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Don't Hate Bitcoin, It's a Free Market Construct! But "Wishes Aren't Fishes"

There is a huge difference between disliking Bitcoin as an investment and disliking Bitcoin as a construct.

Some of the flaws of Bitcoin are by now well-understood: It does not scale, it is nearly useless for routine purchases, and its use of energy in mining is problematic in many ways.

Forbes contributor Peter Tchir says You Don't Have To Hate Bitcoin To Think It Is Overvalued.

I continue to think Bitcoin and other cryptocurrencies have further to fall and I am unlikely to become bullish until Bitcoin drops below $5,000.

The basic premise is that speculators got way ahead of themselves in terms of the adoption rate. The adoption rate has slowed by every metric I look at, while speculators are still stuck holding onto cryptocurrencies that have declined in value. Virtually every purchase of Bitcoin since the spike higher around U.S. Thanksgiving is now losing money. Those holding cryptocurrencies bought with credit cards are feeling the additional pain of interest payments if they bought using credit (which scares me as a concept as I analyzed here).

While new adopters are happening at a declining rate, the amount of regulatory and tax scrutiny is increasing.

Despite being bearish, I believe that there will be value in some cryptocurrencies, even Bitcoin itself, and some of the ICO's - which seem to be viewed with a high degree of skepticism right now (justified in many cases).

Which ICO will be worth it? Which crypto should we back? When should I buy Bitcoin? These are all questions that we will continue to try and answer.

For now, I think regardless of the cryptocurrency you are looking at - you will be able to buy it cheaper, significantly cheaper in the near term.

We have gone from FOMO or what I called the Five Stages Of Not Owning Bitcoin Grief to a concern that purchases might have been foolish. While the true "believers" don't see that, I see it and think the mentality needs to change for Bitcoin to go higher - all markets are driven by emotion at some level and we went from extreme fear of missing out for the average person, to a concern that the naysayers are right.

FOMO In Reverse

FOMO (Fear of Missing Out) is in reverse.

Unlike Tchir, I do not suggest $5,000 is a good buying point. I did not like Bitcoin at $5,000 on the way up, so why should I (or anyone) like Bitcoin at $5,000 on the way down.

I see much promise in the technology, but that does not make Bitcoin a buy at any price.

Yet, there is no reason to wish for Bitcoin to fail, unless of course you are short crypto.

Bitcoin Surge

The surge of Bitcoin to what I believe are absurd prices is a function of policies of Central Banks.

The reasons put forth by HODLers as to why Bitcoin cannot be a bubble are ridiculous.

Moreover, it's easy to root against the coin out of jealousy or the incessant ramblings of the true believers who still think Bitcoin is headed to $100,000 or even a $1,000,000.

The mining costs alone suggest those targets are pure silliness.

Free Market Concept

It's important to understand that Bitcoin is a free-market concept.

That's the bottom line.

Thus, I won't root against Bitcoin even though I find the incessant Tweets and price targets of the true believers more than a bit galling.

Where Will Bitcoin Be One Year From Today?

The HODLer cheerleaders who say "Don't worry about what it's doing now, look at where it will be in a year," are also galling.

The statement implies Bitcoin will be higher a year from now. Why will it be? Even if it "should be", which I strongly disagree with, perhaps it won't be.

No one knows where Bitcoin is headed. And that's a fact.

Also it's pretty easy to tell people to HODL when many who did so intend to dump when the prices rise back up.

Wishes Aren't Fishes

Galling price-cheerleading aside, as a free-market anti-fiat currency, there is every reason to want Bitcoin to succeed.

But wishes aren't fishes or the nets would always be full.

Meanwhile, the price keeps ratcheting down. Every recent rally has been sold. Will that change? Perhaps.

Then again, central Banks or governments could easily squash Bitcoin like a bug, if they want to.

I do not agree with such a policy, I merely suggest it's quite likely at some point.

It is fantasyland material to believe Bitcoin will replace the Dollar, the Pound, the Yen, and the Yuan, and central banks will not stop it.

Mike "Mish" Shedlock

@Blacklisted "a sovereign debt crisis is right around the corner" not sure that can be true when everyone in the bond market knows the central banks will do what it takes. What we have on our hands imminently is a crisis of deflation, which is a debt crisis of sorts, and that will be followed, possibly, it's a big unknown: a crisis of inflation. What else does a central bank do with deflation at 0% interest rates?

What I will say is, if we're looking at the worst case scenario on the horizon: that the visa-mastercard commercial bank network disbands, unemployment rises severely, and the nation splits apart in various secessionary movements, then you better believe that the black economy will boom like a bomb, and cryptocurrency will be a major beneficiary of that process.

Anything less than our worst case scenario, and the situation for cryptocurrency may not change that much from where it is now.

"not sure that can be true when everyone in the bond market knows the central banks will do what it takes."

Anyone currently in govt bonds knows nothing, and if you think CB's can cover the interest expense tab when rates rise, you likely think the FDIC can cover the losses associated with a financial crisis. The ECB is already buying 40% of member countries debt. Can it go to 100%? When rates rise due to rising default risks, how are the interest payments going to be made? Yes, they will try to take it out of the hides of their citizens, but the civil unrest and reduced growth associated with such actions will only excellerate the death spiral.

The global economy will continue collapsing from the periphery to the core, and when govt's can't sell their bonds, rates will spike higher, and global capital will seek the RELATIVE safety of the dollar, which will compound the problem for foreign entities holding too much dollar-based debts, not to mention grinding exports to a halt. This popping of the govt debt bubble will cause a sovereign debt contagion that will force an emergency G20 meeting to reset the system, which will include a new reserve currency, and likely another world war to distract the masses from the true source of the problem - govt largess. This does not require a Mad Max event, but it will at a minimum cause people to find an alternative place to park their money until the dust settles. The Mad Max event depends on how totalitarian govt's become trying to protect their perks and power.

Individuals can potentially use gold and silver, if they can keep govt from confiscating it. Crypto's are preferred by the younger generation, plus they can be transported across boarders (not so much with gold), and they facilitate barter, which will be helpful when supply chains seize up when the debt-based system implodes. Since the PM market is not big enough to absorb the $80 trillion in global investments, most smart money will park in blue chip stocks in the owners name (not Street Name like most investors), which has been the primary driver behind the rise of stocks for years. Sorry, it's not the Fed, buybacks, techicals or fundamentals.

Given the above crisis scenarios, sovereign debt implosions, inflation-deflation gyrations, secessions, and assorted doomsday situations, and knowing .gov's motives to see to it that competing "currencies" are held in tight control,,,well, offered a choice between a 100% traceable, trackable electronic "coin" and a Double Eagle purchased for green cash? No contest. But, hey, it's a free country. And at the present rate of speculation in data entries, there likely will be an abundance of cryptos from which to choose. At least until this fad, like all others, disappears. Then it'll be back to "cash on the barrel head, son."

I’ve been listening to the “doom and gloom” types for decades. They have been wrong for decades.

@Blacklisted

@Realist

(edited)

You really should not be that tough on Mish. Just because he has been saying that stocks are in a bubble and the dollar would collapse does not mean his intensions are bad. Afterall, none of the problems that caused the financial crisis have been fixed. Mish just doesn't understand that the rest of the world is in much worse shape. It should be noted that most of the doom and gloomers are dollar haters and gold bugs.

Since you discount the doom and gloom scenario, I have to ask, do understand exponents? For example, exponential increases in health care costs or budget deficits can appear benignly linear for decades, then all of a sudden they begin to go parabolic. Put 9.3% per year increases for 37 years in your calculator and you will see why health care costs are unsustainable. The same problem will be seen with interest expense on the debt, which is already passing defense spending, and rates have not even started to gap higher, which is coming over the next 18 months. You can ignore reality, but you cannot ignore the consequences of ignoring reality.

Call me paranoid, but one potential problem with bitcoin and cryptocurrencies is that when they (inevitably) fail, the central bank/big government people will say "See what happens when we let the free market handle something as important as money? See? See? We told you this needed centralized management by really smart people."

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