RIP Gold. Killed by Bitcoin

Yves here. I am loath to give either Bitcoin or the current widespread investor belief that big time inflation is upon us any attention. However, the things I really want to talk about take a bit of work, and I’m buried by administrativa that is getting in the way of girding my loins to do some serious writing. So this piece verges on fluff, save for the absence of animal pictures.

However, one good reason is the specter of Peter Schiff getting a comeuppance. I had the misfortune to meet him in person when I was doing an SBS Australia show via remote camera in NYC. Schiff was also on and we were next to each other, staring into the camera. Not only was Schiff astonishingly rude to me (as in even before the show got underway, this wasn’t the result of on-air sparring), he was appalling in his behavior towards the SBS host and another guest, the #2 in the Australian Treasury. He interrupted both, repeatedly. Had I been the host or a producer, I would have cut the camera to New York and dressed him down. But this was a live show and the host had apparently never contended with a an out of control jerk as a guest.

Normally people in the money management business are exceedingly polite, or at least not rude, because you never know who knows who. That waiter might be an actor with rich parents who belong to an important club, and he could take revenge if you treat him poorly through his parents’ extensive and well-connected contacts.

Schiff ran horrifically undiversified portfolios in the runup to the crisis, betting heavily on foreign currencies and gold (buying junior Australian mining shares!) since he believed the US housing crash would lead to a dollar collapse and hyperinflation. Mind you, narrowness of the portfolios he ran was on the criminal edge of incompetent. He delivered 40-70% losses in 2007 and 2008. So despite getting the key element of the big picture right, he got everything else wrong.

So how does his spectacular rudeness fit in? Have you heard the theory of Nigerian scam letters, and their many follow on variations? (I’ve gotten missives from Janet Yellen, Steve Mnuchin, Jaime Dimon, and Ben Bernanke. I was particularly impressed by the one from Mario Draghi). As Business Insider explained back in 2014:

According to new book “Think Like A Freak,” a follow-up to the popular “Freakonomics” by Steven D. Levitt and Stephen J. Dubner, the scam’s obviousness is its chief selling point….

Levitt and Dubner explain the genius behind such an obvious scam in terms of “false positives,” referring to email recipients who engage with the scammers but don’t ultimately pay. Reaching out to scores of potential victims isn’t much work, thanks to the ease of email, but with each reply from a gullible target, the scammers are required to put forth a little more effort.

Therefore, it’s in the scammers’ best interest to minimize the number of false positives who cost them effort but never send them cash. By sending an initial email that’s obvious in its shortcomings, the scammers are isolating the most gullible targets. If you trash their email, that’s fine. They don’t want you, someone from whom there’s virtually no chance of receiving any money. They want people who, faced with a ridiculous email, still don’t recognize its illegitimacy.

Schiff appears to be a similar sorting mechanism. His seemingly pointless nastiness would deter potential clients who’d want to do real due diligence on his track record and portfolio construction, since anyone who did that would run the other way. Instead, he’s filtering for naifs who are taken with his libertarian doomsterism and don’t know enough about finance to even think through how to vet him.

Note that the author, David Llewellyn-Smith, was a gold trader in one of his former incarnations, so this is a topic of personal interest (I suspect Schiff as well as gold). However, I don’t put Schiff versus Mark Cuban in Godzilla versus Mothra terrain. More like Punch and Judy.

By David Llewellyn-Smith, Chief Strategist at the MB Fund and MB Super and the founding publisher and editor of MacroBusiness. Previously, he the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. Originally published at MacroBusiness

Some interesting tweets from various financial mavericks overnight on the ongoing gold versus Bitcoin debate. Pater Schiff versus Mark Cuban:

Some muddy thinking there. If BTC turns you into a banker, then it obviously competes (that is, threatens) other bankers. This is the conundrum that confronts all private currencies. The more they succeed the closer they get to failure as the threat to existing issuers of currency grows. This includes every nation-state.

So, to the extent that BTC is a medium of exchange, it is therefore doomed, and that argument can’t be used to justify its role as a store of value like gold.

Can the store of value argument hold up for BTC without it being a medium of exchange? It has for gold for thousands of years so quite possibly. Gold is money but it’s not readily usable currency. BTC could be considered in the same light.

The artificiality of BTC’s value is a problem. It can be argued using cultural relativism that gold is no more intrinsically valuable than BTC. But it does have a long history, especially as a reserve currency, that must be worth something. Can we see central banks buying BTC? Certainly not if it develops as a parallel medium of currency that undermines them.

Likewise, gold is the outcome of production. BTC consumes resources to produce nothing. Not that that is necessarily a problem in a virtual world but it again weighs against the perception of BTC as a store of value. So does the fact that BTC is a truly useless item if some kind catastrophe befalls society which does underping the value of gold in some measure.

As well, if BTC is a store of value then in relation to what? If it is “digital gold” then it should respond to the same price inputs. Real interest rates and the value and stability of the prevailing reserve currency should determine its value. So far, that has kind of been the case but if it keeps going up now as real rates rise and the USD turns higher, which is why gold is falling, then BTC starts to look a lot more a free-floating ponzi-scheme.

One thing I can agree on with Mark Cuban is that, for the time being, the lure of BTC has proven strong enough that it has killed gold as the reflation metal.

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  1. CommonSense

    Proof you’re ‘clueless’ on to the value of Gold. Gold is used in so many industrial products and Silver is too… Without them there would be no computers or internet or solar industry or even light switches.

    Bitcoin is nothing but a math problem that is very expensive to process and uses a tremendous about of electricity whos per transaction cost continues to rise hourly! But what is it physically? Bitcoin is NOTHING its a phantom electron a code stored on the internet….it has no physical form and costs NOTHING to create….its intrinsic value is absolutely zero.

    Eventually people will get over the ‘fad’ and see its real value….Z E R O.

    1. Yves Smith Post author

      You’ve just made clear you have a serious reading comprehension problem, or at best didn’t get past the headline. Commenting without reading a post in full is a violation of our written site Policies. You either did that or straw manned big time, another violation of our site Policies. You made an attack on a post author, yet another violation.

      Your comment demonstrates why I don’t like posting about either gold or Bitcoin. They bring out the fools and the diehards.

      Regardless, you’ve just massively put your foot in mouth and chewed. Take your off-base vitriol elsewhere.

        1. Yves Smith Post author

          He asked for it. Comments that utterly misrepresent a post and even worst, the very first one, are absolutely not on, since they too often poison the entire discussion.

          I normally would have trashed his remark but thought it better to make an example of him pour décourager les autres.

          And when someone comes on this strong as the first comment in the middle of the night, it’s not hard to imagine they have keyword alerts and are acting as self-designated enforcers. We’ve seen a lot of this on a wide range of topics, such as union-haters who were clearly had never read NC, before back in the days of the Scott Walker fights.

          1. Dr Sloper Waz Robbed

            Double ouch!

            I know I am not supposed to post when all I have to say is ‘right on!'(I have read the rules), but I’ve never thought of that re keyword alerts/self-designated enforcers; that’s funny/sad.

            With NC I’m caught in a funny situation where I have never read the comments section of a website so thoroughly, but I don’t have the chops (yet, maybe) to add to anything that is said here. Those 2 things are related.

            An affinity scam for Libertarian Doomsterist Supersoldiers(LDS). Surely part of it with bitcoin.

            1. Yves Smith Post author

              I appreciate your caution and thanks for piping up!

              Further: last week, Lambert put up a bitcoin cross post from VoxEU. It wasn’t so hot but I can see why he posted it, pickings were very thin. I would have written a long prophylactic intro.

              So readers correctly jumped on some of its not fully worked out ideas.

              Some comments were still really off base. Some others were thoughtful and ~75% correct, but had stuff about Bitcoin that wasn’t correct, like how the blockchain and wallets work, or issues with transactions. I felt really bad about not approving a fair # of the latter sort of comment, but I just didn’t have the bandwidth to engage in the needed interventions.

      1. ChrisAtRU

        “Your comment demonstrates why I don’t like posting about either gold or Bitcoin.”

        LOL … Right?! Every FamilyBlog time. GoldBugs and Hodlers are cousins cut from similar cloth … each believing that their elixir vitae will save them from death by worthless fiat! :-)

        Thanks for the lead in, the article and for a good laugh … :)

      2. hidflect

        I’m invested in a range of gold mining companies and I despair every time Schiff posts a tweet about gold. He just reinforces the view that gold holders are cranks.

  2. Miami Mitch

    I have had a thought about Bitcoin this morning. That its value might be in direct relationship to an energy crisis, maybe a hidden one which could be revealed soon.

    If they discover a source of free energy the price of Bitcoin will fall to practically zero and even the early investors get screwed. The rarity is not in the difficulty of computation, but the energy needed for the computation.

    So is this the reason everyone is getting jazzed about bitcoin? Maybe they know what the real future scarcity is; energy.

    But this is true for everything I guess but bitcoin just made it more real to me.

    This thought has me worried in a deeply existential way. Energy makes things rare, nothing else. So is all money really a store of energy?

    1. cocomaan

      Interesting points about energy scarcity!

      If you ask Marx, money is congealed labor power. Ultimately, seems to me, money represents calories.

    2. Nighttime Guinness

      It takes orders and orders more magnitude of an energy event to actually create gold (neutron star mergers). Perhaps BTC mining will get up there someday?

      As for current “free” energy right now, there’s wind, solar, and in places like Iceland: geothermal.

      Here’s another thought exercise: would another society or perhaps an alien civilization ever invade us for our Bitcoin, like conquistadors and crusaders have sacked and looted for gold? Well, it’s easy enough for hackers to be doing that now but it doesn’t feel like the same thing to me, when threat of death isn’t quite on the line.

      1. Miami Mitch

        I feel like you are proving my point.

        If bitcoin uses less energy to mine it would make sense that it replaces gold, if it can replace golds function as a safe haven. But all we can really say is that they are close in energy use. But comparing the cosmological amount of energy to create gold I feel Bitcoin still uses more because look at the energy humans and computers need on top of the neutron star explosions that helped create humans.

        The fact that something is rare, like gold, symbolizes the energy use needed to fine it. It takes more effort (energy) to find something rare.

        And yes, Iceland is an opportunity for these folks because both geothermal and colder temps lower the cost of energy. If I think about it, they are “exporting” the cooler temps of Iceland in the form of Bitcoin to other parts of the world?

        1. Nighttime Guinness

          Not even close. All the energy life on earth has used in the past 2-3 billions of years still pales to a supernova event. Assuming all that energy originates from the sun, the earth receives but a tiny fraction of it.

          If there is any inherent value to Bitcoin, it’s the ever increasing amount of energy needed to mine or transact it, but that valuation would be based on how much my local utility charges me per KW/hr and it’s some Icelander’s arbitrage opportunity leveraging the volcano in their backyard.

      2. SouthSideGT

        Your Iceland reference jogged my memory…

        “The custom-built machines, running an open-source Bitcoin program, perform complex algorithms 24 hours a day, seeking to win a block of 25 new Bitcoins from the virtual currency’s decentralized network.”

        IIRC the guy set this up in Iceland so his mining computers would be easily cooled.

        I have two friends who are seriously into bitcoin and I occasionally warn them to get out while the getting is good.

    3. drumlin woodchuckles

      If an electricity crash looms in the future, and bitcoin miners can commandeer so much of the remaining electricity to do their minering that they cause the crash of the rest of society by shutting off the lights on the rest of society by taking all of society’s electricity, then nothing will be made for buying or selling, and there will be no purpose to the existence of all these bitcoins.

      What then?

      1. Miami Mitch

        I didn’t say they were smart…

        And let me massage that for you:

        If an oil crash looms in the future, and oil drillers can commandeer so much of the remaining oil to do their drilling that they cause the crash of the rest of society by shutting off the lights on the rest of society by taking all of society’s oil, then nothing will be made for buying or selling, and there will be no purpose to the existence of all the oil.

        We never learn.

        1. drumlin woodchuckles

          We few . . . we happy few – have learned. Or are learning.

          Now, how can we apply our knowledge to the task of no-petro survivalism? And if we can do that, how can we find eachother and craft no-petro survival communities hiding in plain sight, so that we are unnoticed and out-of-the-way when the Petro-Mainstream civilization slides all the way down the far side of Hubbert’s Peak and comes to its final rest at the bottom of Hubbert’s Pit?

  3. cocomaan

    Yes, watching Mark Cuban and Peter Schiff argue is like watching this fox and fisher chase each other around. Ultimately neither commits:

    (allow me to supply the animals)

    What I think is astounding is how many people are grifting off of doomesterism. Bitcoiners talk about the imminent collapse of the dollar as much as the most froth-at-the-mouth goldbugs. GME shorts and GME buyers all talk about how the market is a casino and none of their money is real.

    Nihilism and eschatology is probably not a good investment strategy. Meanwhile, the dollar goes on and on because it’s backed by imperial hegemony. I’ve learned not to bet agains the house.

    At the end of the day, there aren’t any really good stores of value. Land, the fictitious commodity (apologies to Polyani), is always a shifting target and unaffordable for most. Art? Good luck. Guns and bullets, I guess, if you’re into that kind of thing. Education and yourself? Okay, but make sure you pick the right degree, or nobody will respect it.

    Or, bear with me here, you have a diverse portfolio. I know, shocking.

  4. Tinky

    I find the comparison of the two to be a bit odd. While I don’t disagree that from a narrow, short-term investment perspective, Bitcoin has taken some of the wind out of gold’s sails, the vast majority of those who hold any substantial amounts of gold do so for very different, and far less speculative reason.

    David Rosenberg summed it up well recently:

    I own gold not to make a killing but as a ballast in the portfolio, a source of diversification and insurance policy against the gargantuan levels of outstanding liabilities. It’s a hedge against inflation, if we ever get it, and it’s also a hedge against deflation given these destabilizing financial imbalances we have. They’re not that apparent obviously when you look at the markets this year: The junkiest bonds have outperformed the most, and the junkiest stocks have outperformed the most. That’s how you know that we are in a speculative mania. So gold is an insurance policy against things going wrong, especially in a time when most asset markets are priced for perfection. You hope your house doesn’t burn down, but you still have home insurance.

    Now, does Bitcoin offer similar protection? Well, I sure wouldn’t want to bet on it, and for some of the reasons that Yves mentioned in her post.

  5. someone

    I own BTC and AU, but my concern with BTC is alchemy. AU has already been shown to be immune (thanks Sir Issac Newton), but BTC? Not yet.

    With enough computing power (requiring a combination of technology and the will to do it, neither of which are constrained), the BTC infrastructure can be busted. At minimum, it only requires the right USD/BTC to generate the will to do it. But a bigger concern should be quantum computing technology which, while nascent, is poised to disrupt the exact technology on which BTC is built on–cryptography.

      1. chuck roast

        A low target indeed. Are we forgetting the Mt. Gox scam? 650,000 bitcoins vanished into the ethereal (ahem). Was 2014 so long ago? Bitcoin may be the go-to currency (ahem, ahem) for cyber ransom. It’s only value in the realm of blackmail and speculation. Although, if blockchain works the way it’s supposed to, I don’t see how it’s untraceable. Bitcoins name should be changed to ‘Zietgiest.’ After all, it perfectly reflects the temper of the times. I can see the young bespoke suits meeting at lunch and opening with, “So, what’s your latest scam?” This, rather than say, “What are you working on?” A perfectly normal conversation in these times.

  6. John Beech

    I love articles like this. Schiff is indeed a jerk. Me? I continue to buy small amounts of gold. Why? Not for making money because I make plenty of that on my own. No, I merely buy and hold for the ‘what if?’ scenario. But to each their own and a greater fool is being born every minute. Bitcoin? That’s a tool as much as gold is a tool. Tulips were once transacting for astonishing sums. Bitcoin? I’m not Nostradamus and I’m not very smart, either. Gold? Dunno but it won’t go to zero. That, and perhaps I was overly influenced by cartoons of Scrooge McDuck in my childhood. The point being I like occasionally fondling a few stacks of coins with my grandsons. We just play with it! Later, and with some solemnity, we put them back in a safe. Can’t do that with BTC. Meanwhile, gold is not only fungible but fairly liquid. Not as readily as USD because there’s more friction involved, but pretty close. Maybe I have some Indian blood in my veins (red dot type). This, because I have had gold since I was young and continue buying a bit here and there. No, I don’t dream of having it and don’t view it as my great ‘store’ of wealth to the exclusion of other assets, but I like having it and sleep better because of it. Of course, nothing goes up forever and recently it’s been going down but this isn’t a bad thing and in fact makes it a ‘not bad’ time to begin buying some if you haven’t. Don’t get in a rush, do it a bit at a time when you have a something to spare and nothing better to do with it. Me? I’ve been a bear in terms of the market for the last two years. Early to the party? Probably. I can afford to sit this out in cash regardless of what inflation does.

    1. tegnost

      I’m one of those greater fools who thought silver was a good investment. It’s greatest “real” value to me is tactile, it’s heavy and makes a pretty noise when you clink the coins together. I could sell it now for not much of a loss, 10 years later. Yeesh. It does serve the fantasy of having value in a collapse but short of the magnetic poles flipping or cascadian subduction zone earthquake ISTM that the PTB are pretty well in control of things right now.

    2. coboarts

      My wife escaped Cambodia with a little gold, held closely… She would use links of gold chain to make small purchases. I don’t know about the investing side, but if there are only a couple rickety boats ahead of an invading army – oh yeah, obviously bitcoin is the choice…

  7. Phillip Cross

    “The more they succeed the closer they get to failure as the threat to existing issuers of currency grows. This includes every nation-state.”

    I get the feeling the crypto-pumpers are trying to do to currency issuers, what Uber did to the licensed taxi. Spend vast amounts of money to cause widespread adoption and lots of small winners, making their product popular and seemingly indispensible, whilst making their rival seem like bad value.

    I would like to think, “The government would never let it happen!”. However, US politics is so corrupt, who knows what they would allow, as long as the decision makers were among those ending up with huge personal fortunes, at the nation’s expense. They have been selling us out for years, would one last hurrah surprise anyone that much?

    1. Greg Demaio

      I would suggest that the BTC development has gone to far for regulators to do enough to destroy its efficacy. So many people are in the market now and so many established financial firms have bought into it that it would be hard to eliminate. Further, I would take solace in the limited supply of BTC as opposed to gold.

      Wondering, has anyone charted the cost of gold mining v. cost of bitcoin mining? I have been to Gold mining sites. Heavy equipment and lots of man hours.

      1. Yves Smith Post author

        With all due respect, you’ve got that wrong. Big market cap and importance to the payment system are two utterly different beasts. The participation of banks is trivial compared to their established business. Bitcoin and crypto are hobby level activities for them.

        What matters to regulators is if you have LEVERAGED speculation that blows back to the banking system. We had a vastly bigger dot com bubble. Did its collapse impair banks? No. That’s why no one stopped it.

        Even Japanese real estate, another monster bubble, which did depend on bank leverage, also fell apart.

        Not saying Bitcoin will go to zero, but some of those dot coms had real value, as does Japanese real estate.

        And the regulators may not intervene because they don’t see Bitcoin as more than a sideshow, albeit a big sideshow.

        Ratings agencies, who are way less powerful than regulators, took down CDOs and with them, the entire banking system. And they were right to do so, they were imploding. They should have downgraded them much earlier, but that’s another story.

      2. Phillip Cross

        You might be right, but I think meaningful intervention by uncle sam is the biggest risk for holders. Off the top of my head, at any moment, the US could:

        – Add a surtax at a punitive rate to offset the carbon emissions.
        – Add a value tax for just holding. Akin to property tax.
        – Criminalize it entirely because of nefarious uses like drug money laundering and terror financing.
        – Taint the chain by setting a legal precedent (similar to aiding an abetting, handling stolen goods) to prosecute holders of bitcoins that passed through the wallet of a known criminal.

        Any of these actions would crater the price of bitcoins in minutes. If they can get the price low enough for long enough, mining becomes a waste of money and stops. RIP bitcoin.

  8. Tom Pfotzer

    This is why I like BTC, quoting Yves:

    “Real interest rates and the value and stability of the prevailing reserve currency should determine its [BTCs] value.”

    There are some things about fiat that are really in society’s way. Fiat tends to become an easy way to mis-allocate resources. MMT seems – to me- to be a way to exacerbate that mis-allocation.

    BTC is a foil – a mirror – to fiat. Not just here in the U.S., of course – but in many other countries.

    There are few ways to slow down that fiat misallocation train, and the publicity around BTC seems to be raising awareness, and that awareness may – just may – become pervasive, especially if BTC continues to increase in price.

    BTC has major problems, well-detailed elsewhere here at NC. And – at the same time – it has an important benefit: it puts a dent in the TINA (there is no alternative) box we’re in.

    1. Greg Demaio

      And as long as the market assigns it value it has value, just like fiat currencies — whose value depends on the market assessing the viability of the currency’s underpinnings — economic fundamentals, military and political power, social stability/instability.

    2. Phillip Cross

      Your post reminds me of a “growing dominos” meme I saw recently. Do you know the format? It is a man knocking over a tiny domino, then the size of the subsequent dominos grows at an exponential rate, and the last domino is absolutely huge.

      In the version I am reminded of, the small domino at the bottom is labelled, “Laser eyes”, and at the final massive domino is labelled, “Great depression”.

  9. Nels Nelson

    Money is described as a unit of measure, a medium of exchange and a store of “value”. I use the scare quotes because I have a problem with this last description. I think it should be stated as a store of future demand. David Graeber probably understood money better than anybody and he once stated that value is created in the workspace and realized in the market space. Value is created by human consciousness. He went on to say that exploitation occurs in the rupture between the creation and the realization. Society is those who you want to realize value and the audience for the realization of value.

    Money is a symbolic cypher, a semiotic instance such that its value is not determined by some quantity of a commodity or its cost of production. There is nothing to guarantee that the future “value” of money saved i.e. hoarded will equal or exceed what it can purchase today. To think that money can “work for you” is anathema to true value creation by human consciousness.

    Russell Brand said in one of his podcasts that a belief is a thought you like having. From this I guess you could say that an ideology is a package of thoughts you like having. If you believe that gold is the only true money, that fiat money is illegitimate those are thoughts you like having. But when the ruling order comes to collect the hut tax, you pay it in what they tell you to pay it in.

    1. tegnost

      I think there’s no yield curve for Au…fiat stabilizes it’s value with treasury sales, but I am not an economist so ymmv

  10. Susan the other

    Bitcoin … “is beginning to look like a free-floating ponzi scheme.” What a succinct description. All the confusion about the value of currency is a little looney anyway – because the only value is the value of fiat. Which sounds like an oxymoron when it is argued against the long standing devotion to barbaric relics – but it’s true. Almost incomprehensibly true. The only “value” out there is fiat – because it’s what we agree on and usually what facilitates us to do good things. That’s All Folks! And it is so very simple. And of course we’ll scam each other until the big bang collapses, but that’s a behavioral issue. I got a call from someone warning me somebody had bought an App;e Computer on my Amazon account. So naturally I demanded more information, demanded to speak to a supervisor, and generally enjoyed myself since I don’t have an Amazon account until finally the little idiot interrupted me and said, “Fuck you mam, fuck you” and hung up. What a great conversation ;-)

    1. bulfinch

      That’s. damn’d good. Certainly up there with “Dear Bastard,” — an old & reliable favorite.

  11. Xander

    Ofc my supportive comments towards BTC aren’t even approved.

    I hear every four years the same arguments: BTC is worthless, it cannot be a means of transaction, Gov’t will shut it down.

    Where are the goalposts? At what point do people like Schiff look inwards and ask if they are wrong rather than everyone they are screaming at?

    1. Tinky

      I’m no Schiff apologist, but over the past three years or so, Bitcoin has, in USD terms, gone from approximately 2000 to 16,000, down to 3500 and then up to 12,000, down to 5000, and, more recently, up to 50,000 during a period that many seasoned market observers believe to be similar to the tops of the most famous historical market bubbles.

      So, while would I agree with many of the criticisms of Schiff, I would also suggest that it is far too early to declare him as being fundamentally wrong about Bitcoin.

      Furthermore, a mere seven months ago gold was at all-time highs in a number of currencies, including the USD and EUR. So to pronounce it “dead”, as Mark Cuban has, is really quite absurd, and especially given its remarkable history.

      1. occasional anonymous

        An asset that fluctuates that wildly is not a sound investment. It’s a ponzi scheme that lots of dumb money is getting in on.

        Further, the fact that you’re even talking about the dollar value of bitcoin demonstrates that it’s failed at its original stated goal. The whole point of crypto was ‘something something money free from da ebul banks’. So why is every cryptcurrency advocate bragging about current values in dollars? They aren’t treating it as money. They’re treating it as an asset to invest (actual) money in.

        1. jed1571

          It’s ironic that you mention lots of dumb money.

          I know Yves and NC are no fans of cryptocurrency, but it’s actually the smart money moving in to the space driving these high valuations.

          BTW (to the admins), I like this “click to edit” choice, it’s been a while since I’ve posted here…

          I know I should link to something supporting my assertion, but I’m on the way to dinner. I don’t think I’ve said anything controversial.

    2. urdsama

      I think there is one simple question to be asked of BTC (and its ilk):

      Is it environmentally sustainable?

      Right now that answer is no, and unless that changes, it’s a technological dead end.

    3. occasional anonymous

      It is fundamentally worthless (in fact it has negative value in the form of ludicrously high energy costs), it’s essentially useless as a means of paying for anything other than drugs and child porn, government is shutting it down (as Yves frequently says, ‘prosecution futures’).

  12. Wukchumni

    Instead of that blowhard Schiff or a guy that owns an NBA team, i’d be much more interested in what an astute Indian Aubug thinks?

    There’s probably 1,000 Indian investors for every American doing so, and in my experience they’re never ever sellers, only buyers. All the Rupee has ever done is go down in value and just the reverse for all that glitters, very impressive gains.

    What would cause them to become sellers?

    Bitcoin kinda strikes me as Bizarro World hyperinflation, imagine if it was worth $50k a decade ago, and over time went down to $10?

    It’s just about the opposite of what happened to the Mexican Peso from the late 1970’s to 1992, when I was a kid it was always 12.5 Pesos to the $, but by the time they came out with a new Peso chopping off 3 zeroes in 1993, it was 3,300 old Pesos equaling one $.

    If you were that rare middle class Mexican with 50 grand in Pesos in the bank in the 70’s, you ended up with 15 bucks Americano as hyperinflation had run its course.

  13. Harry

    Forgive the fanboy nonsense but I did so enjoyed this. Nail on head I think.

    “Schiff appears to be a similar sorting mechanism. His seemingly pointless nastiness would deter potential clients who’d want to do real due diligence on his track record and portfolio construction, since anyone who did that would run the other way. Instead, he’s filtering for naifs who are taken with his libertarian doomsterism and don’t know enough about finance to even think through how to vet him.”

  14. Randy G

    Forget Bitcoin — prices of ‘banned’ Dr. Seuss books skyrocketing on EBay! Just checking out some of the titles and they are already soaring to several hundred dollars per book. (Adults will be rampaging through kid’s libraries in pursuit of these forbidden gems… selling them to the highest bidders.)

    Several libraries say they will keep the forbidden Dr. Seuss titles in circulation but, sadly, they will probably all be stolen by ‘collectors’ or desperate ‘gin runners’ ready to make a buck on the new prohibition (or maybe all defaced by enraged Wokesters armed with crayons and scissors….).

    Although I own some Bitcoin and some other cryptocurrencies — definitely not advocating for them. My main concern with Bitcoin when I initially purchased it was the crazy ‘mining’ costs on the environment due to computer (ASIC chips) and ‘wasted’ electrical costs, and the fact it seemed only credible as a store of value, not as a low-cost option for exchange of value.

    I bought some other cryptos that seemed more credible as digital currencies: some have gone the way of the Dodo, some have increased in value — although they all seem attached at the hip based on how Bitcoin is doing. When Bitcoin sags, they sag; when Bitcoin balloons, they balloon.

    At one point I concluded that buying cryptocurrencies was the dumbest investment that I had ever made; it now appears that failing to buy enough to make me a ‘Bitcoin millionaire’ at current values was my big mistake.

    Also purchased some gold many years ago and turns out that it has not even kept up with real inflation (which should include the soaring costs of housing, medical care, education). Take that, Peter Schiff and stick it!

    Joked a couple months back to a friend — which was the more hyper-inflated scam asset, Bitcoin or Tesla stock?; now after Musk has jumped into Bitcoin, maybe they are merging. Must be many Bitcoin millionaires who have moved into Tesla stock.

    The digital ‘singularity’!

    (Nonetheless… where can I get my hands on some of those Dr. Seuss books cheap as I have a hankering for physical assets….well, I’m off to the local kiddie’s library to make some unauthorized withdrawals.)

    1. drumlin woodchuckles

      Adults looting childrens’ libraries for stealable copies of the banned Dr. Seuss books would be thieves stealing from the reading-time joy of children.

      If this is happening, the proper response would be to soak those books with poison ivy oil, or maybe a mixture of dimethylsulfoxide-and-ricin, and set them out as decoys for that sort of adult to pick up and steal.

  15. Steven Greenberg

    To me “value” is only what a buyer and seller agree on to make a trade. There is no such thing as intrinsic value. This becomes evident during a crisis. In such a situation we find oddities such as water being extremely valuable and gold having no value. Buying gold as a hedge against inflation is based on a long history of what people value in certain types of crises. That history may or may not be repeated in the next crisis. That’s why it is good to diversify.

    1. drumlin woodchuckles

      A situation like that would be a fine time for a beloved local warlord, sitting astride a refugee/escapee transit route, to offer to sell water for gold.

      ” You want water? Here is a bucket. See the bucket? Put all the gold you have in this bucket, and all the diamonds too, and I will give you a this-bucket-full of water.”

      And divide the gold equally between yourself and all of your armed supporters.

  16. Zephyrum

    BTC is easier to acquire than Au.
    BTC is easier to use for transactions, though like gold you still usually have to exchange with currency.
    (but BTC is still terrible compared to modern payments systems)
    BTC is much easier to move around the world than Au, and much cheaper to store.
    BTC has better momentum than Au.
    BTC is not, thus far, vulnerable to fractional reserve “paper” manipulation of its value.
    BTC is better matched to the evolving digital financial system.
    BTC has first-mover advantage among cryptocurrencies.
    Both are supply constrained and very energy intensive to mine.
    Au has at least some inherent value, which BTC does not.
    Au has a long history of demand, and will always have some demand.
    Au physical metal is very popular with the general population both in the US and around the world.
    Au is harder to substitute; there are many cryptocurrencies that are technically superior to BTC.
    Au can still be used when Internet access or electricity are not available.

    Given all of the above, my judgment is that BTC is a better trading vehicle, while Au is a better long-term store of value. Long-term I’d expect BTC to be supplanted by superior technology, while Au will still be there at approximately the same real value.

    1. Nighttime Guinness

      The average BTC transaction fee is something like $25 these days and takes hours, even days, to complete. Plus, I can still trade gold physically, breaking off bits if needed.

    2. Nels Nelson

      BTC is based on an imperfect algorithm that has experienced numerous breakdowns and plenty of fraud.
      BTC because of its huge transaction costs absorbs huge amounts of GDP.
      BTC wastes huge amounts of energy due to lengthy processing times across the entire planet over thousands of computers for the purpose of verifying the system of accounts.
      BTC can handle only 7 transactions per second when 700,000 transactions per second are needed. How can it be scaled 100,000 times without increasing energy consumption?
      BTC is an excellent example of entropy.
      BTC is a shrinking money supply when the money supply needs to expand along with the economy.
      BTC is deflationary which increases debt burdens.

      As for gold. It requires huge amounts of energy to mine. Tons of ore need to be mined to get ounces of gold. Extracting the gold from the ore uses a process called cyanidation which poisons the environment.

      I recently listened to an interview with a person from the Boston Fed who is working on a CBDC, Central Bank Digital Currency. He couldn’t say when but he said a CBDC was inevitable.

      1. jed1571

        I think you make some good points, but the money supply (and BTC) definitely does not need to expand along with the economy.

        We are in a resource-constrained world and growth is just not going to be a part of that reality.

  17. Egidijus

    I lived through the Jolly 90s in a post-Soviet economy with high inflation and we either tried to spend money at hand (by the end of the month it was less worth) or tried to save some value in buying foreign currency (gold wasn’t attractive anymore, more of the reasons if you ask) or buying imported cars and flats (whatever it was worth). Guess what? Now we have another bubble in real estate and craze in bitcoin. But this time when interest rates are negative, people are trying not to spend in real economy but to save from it (because by the end of the year it is more worth, hence increase in bank deposits, too) so essentially the more we dumb in a stimulus, the more we deplete real economy of the money it needs.

    A problem with bitcoin that it lost a purpose of legal tender and now is like a value-saver of worthless fiat money. Gold is too pain in the ass.

  18. ArvidMartensen

    The real question is, who created bitcoin and why. The idea that it was some anonymous loner with a Japanese name is laughable given the tech resources available to the state for ferreting people out.

    If I was to create widespread quasi money I doubt that my efforts would repay me with great wealth. It might repay me with a visit from the coppers and some free accommodation if I persisted.

    So if not a loner in a garage, then who? This thing has a purpose. We will no doubt find out what in the rear view mirror after the event that blows it up. People can’t help but brag, as the Time article on the secret efforts to get rid of Trump showed.

    I can see who mines gold, how it is mined, where it goes (to some degree anyway) if I want to chase it up. But bitcoin came out of thin air. I think that people should treat it as a scam until we have the answers to who and why and what.

  19. Parker Dooley

    Sorry if O/T but I’m posting this because of the discussion of BTC energy usage, and also because of the many discussions on NC around climate, geoengineering and clean power. This is not an assignment, just a recommendation. I suggest any readers with an interest in these topics check out the book by Martyn J. Fogg, “Terraforming: Engineering Planetary Environments”, published by SAE (Society of Automotive Engineers, now known as SAE International), 1994. Unfortunately, the book is out of print, used copies are very pricey, so hopefully is available through interlibrary loan.

    Despite the book’s SFnal title, much of the discussion is focused on Planet A, the biogeochemical cycles on which life depends, and the energy budget available on earth, as well as the inadvertent geoengineering (terraforming) human industrial, and even pre-industrai activities have already inflicted on our environment. It is the only source I have found that approaches these diverse concepts in a succinct and integrated fashion. Much of the discussion is quantitative, and thus subject to revision as new knowledge accumulates, but the general message is that we had better forget about sustainable habitats on Mars, Venus or the asteroids, and concentrate on fixing our own nest (tough luck, Elon and co.)

  20. B24S

    I have a different perspective. To me they are raw materials.

    My training was as a silver and gold smith. I can (arthritic knuckles and bad eyes not withstanding) take some gold or silver, alloy it, and form it into rather pleasing shapes, increasing its value with my design and labor. (You should have seen me in the Customs shed in Lima, Peru, in 1975, trying to convince one of the officers to slip a shiny ingot into the pallet of fabrics I was shipping back to the US. Aluminum ingots are NOT stamped .9999 )

    But while the petals fell off the rose long ago, especially regarding clientele (so often clients were more than happy to pay for the metals and stones, but when it came to my time, well, that was another question), there’s still not much I could do with a Bitcoin….

  21. rjs

    i don’t own either, but if we should get a major EMP from a massive solar flare or an atmospheric nuclear explosion, the internet, electronic trading, and bitcoin will go “poof”, but gold will still be gold..

    1. skippy

      Gold like any other token is just a representation of all the actions humans engage in …. some of which is trade of surplus … so the state can tax [control].

      Anthro does not support the theory that gold stores anything, first examples are decorative and religious talismans, hence its par being in a consumable like wheat.

      1. Wukchumni

        hence its par being in a consumable like wheat.

        What does that mean?, wheat goes bad fairly quickly and gold is essentially eternal in that nothing effects it. To equate the two as being similar requires quite the leap.

        The only tie-in i’m aware of is from a weight standpoint, as pm’s were originally measured in grains (of wheat), although not so much since grams took over the heavy lifting.

        1. skippy

          I explained before wuk … one of the original measures for a flake of gold was in grains of wheat E.g. the wheat value is what gave the gold its transactional value i.e. in lieu of and not the other way around.

          1. Wukchumni

            A grain of wheat was pretty uniform and made for an excellent measuring device way back when before scales became commonplace, but you aren’t claiming they were on par: a grain of gold and a grain of wheat, and if so, please back up that assertion with evidence.

            1. The Rev Kev

              Not only wheat but perhaps barley too but for length. In fact, ‘During the reign of King Edward II, in the early 14th century, the inch was defined as “three grains of barley, dry and round, placed end to end lengthwise.” ‘

          2. Wukchumni

            Here’s a handy link for what things cost in the Roman Empire…

            4 Asses was copper coins worth 1/4 of a Denarius and 25 Denarii equaled 1 gold Aureus, and that Aureus weighing 119 grains would’ve bought you the equivalent of 2,000 1 pound loaves of wheat bread.

            The Roman diet was very dependent on grain. The average Roman adult male ate two pounds of wheat bread each day. While loaves of baked bread were available in the market, most evidence on prices that have come down to us refer to the standard measure for wheat, the modius (about two gallons). A modius would bake up into roughly 20 one pound loaves of bread so it would provide the needed bread for ten days. The Roman mind placed importance on a concept of ‘Just Price’ feeling wronged if grain was not available at this price (or less). Politicians and those who would be public benefactors could gain considerable status by insuring the availability of grain in the market even to the point of buying high priced grain and reselling it at a loss as a public service. In the early years of coinage, the ‘Just Price’ was about 4 asses per modius.


  22. Bob Gorman

    If only the masters of the universe behind bitcoin would put as much effort into equitably monetizing human energy as they do machine energy. There is lots of human energy being left fallow that could be redirected to improve our crumbling society and ecosystem. Only humans riddled with the virus of greed and lust for power over others could come up with something so insidious as bitcoin.

    The really hard problem isn’t in math to mint a bitcon(better name.) The really hard problem is in harnessing political economy to mint healthy, educated and financially stable people.

  23. Nanning Andy

    The main value of bitcoin is that it allows illegal money flows which are difficult for governments to track. Since the US has weaponized the financial system to fight drug dealers, terrorists, and rogue regimes, this makes it extremely valuable.

  24. The View From Howe Street.

    Thank you for the link to Business Insider. It put crypto trading into context for me with a little reminiscing.

    We used to consider this kind of thing a play. Distinct from an investment.

    A gold play, an energy play, an internet play. The term play made no judgement about the validity of the underlying fundamentals but was widely used to indicate that you weren’t a long term investor.

    The attraction was the trading volume and the price volatility. The ability to jump in and out taking profits without getting caught holding once the floor dropped out. Whether or not it was an obvious pump and dump promotion, a carefully considered speculation or a real bedrock investment.

    Crypto-currency has every ear mark of a play and then some. Silly mysterious lost genius origin story, dubious fight the power story, abstract value creation (math is hard) story, seemingly endless reserve capacity to fill orders at peaks, whiff of criminal “bad-girl/boy” complicity and an easy way to express value, confusingly, in terms of the currency it’s supposedly replacing.

    It’s also cleverly done away with the need for any pre-existing understanding of anything tangible except maybe a distaste for the tax system. There’s no need to interpret drill assay results or assess their legitimacy as you might in a gold play or even be able to identify a termite infestation in a property play.

    Parts of the promotional tale have simply been discarded as they’ve become demonstrably shaky. One of the initial optimistic ideas of crypto, the currency of the internet, and thus the future, has lost traction I rarely detect it as a selling point anymore. Adaptability is another hallmark of good promotion.

    If one has no moral reservations about the nature of the activities that crypto tends to prop up the only thing I can say with certainty about it is this is the play of a lifetime.

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