Is Bitcoin back?

See the latest Australian dollar analysis here:

Macro Afternoon

Bitcoin is back:

I won’t even pretend that this is sustainable. Nothing has changed for crypto in my book. It is as worthless and useless as ever. With the same inbuilt contradiction: that if it succeeds it can only fail, given it’s only purpose is subvert a fiat currency system that it does not control. Regulatory risk is as extreme as ever.

But let’s set that aside for a moment and try, as best we can, to understand what signal is being sent here. Nobody knows what BTC is for the simple reason that it isn’t anything: neither a store of value nor medium of exchange. But proponents argue that it is digital gold so let’s start there:

At least to date, BTC is roughly tracking the gold price. In this sense it is some kind of store of value versus fiat currency, represented in its structural inhibition for multiplication. That it is tracking gold tells us that it is particularly a hedge against debasement of the global reserve currency, the US dollar.

JPM takes a look at who is buying this time around:

… recently published work by Bitwise, a cryptocurrency asset manager, to the SEC as part of an application for a bitcoin ETF suggests that bitcoin trading volumes on many cryptocurrency exchanges are significantly overstated by ‘fake’ trading, e.g. exchanges reporting volume of trades that never took place or via wash trades, and that genuine trading volumes could be around 5% of the reported total. Similarly, the Blockchain Transparency Institute publish monthly market surveillance reports, and estimated in April 2019 that less than 1% of reported volume for some exchanges represented real trades…the importance of the listed futures market has been significantly understated.

…market structure has likely changed considerably… with a greater influence from institutional investors.

This reminds me very much of other commodities futures markets that have been overrun by speculators. Futures are supposed to be forward hedging contracts that suppress volatility for real economy users. But in the era of financialisation they have become tools of leveraged speculation that instead increase volatility.

BTC seems to fit this description quite nicely, except when we consider that BTC futures are a derivative of a derivative on gold which is itself a physical derivative of the US dollar. So in that sense BTC has become a CDO cubed, a synthetic asset driven entirely by other synthetic assets, that adds leverage with each derivation, until it becomes an epically dislocated instrument of wild fluctuation barely clinging to an asserted link to reality.

That this is put forward as store of value is surely the ultimate joke played upon financial capitalism.

Still, while gold rises, it seems BTC probably will too, at least until such a time that it is finally extinguished by some regulator somewhere. So, if your buying BTC then you’d better ask where gold is going.

That question is answered very simply. Its value derives from the underpinnings of the value drivers of the US dollar. They are weakening today as the US Federal Reserve moves into an easing cycle. There are two scenarios to consider in this regard:

  • the business cycle persists as the Fed cuts sub-100bps and some kind of trade deal is reached with China;
  • a global shock transpires, including a major stock market correction, and the Fed is forced to ease aggressively as no trade deal is reached.

In the first, gold and BTC are likely to rise as the US dollar softens but not overly far as other central banks pile in as well and supported the value of the USD.

In the second, gold will fall as the crisis transpires and the USD gets a safe haven bid but, afterwards, it will go  a lot higher as the Fed cuts back to zero and relaunches QE plus, possibly, helicopter money. Whether BTC would follow the same pattern is up for grabs. On the pullback who knows? On the subsequent rocket very probably.

Don’t get me wrong. I wouldn’t recommend anyone buy BTC. It is nonsense. But if you’re looking for an extremely high stakes gamble (that could go to zero at any moment) on US monetary disorder then BTC looks like it.

Houses and Holes


  1. > It is as worthless and useless as ever.

    Even if your entire premise is that it is worthless long term, it is obvious by reality that it is not *useless*.
    If nothing else, it’s a wealth-VPN for people fleeing regimes.

    You can walk through any airport carrying billions worth of bitcoin in your head if you want to.

  2. So is JPM essentially coaching us to understand that monetary value can only be fundamentally driven by fiat currency, QE, and helicopter money? That’s a dire outlook for many, but not for those who get to orchestrate the proceedings.

  3. Stewie Griffin

    BTC is a Ponzi coin – I outlined the reasons why in my comment which MB deleted in all its wisdom over the weekend.

    (BTW – we will only need to wait until Wednesday morning to see if I’m right)

    H&H is correct in that BTC is a Ponzi, but he is massively wrong that there will be no value on the Blockchain.

    From my deleted post:

    BTC itself is now a Ponzi coin – its value is dependent on new comers entering BTC in order to replace those who are leaving.

    Furthermore, the BTC price is crucial in determining the Hash rate that is used to protect the network against a 51% attack – BTC needs a high price in order to attract miners to it defend the network, because the block size is so small that it can only carry a few transactions.

    For example, assigning every transaction say a 1c value, BTC is only worth about $25 a block as that is all the transactions that can fit on it….. BSV on the other hand is potentially worth $125,ooo per block because it doesn’t have a 1MG blocksize limit, but can carry virtually unlimited numbers of transactions.

    Currently BSV is the only blockchain whose Hashvalue is more or less equal to its actual transactional value being processed on it and not its underlying price, it has a value priced in economics, not ponzinomics…. Eventually its price value be entirely dependent on the transactions its processing, meaning its value will be sustained through commercial activity and not new entrants replacing old.

    If you want to read up on how BTC will die, I suggest you all have a read of this very informative post:

    I had to explain hashing and blockchain transaction economics to someone else this morning. Here is my take:

    How computational hashing defends the network is probably the one area that my understanding of crypto is at its weakest.

    The premise as I understand it is that Miners compete to “mine” transaction blocks – they do this by solving problems of increasing complexity ‘Hashes’ The miner who is most efficient at solving these hashes along with the transactions to be contained in the block will stand a good chance of earning both a block reward – the issuance of a BSV (or BTC) coin + any of the fees pertaining to the individual transactions contained on that particular block that they have just mined. The more transactions on each block the larger the transactional fee.

    The idea is that through competition among the miners, no single miner will ever be able to gain control of 51% of the network and carry out a blockhain attack to enable a double spending event to occur (this is the fundamental problem being solved for in crypto or internet money) ie someone spends a coin then spends the same coin somewhere else.

    The economic idea behind this competing for mining is the “Red Queen” i.e. you need to constantly invest in technology and processing in order to compete for ability to mine, which ensures the network is constantly maintained, updated and gradually becomes more efficient at processing transactions

    The relationship between Hash rate and block chain is this – Hash power is expensive, it requires a lot of computational power and electricity. Currently the BTC network is only defended by miners who attracted to mine and defend BTC by the high price of BTC – which is essentially due to its ‘store of value’ which rests on the Ponzi economics notion that the value will be sustained by someone coming in buying BTC as a store of value and replacing those selling BTC. Because the BTC block size is so small at 1mg, it can only hold relatively few transactions, thus the miners reward for mining on BTC is mainly on earning a BTC rather than processing the block and earning fees from the transactions being carried on it.

    With regards to BSV the same token + transaction fee model is available to the miners – when they mine a block they will earn a BSV token, plus a fee for the number of transactions in each block. But because the number of transactions in each block can potentially number in the hundreds of thousands due to the planned UNLIMITED block size – conceivably up to a terabyte block size (as opposed to the mere hundreds of transactions contained on BTC’s 1mg block size) then the fee income from mining transactions on BSV will be much higher than on BTC, potentially a reward in the hundreds of thousands of dollars per block.

    Basically over the long term it is the economic activity on the relevant blockchain ie the number of transactions, that will determine both the value of the token plus the level of security over the distributed processing network (block chain)

      • Stewie – what is BSV…? your link doesn’t open for me.

        Reckon I should trade a few Btc for this BSV voodoo?

      • Stewie Griffin

        Weird that it doesn’t open – I just checked it for me and it still works. Check it out again when you get home.

        BSV is basically the Bitcoin Blockchain as under the original Satoshi White paper. BTC is basically the corrupted Beta version.

        Bitcoin was never just about being a digital currency, BTC was just meant to be the native currency for the blockchain database.

        The epic post that MB deleted was my speculating that Facebook will launch their coin on the BSV blockchain and use the BSV blockchain as the back end ledger (as it was designed to do) to process transactions.

        Facebook are releasing their white paper on the 18th, which means that by Wed morning Aust time we’ll know one way or the other.

        At worst, it would mean swapping one ponzi coin for another…. at best you might end up grabbing hold of the next Cisco Systems/Facebook/SWIFT/Google/BankofAmerica in one coin.

        Regardless we know with 100% certainty Facebook are launching their coin this Wed – the question is what is the chance that they will be launching it on their own blockchain or as a token/coin on an existing blockchain?

      • Stewie – was there a BTC/BSV split somewhere, or are the blockchain completely separate?

        If there was a split, I might just need to go and find by BSV, which would be better than buying ‘em….

      • Stewie Griffin

        Yes – BSV is a split off from the BCH blockchain on 15th of November 2018. BCH split from BTC about 18 months earlier… essentially it is a split of a split (or as I view it, BTC and BCH both split away from BSV).

        If you were only holding BTC and had already sold all your BCH then you won’t have any.

      • Thanks mate. I’ve got my BCH (HODL!) so will need to go through the motions to claim the BSV. That split stuff is clunky unfortunately :/

        Much as I hate Facebook, if they want to do stuff to creat sweet sweet profits for me – more power to their arm.

      • Stewie Griffin

        Awesome – if you were holding BCH on 15th of November 2018 then your wallet address will have BSV.

        (provided it wasn’t held on an exchange – some exchanges have actually sold their customers BSV and given them cash instead…. that they paid out at $50 [shakes head])

      • No way it’s at the exchange. You don’t get to be as crazy as me while doing silly stuff like that.

        I keep ‘em written on a scrap of paper… next to the bullion and the shotgun shells 🙂

    • Sigh. The conspiracies you were peddling here 18 months ago (and laughably published and believed by HnH) about Tether not having the cash reserves turned out to be blatantly wrong.

      Is Wright alone Satoshi? I doubt it (maybe he was a part of the original team). He was barely able to survive a battle with BCH, I doubt he has the influence and power to fight BTC.

      • Wait, I thought the tether fraud was substantiated in the end.

        But BTC doesn’t care anyway, because it’s awesome!

      • Stewie Griffin

        Nope, nope, noppity, nope, nope.

        The risks were very real at the time – the Tether crew are dodgy to the max and represented a fundamental credit risk to the entire crypto complex at the time.

        They were a systemically critical player who were completely opaque and refused to allow a credible audit to take place. That the worst case did not eventuate was more good luck than anything else.

        As I’ve stated, the risk posed by Tether from a systemic point of view is far, far less than it was 2 years ago.

        Was Craig Satoshi – personally I believe he was the principal behind it and the originator, even if Dave Kleinman contributed to the cryptography and Hal Finney did most of the coding. The fortune Craig spent on bootstrapping the network up at the beginning should be evidence enough.

        BCH is a wasteland – BSV had most of the Hash just prior to the split even, and ABC only emerged with the ticker after Roger Ver and Wu cheated by spending a fortune hiring and redeploying additional Hash.

        Regardless, BSV is far more than Craig Wright. The level of development taking place on the BSV blockchain is staggering and probably greater than all the other blockchains put together. BCH, the joke that it is, is having to crowd fund in order to pay its developers.

        BTC will be killed, either through network collapse, the Govt simply banning it or BSV eating its lunch.

        It will need more than the faith of a bunch of crypto moon boys who got lucky with their spare change from their drug deals being momentarily being caught in a massive ponzi, to keep its price aloft.

      • Peachy, they had the cash backing at the time (probably not 100% backed now given the update to their T&C earlier this year), the narrative driven by Stewie via Bitfinex’d on Twitter was that they were just printing Tether our of thin air and didn’t have the cash.

      • Stewie Griffin

        JosephS – that was one possibility among many different narratives. If you go back you’ll see that I mentioned that it could all be a-okay too.

        If you have an opaque systemically important business run by people whose names appear in multiple tax evasion investigations, then yes, I am quite happy to be unashamedly cautious and de-risk.

        Sure they could be fine, but instead of making an investment where you can see all the facts and make an appraisal on the basis that the players or all honest and well regulated, you had this big black box “Tether” sitting in the middle of it.

        With what would have happened to anyone who had Crypto on any of those crypto only exchanges had Tether failed at the time, then prudence wins the day.

        Given the same circumstances I would do it all again.

  4. IMO not a coincidence that the price bottomed out at the electricity cost of producing a single bitcoin.

    Disclaimer: I don’t own bitcoin and believe the US government will eventually intervene to shutdown all the payment transfer options into and out of bitcoin, as they did with Online Poker many years ago.

  5. This happened just after Tether (as part of various investigations by US regulators) admitted that they were undercapitalised (by at least 24 cents on the dollar if I recall) and not all their assets backing it are cash as they had long promised (a lot is actually cryptocurrency). Tether, of course, is the virtual currency that is meant to be 1:1 backed by US dollars in a bank account (of course, they keep having to jump around from one sketchy tiny bank in tax havens or Eastern Europe, etc. to the next because they aren’t following anti-money laundering rules so nobody wants to bank them), and something like 80% of cryptocurrency is traded for Tethers, not actual US dollars.

    So over the last two months they’ve issued about a billion dollars worth of new Tether, and surprise surprise, Bitcoin is pumping again. If their narrative is correct, this is because institutional or other large investors have given them a billion dollars in exchange for Tethers. More likely though is that they are issuing unbacked Tethers again, transferring it to Bitfinex (who is owned by the same people – which was long denied but proven in the Panama papers) and buying Bitcoin and other cryptocurrencies to pump the prices. They hope that enough people will jump on board and put new money in, and then later Tether/Bitfinex will dump their cryptocurrency, remove the Tethers from circulation and have sucked in all the unsophisticated investors’ money to make themselves a profit.

    • Stewie Griffin

      Tether is still an issue, but not nearly as big a problem as it potentially posed back in Nov 17 when it first emerged as an issue into popular awareness.

      Since that time most of the exchanges, certainly the more reputable ones, have moved towards fiat currency funding, meaning that investors on those exchanges aren’t forced to choose between leaving their crypto wealth in BTC (or some other coin) or Tether – they can now park it in USD.

      There are also a number of other competing stable coins on the market, which those exchanges that don’t have fiat trading can use or allow to be used in place of Tether.

      Simply put Tether is no longer a key systemic weakness that it once was. If it collapsed it would be a very big negative for Crypto, but not nearly as apocalyptic as it was at the time.

      Agree that Tether issuance has been on the increase again, especially since April – but it is not entirely clear if it is resulting in a demand driven push on the BTC price or a supply driven liquidity pull.

      My understanding is that it ultimately looks like Tether was more or less fully reserved back in Nov17, however, it has subsequently had significant funds confiscated pending Govt investigations, that is behind the gap between NTA and par.

  6. I heard it explained that bitcoin ( Or any Blockchain based currency ) was better than real currency ( i.e. any government controlled and owned currency ) because it protected against the establishment playing games with the currency to manipulate wealth.

    While I agree on the surface this seems admirable it is a bit short sighted. The most common reason for a central bank to manipulate the currency is to control inflation / deflation. The problem with bitcoin is it is a finite currency with an inbuilt deflationary aspect. There is a limit to the number of mine-able coins and each coin can only be divided up into a finite number of “chunks”. So over time the number of bitcoins in circulation are limited, the “value” of a bitcoin goes up and the value of hoarding a bitcoin also goes up, putting even more pressure on the “value”.

    Add to that the fact that those at the beginning hoard the majority of the available coins as they are cheap to mine and as the value goes up they can pretty much live like royalty on the increased value. The fact that this kind of behavior around currency and wealth is also stated as one of the reasons that the bitcoin is better than “real” currency just makes the idea even more ludicrous.

  7. A very, very loose correlation with gold on a chart with a highly manipulated y-axis over a very short period of time… not sure that’s a convincing argument for Bitcoin continuing to follow Gold.

  8. Its done this before in august 2015 where it went up 180% in 3 month just after it bottomed. It then dropped 40% in 2 weeks or so and then just kept going to the next bubble. Probably doing the same thing again

  9. So even though the price boomed and then crashed it turns out people haven’t learnt their lesson yet? Is that we are saying? What about all the very smart people who are working on cryptocurrency and crypto solutions? And all the academics writing papers on it. Clueless too?

    When I was young I remember older people proclaiming that “paper isn’t money, how can paper be money?”

    Get a clue, MB, and I might consider re-subscribing.

  10. Other than swapping for fiat, I’ve never tried buying anything with gold.
    I doubt anyone else on this thread has either.
    Gold’s only value is what the next person will pay for it (or swap for it). Outside a store of value (an agreement through network effect) it is pretty useless.
    Gold is not easily transported and not easily converted into fiat or other value without incurring large transaction costs.
    BTC is no more a ponzi than gold. Both are worth little other than their ability to store value, act as a medium of exchange and live ouside of the central banking fiat system.
    BTC and other cryptos are an anti-central bank QE/MMT/shrinkflation/sovereignty play.
    If you want to find a stupid manipulated market look at gold. The global physical quantity is uncertain and the market price is set by a small number of opaque central players and its ‘price’ (if you call it that) is set with reference to a paper market which is 100x larger than the physical market riddled with convicted manipulators.
    While i don’t like Tether, complaining that it has only 75% fiat reserve backing is pretty weird when you compare it to traditional banks. How many AUD does my bank hold against the deposit it owes me? The answer, bugger all. It has a great pile of A$ loan assets but not much A$ currency. Tether has 75% fiat currency baking and big (spurious) loan to a related party. At least that give it about 50x greater fiat currency backing than your average bank.

  11. In mid 2020 the mining payout rate will halve, and so the daily supply coming in will halve. This could really spike prices.

    I think the long-term trend for Bitcoin is up. If you’re arrested and imprisoned, a Government can seize all of your assets except Bitcoin. Well, you could have assets overseas, but that takes time and overhead to manage. Bitcoin by contrast is much easier.