollar].”

Finally 

Securities fraud defined: Westpac, one of Australia’s largest banks, recently was fined by Australia’s securities commission for charging deceased clients – dead people! – “for Financial advice services that were not provided due to death.”

Finally (from a good friend)

1 Comment
  • tronzi
    Posted at 09:19h, 19 December

    When the Lonely Realist buys Bitcoin either it has topped or the end is nigh. Why not stick with good old fashioned gold?

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