Bubblicious Bitcoin

Lately several financial news shows have been going gaga over the way Bitcoin is rising.

This raises the question of what the real future “value” of Bitcoin will be.

Which gets to the question of what is money and what determines the value of a currency.

First, fundamentally ANYTHING can be used as currency. Things with inherent value are in some ways better, since if the central authority backing a fiat currency goes away, the currency does too… Islanders have carved rock donuts, folks have often liked using rare metals as currencies. Now, for most of the world, we’re OK with little pieces of pretty printed paper. Go figure.

So there isn’t anything that inherently prevents the virtual value of Bitcoin from rising. Yet it is a very sterile asset that only has obscurity and compute costs to give it value.

Yet globally governments are assaulting currencies. (Why? Well, that’s more for the political class to answer…) India recently withdrew the “large” bill that made up near 90% of their currency. IIRC, their max note is now about $2.50 value. Euro land has withdrawn the €500 note. The USA is requiring reporting of ever smaller units of currency at banks. Given that context, there’s ample need for a generic medium of exchange beyond the reach of any given government.

So a computed “Block Chain” with validity checks built in has merit as currency.
But… what are the problems?

1) It has NO inherent or real value. Copper can be made into electronics and both silver and gold can be made into jewelry or other goods. Yet paper money also has no inherent value.

2) It is not backed by any official agency or government. We’ve seen both big rises and big falls in the “value” of a Bitcoin. Left to only market forces, without Central Authority “management” the value can and dose change rapidly. Plunging with the FBI confiscation of a wad of Bitcoin when Silk Road was busted, shooting up as the Financial System has come to discover it.

3) The USA, at least, has declared them a Capital Good so you get to file capital gains and losses on every transaction. Basically, the IRS has decided on the “Annoy the hell out of them and make THEM report transactions” strategy to criminalize the “anonymity” factor, so every transaction must be adjusted and tracked to your taxes where you must account for all those loverly SPAM ‘n Eggs dinners on offer…

4) ANYONE can create a cryptocurrency, and they have. But the “Land Rush” is only beginning. Just like anyone can print “store coupons” or I.O.U.s, but in this case the I.O.U. can’t be redeemed from the issuer…

So Bitcoin has run up from near $1k to near $4k in a hurry. OK, that’s a bubble… Admittedly, one driven by governments trying to abolish cash larger than a cup of coffee and a doughnut… But can it continue? Hell yeah! It can continue right up to the point where it becomes a crash and folks all want out at once…

Here’s a chart of BitCoin Index from Bigcharts:

BitCoin NYSE Index

BitCoin NYSE Index

Price rocketing up and well away from the SMA Stack – classic OMG warning posture. MACD has that “alligator head” shape it gets on an overshoot to flat (that may proceed long steady up but also frequently means ‘about to go down’). Momentum “way high” but declining from a peak. ADX/DMI shown near 40 (black line ADX) momentum – way above the usual 20 to 30 or the calm ‘below 20’. Yet the top blue line looks like it’s formed a peak and is declining while red it turning upward.

Sure looks bubblicious to me…

Others Join The Money Printing Parade!

https://en.wikipedia.org/wiki/List_of_cryptocurrencies

Lists many more cryptocurrencies. Others have seen that anyone can make one of these:

List of cryptocurrencies

From Wikipedia, the free encyclopedia

This is a list of cryptocurrencies. There were more than 900 cryptocurrencies available over the internet as of 11 July 2017 and growing. New cryptocurrency can be created any time. By market capitalization, Bitcoin is currently (2017-08-19) the largest blockchain network, followed by Ethereum, Bitcoin Cash, Ripple and Litecoin.

Release 	Status 	Currency 	Symbol 	Founder 	Hash algorithm 	Timestamping
(POS, POW, or other) 	Notes
2014 	Active 	Auroracoin 	AUR 	Baldur Odinsson
(pseudonym)[2] 	Scrypt 	POW 	Created as an alternative to fiat currency in Iceland.
2009 	Active 	Bitcoin 	BTC,[3][4] XBT 	Satoshi Nakamoto[nt 1] 	SHA-256d[5][6] 	POW[6][7] 	  The first decentralized ledger currency. Cryptocurrency with the most famous, popular, notable and highest market capitalization.
2017 	Active 	Bitcoin Cash 	BCH 		SHA-256d 	POW 	Hard fork from Bitcoin
2017 	Active 	BitConnect 	BCC 		Scrypt[8] 	PoW & PoS[9] 	The community driven decentralized cryptocurrency that allow people to store and invest their wealth in a non-government controlled currency, and even earn a substantial interest.
2014 	Active 	BlackCoin 	BC 	Rat4 (pseudonym) 	Scrypt 	POS 	Secures its network through a process called minting.
2014 	Active 	Burstcoin 	BURST 	Burstcoin Community 	SHA-256d 	Proof of Capacity 	First Proof of Capacity coin, First Smart Contract, First Atomic Cross Chain Transfer.
2014 	Inactive 	Coinye 	KOI, COYE 		Scrypt 	POW 	Used American hip hop artist Kanye West as its mascot, abandoned after trademark lawsuit.
2014[10] 	Active 	Dash 	DASH 	Evan Duffield &
Kyle Hagan[11] 	X11 	POW & Proof of Service[nt 2] 	A bitcoin-based currency featuring instant transactions, decentralized governance and budgeting, and private transactions.
2013 	Active 	Dogecoin 	DOGE, XDG 	Jackson Palmer
& Billy Markus[12] 	Scrypt[13] 	POW 	Based on an internet meme.
2014 	Active 	DigitalNote 	XDN 	XDN-dev team, dNote[14] 	CryptoNight[15] 	POW 	A private cryptocurrency with an instant untraceable crypto messages and first blockchain banking implementation, use CryptoNote protocol.
2013[16] 	Active 	Emercoin 	EMC 	EvgenijM86 & Yitshak Dorfman 	SHA-256 	POW & POS 	Trusted storage for any small data: acts as an alternative, decentralized DNS, PKI store, SSL infrastructure and other.
2015 	Active 	Ethereum 	ETH 	Vitalik Buterin[17] 	Ethash[18] 	POW 	Supports Turing-complete smart contracts.
2015 	Active 	Ethereum Classic 	ETC 		Ethash[18] 	POW 	An alternative version of Ethereum[19] whose blockchain does not include the DAO Hard-fork.[20][21] Supports Turing-complete smart contracts.
2013[22][23] 	Active 	Gridcoin 	GRC 	Rob Hälford [24] 	Scrypt 	Decentralized POS 	The first cryptocurrency linked to citizen science through the Berkeley Open Infrastructure for Network Computing[25][26]
2015 	Active 	IOTA 	IOT, MIOTA[27] 	... 	Curl 	... 	The first cryptocurrency using the Tangle, a next generation blockchain, as distributed ledger technology.
2011 	Active 	Litecoin 	LTC 	Charles Lee 	Scrypt 	POW 	The first cryptocurrency to use Scrypt as a hashing algorithm.
2014 	Active 	MazaCoin 	MZC 	BTC Oyate Initiative 	SHA-256d 	POW 	The underlying software is derived from that of another cryptocurrency, ZetaCoin.
2014 	Active 	Monero 	XMR 	Monero Core Team[28] 	CryptoNight[15] 	POW 	Privacy-centric coin using the CryptoNote protocol with improvements for scalability and decentralization.
2011 	Active 	Namecoin 	NMC 	Vincent Durham[29][30] 	SHA-256d 	POW 	Also acts as an alternative, decentralized DNS.
2014 	Active 	NEM 	XEM 	UtopianFuture (pseudonym) 	SHA3-512 	POI 	The first hybrid public/private blockchain solution built from scratch, and first to use the Proof of Importance algorithm using EigenTrust++ reputation system.
2014 	Active 	Nxt 	NXT 	BCNext
(pseudonym) 	SHA-256d[31] 	POS 	Specifically designed as a flexible platform to build applications and financial services around its protocol.
2013 	Active 	Omni 	MSC 	J. R. Willett [32] 	SHA-256d[33] 	N/A 	Omni is both digital currency and communications protocol built on top of the existing bitcoin block chain.
2012[6] 	Active 	Peercoin 	PPC 	Sunny King
(pseudonym)[34] 	SHA-256d[35] 	POW & POS 	The first cryptocurrency to use POW and POS functions.
2014 	Active 	PotCoin 	POT 		Scrypt 	POW 	Developed to service the legalized cannabis industry
2013 	Active 	Primecoin 	XPM 	Sunny King
(pseudonym)[34] 	1CC/2CC/TWN[36] 	POW[36] 	Uses the finding of prime chains composed of Cunningham chains and bi-twin chains for proof-of-work, which can lead to useful byproducts.
2013 	Active 	Ripple[37][38][39] 	XRP[39] 	Chris Larsen &
Jed McCaleb[40] 	ECDSA[41] 	"Consensus" 	Designed for peer to peer debt transfer. Not based on bitcoin.
2015 	Active 	SixEleven 	SIL 	fflo (pseudonym)[42] 	SHA-256d 	POW 	Also acts as an alternative, decentralized DNS.
2011 	Active 	SwiftCoin 	STC 	Daniel Bruno, Chartered Market Technician
[43] 	SHA-256 	POW 	First digital coin with theoretical value based on the work required to produce electricity. First block chain to support currency creation by interest paid on debt. Solidus Bond proto smart-contract. One of the first digital coins patented in the US. First block chain to support encrypted mail with attachments.
2014 	Active 	Synereo AMP 	AMP 	Dor Konforty & Greg Meredith[44] 	POS 	POS 	Trying to create a world computer, Synereo’s 2.0 tech stack incorporates all faculties needed to support decentralized computation without central servers.[45]
2014 	Active 	Titcoin 	TIT 	Edward Mansfield & Richard Allen[46] 	SHA-256d 	POW 	The first cryptocurrency to be nominated for a major adult industry award.[47]
2017 	Active 	Ubiq 	UBQ 	Julian Yap[48] 	Ethash[18] 	POW 	Supports Turing-complete smart contracts; air-gapped fork of Ethereum
2014 	Active 	Vertcoin 	VTC 	Bushido 	Lyra2rev2 	POW 	Next-gen ASIC resistance and first to implement stealth adresses.
2016 	Active 	Zcash 	ZEC 	Zooko Wilcox 	Equihash 	POW 	The first open, permissionless financial system employing zero-knowledge security.

I’m waiting for Paramount / CBS to create Quatloos and only accept them for StarTrek payments… ;-)

Yes, there’s a limit on how many of any one kind can be “mined” for those using ‘proof of work’ methods. As of now, for BitCoin, the electricity needed to “mine” a new coin with a regular computer exceeds the value. Most “miners” have even moved on from GPU based computes to dedicated ASICs of some sort. So just start your own new CryptoCurrency and start mining it…

While I like the idea of electronic cash, the simple truth is that it is just another fiat “money” and can become worthless overnight. Either by government mandate, or by people just walking away from it.

To me, the present rush upward in the exchange rate for a BitCoin just shouts:
“BUBBLE Happening Now!!! GET OUT!!!”.

Your mileage may vary. I’m not offering financial advice. It maybe be God’s Gift for whatever you are doing. Do what you want and don’t listen to Some Guy on the internet… but don’t try to sell me a BitCoin either. I’m not into chasing bubbles…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money. Bookmark the permalink.

22 Responses to Bubblicious Bitcoin

  1. Larry Ledwick says:

    Bit Coin strikes me a too much like a classic pyramid scheme. The early in miners had relatively cheap production costs (ie it took relatively little compute effort to mine a bit coin), then as time passes, it gets progressively harder to mine new bit coins. That is a setup for a pyramid style behavior. Some of the early miners would have a boat load of coins and now all they have to do is sit back and watch them appreciate, then at some future time, quietly liquidate their holdings (the anonymity makes this particularly easy / dangerous because they can do it out of view of the public).

    Take their holdings and put them into real assets like land or something similar, and then start a new cryptocurrency and do the same thing – first in make a bundle then let others push up the value over time.

    That and the fact it is a totally synthetic currency (ie had no real physical limits like electronic funds). That means that if a crash develops the collapse will be nearly instantaneous, not even limited by how long it takes folks to drive to an ATM machine or visit their bank to pull out funds.

    Third it would be an ideal way for governments to move money covertly, and of course of high interest for them to monitor and try to hack the system some how so they can see others payment histories. That means there is very high risk it is going to be under significant pressure to be abused or manipulated by someone (organized crime, big banks and stock houses, governments etc. – – basically a who’s who of those who have the capital and infrastructure to completely swamp the average bit coin miner.

    I could see some entity like North Korea or Iran getting into it with over whelming computing resources as a means of acquiring revenue and ability to buy restricted resources. Then at some point pulling the plug on the currency to hurt the western economies. What happens if the total value of bit coins is wiped out over night? Right now that value is $42 billion dollars but over time will only get bigger.

    http://www.marketwatch.com/story/how-big-is-bitcoin-really-this-chart-puts-it-all-in-perspective-2017-06-21

    But bit coin is not the only player, right now there are at least 1000 crypto-currencies with a total value of approximately $156,243,628,868

    https://coinmarketcap.com/all/views/all/

    Just like Seti at home quickly got buried by very large computing labs, where the average geek who was trying to get a good score suddenly had no hope of competing with those leaders.

    Folks like me who had out of pocket built Seti at Home clusters and run them for a year ranking in the high 90% of all contributors suddenly were hopeless also rans as folks like Microsoft, Intel, Compac, Sun Micro and other corporate entities jumped in for bragging rights, and could process more work units in a day than average folks could in months.

    Take for example a large insurance company or other computer rich business, if they ran a crypto-currency mining app in the background on all their business pcs using idle cycles, suddenly you have a huge influx of computing resources beating on the crypto-currency mining problem. In this case it would be essentially cost free because many companies leave their office computer resources on 24x7x365

    I can’t put my finger on a specific risk scenario, but it just smells dangerous to me!
    Especially for average Joe user if he puts too much of his wealth into it, and suddenly is at risk of being wiped out over night if some event crashes the value of the currency.

    The financial crash of 2008 cost home owners $9.1 billion which is only 6% of the current value of all crypto-currencies. Total losses were some where between $10 Trillion to $22 Trillion depending on which source you go to, so total crypo-currency value is just now breaking into the bottom range of what a massive world wide financial crash can do to public wealth holdings.

  2. pouncer says:

    I don’t have a bitcoin or a dog in the fight. But I had somehow, back when, gotten the impression that the “value” of the number being so painstakingly calculated was that a newly identified very large number could be (though not necessarily would be) used in lobster-pot cryptography. Any data can be walked into the pot with a description — frex: “a 2713 digit prime number including 816 instances of the numeral 5” — but no data could be escape out of the pot without using the exact number.

    The use of the very large specific, and non-numerically described, numbers was said to have actual market value, or so I seem to remember being told.

    Was that a real thing that I mistakenly imagined into the bitcoin project?

  3. Soronel Haetir says:

    My problem is on the acceptance side, especially with the vast number of crypto-currency offerings. How many sellers are willing to take random currency XXX as payment? If sellers won’t take it I don’t care how much it is purported to be worth.

  4. I can’t see the value. Some people tell me that the computing power that is necessary to calculate the number gives it the real value, but that’s really the same as pouring a bottle of wine down the drain and then issuing a coin based on the value of the wine thrown away. The coin has value because the wine was thrown away to be able to issue it?

    Since I’m paid the pension in pounds and spend the money in euros I’m maybe somewhat more aware than most of the variability in even government-issued fiat currencies. Add to that the various grabs from the Cyprus banks and the various bitcoins look like as good a store of value as the cat’s litter-box.

    This looks like a bubble based on absolutely nothing to me. I can thus see all the bitcoins suddenly being worthless (once the original miners have cashed-out, of course, and converted their promises into “real” (though still fiat) money that more people will accept) and some very red faces from people who have invested because the value is rising.

    Governments are of course getting into it – see http://www.bbc.com/news/technology-41047744 for the Estcoin from Estonia. Not quite so untraceable as Bitcoin, though. Unsurprisingly.

    Of course, with automation coming in something will need to be done about keeping goods circulating, and to avoid overconsumption of resources as things become effectively free (no human work involved). I’m not sure of the best way of doing this, but the money will no longer represent, say, a pound of Sterling Silver but instead will need to be based on *something else*, whether that’s pork-bellies or whatever. The change will be interesting to watch, but I think the Bitcoins Bubble will be bursting fairly soon – it doesn’t represent anything at all.

  5. jim2 says:

    I wonder if Soros has gotten into the bitcoin business to fund his ruination of the Western world.

  6. p.g.sharrow says:

    @Larry, interesting article on “zombie” Bitcoins.
    The Bitcoin experiment has been an educational tool in electronic currency creation and use. Specially because it is based on nothing of real wealth, just a place holder that people bid on in computer programs to represent wealth. There seems to be quite a demand for an , non-governmental,exchange system as well as a way to measure wealth in a manner that can’t be manipulated by government bureaucrats…pg.

  7. cdquarles says:

    No thing has an inherent economic value, though. All economic values are subjective marginal use value and that is the ‘inherent’ value. It inheres to the person who holds it, only to the person that holds it, and that value is subject to floor to ‘out of this world’ swings.

  8. philjourdan says:

    @P.G. – it is not “non-governmental” per se, but anonymity that drives the value of bitcoin.But since governments can monitor their own currency, yes, it is non-government as well.

  9. E.M.Smith says:

    @CDQuarles:

    But some things have much greater inherent utility. Yes, some folks won’t eat fried chicken, others won’t touch mashed potatoes, but the overall demand for them is much greater than for oak leaves in fall, for example. True, if lost in a cold forest, I’d rather have the leaves to stuff in my clothing as insulation night one, but by day 3 the fried chicken is going to win….

    Or compare gold to iron slag. For most folks the pretty gold will win.

    A bitcoin has no inherent utility that I can see, only notional utility for fantasy value.

    @Pouncer:

    One of the cryptocurrencies has you calculate more digits of Pi, so tries to claim some value to the computing. Though we long ago past the point where more digits were really usable for anything. Per Bitcoin propper, IIRC they just calculate hashes. Maybe useful for some kinds of code cracking, but most likely not.

    @Simon D.:

    Now THAT’S a currency I can get into. Units of Glass, Bottle, and Jug. You earn one unit for each verified empty you post… (drain need not apply until hours after draining :-) Let’s give credit where credit is due to all those hard drinking drunks of the world!

  10. p.g.sharrow says:

    Well, it has started. Looks like we will have to take a pile of silver billion in exchange for a debt as the debtor can’t get the needed cash together.
    A note to those in California:
    The State Franchise tax Board has started seizing bank account funds to fill the states cash shortfall. Expect the governor to brag that they have found enough “extra” taxes to balance the budget. Not the first time that this gambit has been sprung, specially on small businessmen…pg

  11. Paul Hanlon says:

    I once mined Litecoins, I still have nine left in a wallet somewhere. All of the points that Chiefio makes are absolutely valid. No inherent value, anybody can create one, and that is probably what will happen further down the line. You’ll get Central Banks, and even large companies like Google and Amazon issuing their own (imagine Berkshirebucks), and acting as buyer of last resort to underpin them.

    By that time, all of the problems with crypto-currencies will be known, and they will have ironed out most of those, and will, as Simon points out, have better tracking capabilities :-(. The economics of going over to that type of system will be too compelling not to. Handling cash costs a fortune. It will also allow a global currency, and from there a global government, so two steps forward and one step back.

    As for Bitcoin, I think it will still have some place in the order of things, but it won’t be pre-eminent. People will keep some of it around, for the odd ‘dodgy’ purpose. The size of the area in which the coins are mined is 256^256, but I’d say that the permanent crypto-currencies will be based on 1024 bit hashes, for more security.

  12. cdquarles says:

    @ EM, about inherent utility, well, yes; yet still it is that utility resides only in the mind of the holder. From that, demand is both the number of people who value it and how badly they want it. Only the first is measurable. The second is felt and results in decisions.

  13. David A says:

    Not certain how utility is only in the mind of the holder.

    Yes a mad man may not want water, or care if he reaches the surface ad his lungs burst under water. Yet air and water have intrinsic biological utility, and all sane people want both.

    I have a relative who believed all the lies about the N.D. pipeline and fairly shouted at my 91 year old Dad that “water is not a commodity.” He gave a shrug and said” well you can believe that, but the history of the world disagrees.”

  14. cdquarles says:

    @ David, it is easy, particularly with respect to economic values. You have needs. These exist only in your mind. You want to meet them. These also exist only in your mind. You make, buy, or do without the means to your ends. Only you, in your mind, can evaluate whether the means exist and can meet your ends.

  15. cdquarles says:

    And yes, survival needs are the most strongly felt.

  16. David A says:

    Well I guess it is true that if I had no counciousnes I would feel no needs. Yet that appears trivially obvious, and does not negate a distinction between necessary necessities, biological and emotional necessities that appear u

  17. E.M.Smith says:

    @cdquarles:

    As near as I can tell, your point reduces to:

    “Without a brain you can’t have economic utility”… a point I don’t dispute.

    However, given that we all DO have brains, and thus recognize the need for things like air, water, food, clothing, housing, and even entertainment, I’m not seeing the “utility” of your point…

  18. David A says:

    ….appear somewhat universal, and unnecessary necessities which appear whimsical and give no lasting satisfaction.

  19. cdquarles says:

    Not all values are economic values. Economic values can overlap with other values. Values, still, exist within each person’s mind. That these may overlap with others does not change where the foundation is and what the foundation is.

  20. E.M.Smith says:

    China just banned Bitcoin Exchanges. Looks like the government assault on free commerce is at lift off point in China…

    China has capital controls and hates the idea folks could move their money out of China without official permission and control. Now watch for others to follow suit. The USA did the tepid “make it a capital gains item’ move as an opening gambit. China is letting you use Bitcoin, just not exchange them for other currencies… for now. I suspect the “ban what we don’t like” will pick up speed from here. Eventually, when folks ignore them or work around the limits, it will be criminalized. Force of criminality is the final resort of the scoundrels in charge Official Governments of the world…

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