NewsThump explains BitCoin

From NewsThump:

"Look, if you want to invest in crypto, go for it. Personally speaking, I think fireworks are a much more entertaining way of setting fire to your money, but each to their own.

“But remember, the value of other people’s Bitcoin holding depends solely and entirely on your interest in buying it. There is no underlying or intrinsic value in Bitcoin. If you don’t buy it, or express interest in buying it, then they lose money – well, even more money – so take any advice to invest in Bitcoin from someone who owns Bitcoin with a sack load of salt.”

The slide back to zero continues unabated.

Classic head and shoulders formation

In technical analysis, which means recognising patterns in price charts of quoted shares or commodities, one of the most powerful signals is the head and shoulders pattern.

These can form over several months to two years. Basically, the longer the pattern takes to form, the more reliable it is.

Here's Bitcoin over the last five years, from msn:

Purists might argue this looks slightly different to the classic pattern, i.e. the left shoulder is higher than the right shoulder. Or whether we should be using a logarithmic scale. If you zoom in to the last six months, it could be a double top with a consolidation flag on the way down. Be that as it may, a head and shoulders over a one-and-a-half year time frame outweighs such minor niggles, and it looks like the tulip crypto bubble is finally bursting, as any sane person has expected all along.
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HMRC had an outbreak of common sense and updated their guidance on crypto-currencies. They decided that despite the name, crypto-currencies are not money or a currency, for the simple reason they are not backed by anything. I can't find the quote right now, it was something had to read up on at work. OK, apparently some issuers pretend they are a bank (how is that even legal?) and say that if you can't find a taker for your tokens, you can hand them back to the issuer for a fixed price. In real life, that's not asset-backed* as the issuer will have frittered away your money on something else, that's a Ponzi scheme (and how is that legal?).

* Despite what people say, a fiat currency is backed by something - demand for that country's currency:
- You can only use a country's currency to pay your taxes in that country.
- People will always have to pay taxes, so there will always be demand for your country's currency.
- Everybody in Country X could decide that their country's currency is a load of rubbish and decide to only use USD for savings and payments if they wished.
- Doesn't change anything, Country X tax office works out your tax bill in X-dollars and send you a demand in X-dollars which you have to pay in X-dollars.
- You then have to change the USD you have in your bank account for X-dollars and hand it over to Bank of X.
- So Bank of X will always be able to issue (print) more X-dollars, knowing that sooner or later, people will have to 'buy' them (i.e. hand over hard currency USD).

And they should know...

From the print version of the DT Business Section:-

Bitcoin an environmental disaster with no real worth, warns 'bank of central bankers'.

Quote:

Crypto currencies "are not backed by the assets and revenues stream of an established state.  Most can be rendered worthless by fraud or digital manipulation. They are essentially Ponzi schemes that masquerade as citizen currencies beyond government control."

Oh. Right. And just how well are those government controlled currencies doing then? £100 in 1945 buys what £4101 does in 2017 (https://www.officialdata.org/1945-GBP-in-2017).

Fun Online Polls: Bitcoin, Trump and Russian interference in the Presidential election.

The results to last week's Fun Online Poll were as follows:

Bitcoin is...

A decentralised digital currency - 25%
A massive great pyramid scheme - 63%
Other, please specify - 11%

A lot of people left a comment saying "both", with the benefit of hindsight, I should have included this as an option.

I'm with the majority on this, thanks to everybody who took part.

By the way, if you know how to sell Bitcoin, would you be so kind as to send me an email and explain? Ta!
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The whole Russiagate (are we calling it that yet?) saga rumbles on.

Originally, I assumed it was something that the Clinton team invented to discredit Trump, but now it looks as if Trump is really botching a cover-up i.e. there must be something in it.

So that's this week's Fun Online Poll.

"Did Trump collude with Russia in the 2016 Presidential election?"

Vote here or use the widget in the sidebar.

Fun Online Polls: Xmas songs and Bitcoin

The results to last week's Fun Online Poll were as follows:

Which is the most Christmassy Beatles-related song?

Beatles "Christmas time is here again" - 0%
John Lennon "Happy Xmas (war is over)" - 13%
Paul McCartney & Wings "Mull of Kintyre" - 2%
Paul McCartney "Wonderful Christmas time" - 36%
All of the above - 5%
None of the above - 38%
Other, please specify - 5%

I'd call that a narrow win for "Wonderful Christmas Time" (36% plus the 5% who voted "All of the above") with "None of the above" in close second place. Which is logically impossible answer, unless you believe all the songs listed to be exactly equal in terms of Christmassy-ness or un-Christmassy-ness.
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Steven-L's post of yesterday about Bitcoin has prompted this week's Fun Online Poll.

"Bitcoin is..."

Vote here or use the widget in the sidebar.

Popular delusions and 18 years on from the dotcom crash, like clockwork or coincidence?

Copy and paste from BTL over at Coindesk (click to enlarge)...

Responding to the thesis that the smart money may be about to run for the exit via selling bitcoin futures contracts, Dennis says:

"Even if I DID want to indulge in CME Bitcoin futures, why the hell would I want to settle in a rapidly devaluing fiat dollar??? As a trader, I don't even trade pairs with fiat any more. All of my trades today are for arbitrage on other cryptocurrencies."

To Dennis it doesn't matter if bitcoin is being pumped and dumped, because Dennis never wants to see his 'fiat' again anyway.  He's made his mind up it's worthless and he wants to keep his coins and tokens thank you very much.  

The comments over there are a goldmine, here's another taster:

I wanted to write something clever and witty, but I think I'll just repeat some of the above comments word for word.  At this level of irony and lack of self-awareness there's really nothing much I can add.

"Yeah, I read that no actually Bitcoin is involved in anything having to do with this new futures market.  So. Yeah. This whole new phase seems ridiculous."

"They create markets out of thin air and run a casino Las Vegas probably idolizes.  All the while they say everyone else is some sort of immoral degenerate gambler.  But yeah, the CME futures for Bitcoin have nothing to do with actual Bitcoin."

So is this a gigantic ponzi scheme or am I being cynical and simplistic?

A quarter of a billion bucks isn't bad for a crowdfunding:

Blockchain data storage network Filecoin has officially completed its initial coin offering (ICO), raising more than $257 million over a month of activity.  Filecoin's ICO, which began on August 10, quickly garnered millions in investment via CoinList, a joint project between Filecoin developer Protocol Labs and startup investment platform AngelList. That launch day was notable both for the large influx of purchases of Simple Agreements for Future Tokens, or SAFTs (effectively claims on tokens once the Filecoin network goes live).

As I understand it, an ICO is where people pledge actual money and established cryptocurrencies like bitcoins for new, non-established cryptocurrencies or 'tokens' as they are sometimes called.  I'm told bitcoins can still actually be exchanged for cash, but I've never knowingly met anyone who has successfully done so.  One can buy and sell (but not sell short) these cryptocurrencies on unregulated exchanges like Bittrex, here's a screenshot:

There are about a couple of hundred cryptocurrencies / tokens one can trade / swap with likeminded counterparties now.  All the little ones can be traded like an fx pair against the more established bitcoin or ethereum.  If you would rather trade against the dollar you can, well kind of.  You see you can trade against the US Dollar Tether, here's the screen shot:

Tether is a cryptocurrency that is pegged to the US dollar, except the peg isn't actually guaranteed.  Tether Limited (based in Hong Kong) do guarantee that 'tethers' will be backed by an equal amount of US dollars, but they don't guarantee to exchange them for you should you want to 'cash out'.  Presumably the Hong Kong regulators keep a close eye on the activities of this unregulated firm trading predominately in the USA.  Bittrex appear to insist you play their markets using only cryptocurrencies, including the tether.

So it's kind of like a computer game then?  Users deposit their dollars or euros or yen, change it into their chosen token, then try to swap their tokens with other users with the aim of increasing the number of dollars (or tethers or bitcoins) in their account.  You can even remove your tokens and buy into an ICO with them.  As nobody can go short (and a few people who invented these cryptocurrencies or got in early have the bulk of chips) there really is no limit on how high the prices can get.  Even if a bitcoin is worth a million dollars, grotty students in their pjs can still buy in for ten bucks and receive 0.00001BTC.  It's just numbers on a screen that the players are bidding higher and higher.  Online Texas Hold-em is so last decade!

I think the price of a bitcoin - or any of these other cryptocurrencies - could very well go to a million dollars.  After all, it's just a closed system of folk (and 97% men apparently) trading imaginary tokens with one other and they all want the reference prices to increase.  I reckon as long as more actual money is flowing into cryptospace (and into that bank account in Hong Kong and into these ICO's) than out, the prices of bitcoin and other cryptocurrencies will continue to rise and increasingly the participants will become paper rich.  But what happens when a significant proportion of them become millionaires and can retire aged 24 or just rich enough to want to cash out some and buy a car or a house?  

Is this is an over-simplistic analysis?  Is it really cynical of me to suspect that the people on the other side of this trade (the people swapping the tokens for actual dollars and euros and yen) will decide they'd rather hang onto the cold hard cash thank you very much and switch off their exchanges?  The only alternative explanation I can see is that a massive revolution really is happening where so many people will change all their cash into bitcoins and refuse to take part in the consumer economy until the politicians, bankers and shops have no choice but to start accepting them?  Have I missed something?

Economic Myths - Two in one column

Our Homey-in-chief serves up a double helping:

THERE is much to like about what Bitcoin stands for: free-market money, safe from the grabbing hands of a state that cannot wait to debase, devalue and decimate whatever currency it gets its hands on, destroying hard-working savers. For years now, techies of a libertarian bent have been doing their best to devise a workable digital currency that is genuinely distinct from existing fiat (or paper) currencies, and that is separate from the mainstream banking and financial infrastructure.

Bollocks.

He manages to be wrong on several levels at the same time (perhaps the Homeys and Faux Libs do this for sport?):
- "Money" or "currency" is not a thing in itself. It is a unit of measurement. And what it measures is indebtedness between two parties, i.e. one party owes the other party money.
- Therefore "money" is only worth as much as the borrower's (the issuer's) willingness and ability to pay, therefore ALL money or currency is "fiat" currency. G-d I hate that expression.
- The "state" can grab money directly by levying taxes. Income denominated in non-domestic currencies (like Bitcoin) is taxable income just like income denominated in sterling or payment in kind (company car benefits, for example).
- The "state" can also grab money indirectly by allowing privileged monopolists to charge "rent". Unlike traditional tax and welfare, where the government is an intermediary which collects and doles out the cash, with "rent", the money goes directly from private pockets to private pockets, but without the government (or a stable nation-state) to underpin the whole system, these transfers would not happen.
- The reason why governments like to "debase, devalue and decimate" (i.e. stoke inflation) is to keep the housing bubble going, at least in nominal terms. For sure, they are transferring wealth away from "hard-working savers" but so are all landowners, that's inherent in the system. Funny how he never mentions that.
- It was the UK government which invented sterling, nobody is forced to use it in everyday life. When trading with each other, we can use anything we like as a currency. Your employer can replace part of your salary with 'free' accommodation and a company car. Businesses can barter with each other. So in those terms, the UK government is perfectly entitled to trash its own currency.
- Bitcoin is a fiat currency like anything else. The government could, if it wished, issue coins and notes, or bonds, denominated in Bitcoins. If people think the government is a reliable borrower, they will be happy to use those coins and notes or to invest in those bonds. So in that way, the government can gets its hand on Bitcoins like any other currency.
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Britain needs to move away from a rental model exclusively dominated by amateur landlords operating cottage industries to one where large, modern, professionally managed institutional property firms offer many thousands of properties for tenants. That is the future for Britain's generation rent and one way in which the crippling mismatch between demand and supply will be partially rectified.

Yes, it is true that large institutional investors might end up offering a better service and longer/more secure tenancies than small landlords, and superficially, supply ought to mean lower prices... but does it?

It's difficult to think of an analogy for how supply and demand actually work in the rental (or home buying) market; but ultimately it's like saying "Sticks are cold and fire is hot. So we can cool the fire down by adding more sticks." This is a useful analogy in another respect; the fire is the result of there being lots of stick together in one place; you cannot work out which stick the flames "belong" to by taking out one stick, observing that it stops burning and then replacing it and taking out another. In the same way, the rental value of urban locations is down to the sheer number of people and businesses in that small area.

1. The total rental value of UK land is quite simply the total size of all the value created in the economy minus the "basic minimum" which is the minimum return businesses require to stay in business, or the minimum lifestyle which people are prepared to accept. Everything else goes to rent, we just don't notice most of it because owner-occupiers don't pay rent to themselves in cash.

2. The relative rental values of different locations depend on how favourable they are, which means mainly rents are higher where wages are higher. And the more people there are, the higher wages are (denser population = agglomeration and more specialisation etc). Build more homes and business premises, you get more people and more businesses and rents go up. Even assuming a fixed number of people, if more homes become available (to buy or rent) then people will always trade up rather than down; they will trade up to higher wage areas and end up paying more rent.

3. In the absence of planning restrictions, towns would expand outwards until the outermost homes are in marginal sites with a zero rental value, i.e. where the distance from the centre cancels out the advantages of being near a town. Every location which is closer inwards than that has a positive rental value. So while you can keep rents down to zero at the margin, the bigger the town and the more people there are, the higher the rental values in the centre. Thought experiment: once London reached a population of 100,000, there was a complete ban on any new construction. So people would have ended up in Birmingham or Leeds or Manchester, so the rents which are currently being collected by owners of central London land would be collected by owners of central Birmingham etc land.

4. So people are paying rent to be near other people. So ultimately, "supply of" and "demand for" whatever it is you get when you pay rent (what do you get, really? Is there a name for it?) is the same thing. Even if newcomers are offered a special deal, like below market rent social housing, that will ultimately push up the rents for everybody else (which is good if you own land and disastrous if you don't).