Bitcoin on track to topple global economy in five months

See the latest Australian dollar analysis here:

Macro Afternoon

It’s now doubled in 21 days:

It’s approaching 300bn market capitalisation now. So at the current rate of growth it will surpass the $79tr global economy in value in roughly five months.

Lunacy is setting in, via FTAlphaville comes five reasons:

1) The spread between the top three exchanges offering your product is no less than… $4,000.

2) The utility function of your “currency” product is compromised by a traffic jam of 193,211 transactions…

3) The average transaction fee to initiate a payment is $7.

4) A conspiracy theory involving the imminent hacking of your network doing the rounds.

5) People allegedly killing themselves because of FOMO.

And panic is following, via the FT:

The world’s largest banks are pushing back on the introduction of bitcoin futures, raising concerns with US regulators that the financial system is ill-prepared for the launch of the contracts as the value of the volatile cryptocurrency has soared. The price of bitcoin has risen to a new high of more than $15,000 on several exchanges.

Institutional investors have been keen to trade the asset but only via a regulated market. However, the planned launch in the next 10 days of futures contracts by the Chicago exchanges CME Group and CBOE Global Markets, given a green light from the Commodity Futures Trading Commission last week, has prompted a backlash among the major brokers who backstop trading across the industry.

According to a letter from the Futures Industry Association, the main futures industry lobby group whose members include all the largest Wall Street banks, to the CFTC, the rapid introduction of bitcoin futures “did not allow for proper public transparency and input”.

Somehow observing that this is crazy just doesn’t say it.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


    • 2 hour long podcast on gold vs cryptos, worth the listen. Gold vs Cryptocurrencies: Bill Holter, Jim Sinclair, Dave, Clif High and Bix Weir. (Sinclair is a bit senile, but stay with it, it gets better).

      It became very clear to me: power requirements and privacy, the two areas where cryptos collapse. The glib crypto supporters try to paper over these flaws but only the uninformed will be fooled. By “paper over” I mean talk unmitigated shyte.

      My advice is to stay away

    • Stone the Crows

      Some people have a very real difficulty trying to understand the laws of exponential growth which in the end guarantee a collapse.

      “The rules of simple math never lie, but in the meantime a good Ponzi has to run its course.

      Any scheme that shares the following single essential element is a ponzi scheme whether recognized formally in the law at any given moment or not.

      That is, the first people who perform some action get a given reward. The scheme is designed, intentionally, so that the amount of effort for that same unit of reward rises, usually exponentially”

  1. At what point do the capital outflows associated with purchasing crypto cause the regulators to implement a ban? It would be interesting to see where the $billions are flowing?

    • This will collapse before a ban can be implemented.
      A pyramid scheme’s collapse start when the peak rate of money flow has passed, i.e. the money that new fools are throwing into the fire pit is less than the earlier fools are trying to extract.
      At the current rate all money in the world would have been thrown at BTC within the next year or so. This is a physical limit that won’t be reached as there are some people that could not be bothered by the BTC craze. So expect it sooner.
      Once this happens the fools that have been “investing” in BTC will realize that they were idiots and had actually gone to the casino to speculate that their BTC would increase in value.
      Lost more people will get sucked into this.
      I’d expect BTC to top out somewhere between $100 000 and $1 000 000 USD equivalent. And then it is going to go into terminal decline as it starts to fall. It may hit a few bumps along the way down, but expect it to be worthless in 5 to 10 years as the craze would have passed and those still left alive after losing fortunes would not touch crypto ever again..
      If you are into BTC, then you have to recognize that you are SPECULATING and NOT INVESTING. If you know this, then hang on for the ride and pick an exit point where you will be happy to sell. You are probably happy already anyway. Remember though that you have to sell before the game is up.

  2. The major banks and brokers complaining about how opaque and unregulated Cryptos are is a bit rich. Their comment should be read as “We are yet to figure out how to rig this market in our favour. Until such time as that is figured out we would ask the government to disallow the set up of futures trading.”

    • The usual crypto fanboy criticisms of other currencies and bankers. These may be true (or not) but they do not mean bitcoin is squeaky goodness without serious flaws. Beware.

      • I’m neither for, nor against cryptos. I am vehemently against the parasites of the financial services industry.

      • +10 on that Footsore.

        Knowing human nature, it is only a matter of time before parasites – whether the usual suspects or a whole new breed – get their hooks into cryptos as well.

        Or who knows, they might just outright steal them. With BTC now at the price is it, hackers have a huge incentive to go the full Mt Gox.

    • As if they haven’t already plugged in their HFT machines. An unregulated market is like their wet dream – they are just not being transparent about it.

    • Its more like “the ability to offer complete newbs leveraged access to something whose price can collapse at any moment means that we all run the risk of being the next Lehman Brothers”. Self preservation over rides the desire to make money. One only has to look at the financial damage done to brokers when the Swiss devalued their currency without warning. And I suggest there will be far more money flowing into the bitcoin trade than what was in the Swiss franc trade.

    • Same as it ever was. Create derivatives for which the underlying is BTC and decouple any relationship between the quantity of derivatives and the quantity of BTC. Same scam they’ve been running in every market since day one.

      • Some trivia for you: on a number of occasions the creation of a new futures contract has preceded the collapse in price on the underlying asset, including, gold in the ’70s and much more recently, Uranium. No guarantees of the same result but the ability to short BTC may be interesting for some players. That chart is looking awfully, er, parabolic ..

  3. Hahahahahahahahah
    There you go you neoliberal and monetarist wankers. You selfishly and STUPIDLY wanted money to be treated as a commodity, hence floating currencies This is YOUR baby.

  4. “Imagine if they put the same effort, energy, and CPU cycles into something actually beneficial like distributed modeling of protein folding. Instead we witness yet another example of idiot humans chasing after personal claims on resources, and dooming their entire species in the process. I hope the species that replaces ours in the food chain (however many millions of years it takes to reestablish a food chain) has more wisdom and kindness.” – False Solace

    Steam is one of the most popular gaming services in the world, with 67 million monthly active players, putting it head-to-head with Sony’s PlayStation Network.
    Steam, owned by Valve Corporation, sells PC games through an online store.
    On Wednesday, it canned its support for bitcoin payments, saying the cryptocurrency is too volatile.
    Kurtis Chinn, a Valve engineer, says this means transaction fees for customers buying games had fluctuated too quickly as bitcoin’s value did the same.
    Steam began accepting bitcoin in April 2016.

    The hugely popular gaming store Steam has stopped accepting bitcoin payments for games, saying the cryptocurrency is too volatile.

    Here’s what Chinn wrote:

    “In the past few months we’ve seen an increase in the volatility in the value of bitcoin and a significant increase in the fees to process transactions on the bitcoin network. For example, transaction fees that are charged to the customer by the bitcoin network have skyrocketed this year, topping out at close to $US20 a transaction last week (compared to roughly $US0.20 when we initially enabled bitcoin).”

    • ugh, that stung. I was one of the very early people (as in, one of the first few hundreds of thousands or millions) who had the choice of bitcoin- or folding.

      I folded.
      I don’t really regret that, but its definitely ripe ground for ‘what if..’

  5. I stopped reading your blog a year ago. I drop by now and then to see if houses have tanked……still no.
    You’ve been wrong on bitcoin from the start. It is the future. This is why there are no rich economists. Most of your readers are old and labour supporters, I think I dislike them the most actually. Cheers guys!

    • Yeah you’re not clever. Facts and reasoning make you right, not speculative dumb nuts with the most epic case of megadumbdumbstupid FOMO we have seen in a generation. Idiots like you thought they were the bright ones in Enron for a while.

    • There is no future in something that sovereigns are under no obligation to recognise. Try fulfilling your tax obligations in bitcoin.

      That said, those who get the timing of getting in and out right will no doubt make a lot of money (actual money that is).

      This is nothing more than electronic tulip bulbs – looks dangerously unstable.

      • You can’t pay your tax bill in gold either. Genuine question, as I’m an old white man trying to get his head around this stuff – why is Bitcoin an electronic version of tulips and not an electronic version of gold?

      • Phil,

        The Gold standard was just a physical anchor point to government fiat [law], bitcoin is just an application – of – blockchain in an attempt to limit quantity and secure ownership rights. Government fiat is recourse and bitcoin is non-recourse.

      • You can’t pay your tax bill in gold either. Genuine question, as I’m an old white man trying to get his head around this stuff – why is Bitcoin an electronic version of tulips and not an electronic version of gold?

        Gold is only gold because of history. Bitcoin doesn’t have any.

    • Great points Buzzy. A one year time horizon is perfect for judging these things. You are foolproof.

      Are you the same Buzzy who posted on aeons ago? That guy was an posing, liberal party loving know it all and he was wrong a lot.

      Nah, can’t possibly be the same person.

    • Yes that is my read also, would bitcoin exist if there was a reasonable earned return on investment of capital ? I don’t think so. Would there be bitcoin if gold was not gamed by banks and governments? I don’t think so either.

      Bit coin is more about the end of the post 1971 money printing fraud than about anything productive.

    • No, thanks… But Reusa may accomodate!
      With or without Lube?

      (shouting aside: “Hey, Lube! Might have a customer for ya’!”)

  6. I’m in the bitcoin bubble camp. But this morning David Koch was discussing it – couldn’t understand what it was and then called it a ponzi and compared it to tulips. Now I’m confused. I refuse to sit on the same side of the fence as that other-bubble spruiker.

    • scottb1978MEMBER

      Check out Cardano. It’s aiming to to be the third generation of blockchain technology. Addressing scalability, interoperability and governance(no need to fork when they agree on the way forward). Currently at around 10c.

    • The Traveling Wilbur


      Yep. Though he probably won’t see your post for another 36 hours (given his eyeballs will currently be glued open with uppers as he’s entering his second day without sleep right now (is my guess)). BTC – the trade that never sleeps.

  7. scottb1978MEMBER

    Check out Cardano. It’s aiming to to be the third generation of blockchain technology. Addressing scalability, interoperability and governance(no need to fork when they agree on the way forward). Currently at around 10c.

  8. When you say “planned launch of .. futures contracts” – is the main issue that there will now be a reliable way to “short” bitcoin where none existed previously? If it is possible to short everything else, then why should bitcoin be any different?

    • It’s not just shorting, you can go long too. So it means you can speculate on bitcoin, on a regulated exchange with very fast clearing, without any of the hassle of securing your wallet or trusting tethers or worrying about the exchange getting hacked and all that palaver. So it should increase demand.

      But if bitcoin’s own transactions (slow, expensive) can’t keep up with demand I can’t see how the futures market will operate properly. The Chicago exchange is already having doubts.

      • kiwikarynMEMBER

        Not only that, you can leverage up in futures contracts. Why buy 1 bitcoin when you can buy 100 on margin.

  9. oh boy. The correction on this is going to hurt some people. Expect 75% losses now.
    Hope people will be able to get out without too much trouble, I really do.
    5-10% gaps down could occur making it hard

  10. Is it true that just 1000 people own 70% of the Bitcoins? I guess that would have cost them $1000ea in total and yet they preside over a system “valued” at $300bn. If they decided to sell some of their units I would imagine the price would drop pretty quickly.

  11. I think everyone has got it wrong about bitcoin being a bubble. It is the opposite – Bitcoin is like a black hole that the valueless conjured up fake money of the last few decades is collapsing into. The key is that although Bitcoin represents nothing, it has the property of being immutable. You can’t print new ones even if you are the biggest Bank in the world. That is similar to gold, despite BTC being nothing but numbers.

    As far as economics go, I am a complete outsider, but this is my guess about how this works. Over the last 40 years or so our financial system has had increasing access to compute cycles. Every transaction can be recorded, every tiny debt/credit swap is tracked and noted. This sort of does the same job as precious metals did in the past – if you gave someone a piece of gold it could not be forgotten or erased. The piece of gold was an immutable unchanging object that would last forever. However, the credit/debt pairs used for these transactions are orthogonal to material value – they sum to zero, but still act as forms of “money”. What this means is that “money” in our financial system has two components – real material value money, and an orthogonal, valueless, transactional money, which represents information or entropy. Think about our “money” as point on a complex plane as opposed to a scalar variable number of dollars. The problem we have is that without any plausible theory of what money is, the bankers and friends have been pumping out the imaginary “entropy money” and then pretending it is the same as real value money. Without any bounds on the creation of the valueless money component, instability is inevitable. That is where we are now.

    BTC (blockchains) have the amazing property of immutability that provides a way of stabilising the entropy component of the money supply. Bitcoin swaps are inherently valuless, but limited in a similar way to gold. If that is what is happening, then the shock of this collapse might be extreme, as vast amounts of the bubble money are consigned to the void. The biggest risk I see here is that we are not generating any new ideas about how money works – everything is just seen as a rerun of last century. Of course, it is possible that there are people who do actually understand what is going on, but most economists would see computers as tools, so the idea of compute cycles forming a substrate medium of information flow that acts like money may be absurd to them. I know there is a field called econophysics, but presumably it is not anywhere near the mainstream.

  12. I think bitcoin is due for a correction, but saying that, you guys cherry picked your maths to deduce that it will be bigger than the global economy in 5 months. Funny how wrong you have all been about cryptos at Macrobusiness, stick to economics, finance, your just not so crash hot. So much talk of a bubble etc. etc. from you camp, I think you should have highlighted that fact that you could make 100x your money vs losing it, hence it was easily a worthwhile gamble betting on cryptos. I personally have started gettting good financial returns after I stopped listening to your team’s financial advice.

    One final thing, managed funds are a rip off, use an ETF. If you were looking after your readers’ financial interests you would be pointing this out, rather than sprucing your fund. Wondering why your not releasing any of your great trades any more either?

    Sorry you guys missed out on the greatest transfer of wealth this century. You never know, another one might come along, but then again, you guys might adopt a similarly narrow orthodox economic mentality and completely miss that one as well.