thank you for your very clear analysis, that makes sense to me. And then there's the enormous waste of power involved in bitcoin mining. As Mortazavi said in Jacobin (Jan 2022): "If cryptocurrency markets cannot keep luring in enough new money to cover the growing costs of mining, the scheme will become unworkable and financially insolvent."
Appreciate the long write up but I think there’s some conceptual mistakes.
1. You say BTC price is “random” but equities trade based on some hypothetical fair value — yet BTC has a high correlation to risk-on equities. They’re both just driven by liquidity.
2. If you think of BTC as a commodity, then demand-supply as drivers of price are sufficient. Does gold price only fluctuate when new mines are found or emptied out?
3. Choosing to apply certain frameworks for value (train tracks) are a subjective choice. Just because something doesn’t fit your chosen framework doesn’t mean it can’t have value. Value is always subjective, and if people value holding a censorship resistant asset they can move globally, you can’t make normative judgement that that doesn’t qualify as “value”.
I can go on and on.
I’m not hardcore BTCer — I’ve written 10k+ words and don’t multi podcasts explaining why the community is messed up and co-opted by tradfi and how their mishmash of pseudo-libertarianism and neoliberalism is idiotic.
But I still defend BTC against critiques that have been around for a long time without any substantiation.
Hey Taimur, thanks for your response. Here are some responses
1) I didn't say Bitcoin price is random. I said in the early days it was random. Secondly, I didn't say that equities trade based on fair value. I said equities are moderated and affected by fair value calculations. This is why there is a class of fundamental traders who will short markets etc, and also why, for example, share prices of individual companies are heavily affected by earnings reports. This is not to say that the market is 'rational', but in a stock market you can make claims about 'bubbles' precisely because there is some theoretical model to say that something is overpriced. That overpricing can very well be due to a factor like easy money, for example, which of course can affect bitcoin too
2) Gold prices are heavily influenced by fear and risk-aversion, due to a long-established belief that, when all goes to shit, humanity retreats to attractive, shiny metal. That is a fundamental factor, but it's taken thousands of years to develop, and is entrenched in religious ritual, culture etc. Hypothetically Bitcoin could achieve such a status in future, but it's got a long way to go (also, I don't think of Bitcoin as a commodity - it's a digital object)
3) I don't find this particularly compelling. I mean, it is a very interesting socio-cultural phenomenon that people have a belief that the movability of an object can grant it value - and that's worthy of study by an economic anthropologist, for example - but that's a weak belief that can quite easily buckle. One of the most interesting elements of the early Bitcoin community was their use of language to simply state without proof that the movable object was something beyond the tracks - i.e. they'd say it's a 'currency', or an 'asset', precisely because you needed some external justification for why the movable thing was valuable. Having got some basic cultural buy-in that could establish a price, they could then rely upon countertrade to give the illusion of it being 'moneylike', which in turn could be used to reinforce the narrative, but this is always a delicate balancing act that requires turning a blind-eye to some very obvious factors (i.e. Bitcoin's got no countertradability if it has no dollar price). This is why the Bitcoin community cannot face this stuff - the story relies on a series of circular justifications, and - to keep those going - you need to not look too closely at them.
The whole point of this article is that the job of a fundamental analyst is to ignore articles of faith and stare through the bullshit. Now, a good anthropological fundamental analysis will point out that bullshit can be culturally powerful, and I'd certainly agree that the Bitcoin community - of which I was once part - has been very good at that
Great writing as always. You left out one word though: Gaming.
Many people want to make money and apparently don't want to be burdened by fundamentals or research of traditional markets. Bitcoin behaves like a stock -- buyers and sellers and fluctuating prices -- but bitcoin traders don't need to know anything else about it. It's just gaming.
Don't underestimate the underlying ability of gaming to be monetized.
Bitcoin trading is available twenty-four hours a day -- something stock markets don't offer -- and it's international in scope.
(Not to mention bitcoin is useful for anonymous criminal activity which will never go away.)
And as you mentioned, it is further underpinned and manipulated by whales swimming in money, whether corporations, sovereign entities, or individuals.
I'm a detractor, but I acknowledge these points and how they unfortunately support bitcoin sustainability. The hype surrounding it is disgusting, but that's not much different from the hype we face every day about everything.
If the crypto topic interests you, then I hope you already know about Molly White's newsletter which offers a well-written, comprehensive view of crypto shenanigans and crimes.
Great job pulling all that together, Brett. I was aware of many of the facts, but the context you provide was the key to understanding. I'd never thought about what the lack of fundamentals would do to a market.
I'll offer one note: there was an opportunity to debunk the very idea that the US needs to invest in crypto in the hope of acquiring more dollars.
This is a great article Brett! I hope the “fundamentals” prevail. I am equating Bitcoin to a beanie baby and the rage behind it - is that a fair comparison?
@brett - the Too Big Too Fail narrative. I also agree believe with this, unless there a massive black-swan event like a some sort of mega-bitcoin hack in which even investors like Michael Saylor get swindled.
My question is: How similiar is this sort of US-government backed manipulation-turned bailout to the financial crisis of 2008? The banks also seem to engage in sketchy behaviors for profit, that became so big - the US governemnt 'Had' to bail them out.
Also, is it just common business/government practice at this point for the government to prop up industries that are 'in demand' either by the populist or national security? I ask because it seems like there are dozens of other industries like this (yes less speculative in nature) that the US-government props up or has been forced to prop up
Thank you! A very good and comprehensive view of the Bitcoin and crypto marketplace, and the inherent 'Emperor's new clothes' aspect of trading something that has no inherent worth, except perhaps for criminal gangs that want to shift money around! A kind of criminal religious faith?
I will add two comments, if I may:
I suspect Trump's crypto play has two purposes; the first has already happened, making him very rich in crypto terms, but as you point out, the moment he tries to sell, he scares everyone and the price plummets. So I think the second part for Trump will be to swap his crypto 'wealth' for gold, by the US government (i.e. Trump) deciding to hold a proportion of its national reserves in crypto instead of gold. So the government buys some chosen crypto assets (including Trump's) with the gold reserves, and leaves Trump with real wealth. Presumably the gold will be on the first flight to Zurich!
The second issue if the technical one of the fundamental security of 'unbreakable' blockchain encryption. The fast development of Quantum computing is likely to be able to unravel blockchain identifiers and so break into crypto accounts in the coming few months or years, and for obvious reasons no one involved wants to say when. At that point, all cryptos fall to their true worth, i.e. zero!
So sooner of later Bitcoin and cryptos will become valueless and the biggest bubble of nothingness will disappear, leaving the vast majority with nothing and a few people massively wealthy.
Isn't it strange how it always seems to end up that way? Almost as if........ 🤔
So much has been written about the "scam" of fiat money and the Federal Reserve. "The Creature from Jekyll Island" and all that. The people who get the newly created fiat money first see their net wealth increase, while those who get it later (the majority) wonder why they keep falling behind.
Bitcoin seems to be especially attractive to younger, entrepreneurial men. To me, it seems to work for them more often than not. But it is volatile. The gaming/gambling aspect of it, I think, gives them a big dopamine hit from time to time when they notch up a spectacular gain. Remembering that rush can stoke fantasies of experiencing that rush again.
The non-level playing field of fiat money and Fed money creation can produce dreams of beating those bastards and their "rigged game" with another "rigged game"?? Am I onto something or just an ignorant old bloke?
thank you for your very clear analysis, that makes sense to me. And then there's the enormous waste of power involved in bitcoin mining. As Mortazavi said in Jacobin (Jan 2022): "If cryptocurrency markets cannot keep luring in enough new money to cover the growing costs of mining, the scheme will become unworkable and financially insolvent."
Absolutely
Very (vibe) ponzi-scheme like
Excellent analysis! I had a middling (at best) understanding of the crypto phenomenon and this was elucidating.
Glad you're found it useful Lauren
Appreciate the long write up but I think there’s some conceptual mistakes.
1. You say BTC price is “random” but equities trade based on some hypothetical fair value — yet BTC has a high correlation to risk-on equities. They’re both just driven by liquidity.
2. If you think of BTC as a commodity, then demand-supply as drivers of price are sufficient. Does gold price only fluctuate when new mines are found or emptied out?
3. Choosing to apply certain frameworks for value (train tracks) are a subjective choice. Just because something doesn’t fit your chosen framework doesn’t mean it can’t have value. Value is always subjective, and if people value holding a censorship resistant asset they can move globally, you can’t make normative judgement that that doesn’t qualify as “value”.
I can go on and on.
I’m not hardcore BTCer — I’ve written 10k+ words and don’t multi podcasts explaining why the community is messed up and co-opted by tradfi and how their mishmash of pseudo-libertarianism and neoliberalism is idiotic.
But I still defend BTC against critiques that have been around for a long time without any substantiation.
Hey Taimur, thanks for your response. Here are some responses
1) I didn't say Bitcoin price is random. I said in the early days it was random. Secondly, I didn't say that equities trade based on fair value. I said equities are moderated and affected by fair value calculations. This is why there is a class of fundamental traders who will short markets etc, and also why, for example, share prices of individual companies are heavily affected by earnings reports. This is not to say that the market is 'rational', but in a stock market you can make claims about 'bubbles' precisely because there is some theoretical model to say that something is overpriced. That overpricing can very well be due to a factor like easy money, for example, which of course can affect bitcoin too
2) Gold prices are heavily influenced by fear and risk-aversion, due to a long-established belief that, when all goes to shit, humanity retreats to attractive, shiny metal. That is a fundamental factor, but it's taken thousands of years to develop, and is entrenched in religious ritual, culture etc. Hypothetically Bitcoin could achieve such a status in future, but it's got a long way to go (also, I don't think of Bitcoin as a commodity - it's a digital object)
3) I don't find this particularly compelling. I mean, it is a very interesting socio-cultural phenomenon that people have a belief that the movability of an object can grant it value - and that's worthy of study by an economic anthropologist, for example - but that's a weak belief that can quite easily buckle. One of the most interesting elements of the early Bitcoin community was their use of language to simply state without proof that the movable object was something beyond the tracks - i.e. they'd say it's a 'currency', or an 'asset', precisely because you needed some external justification for why the movable thing was valuable. Having got some basic cultural buy-in that could establish a price, they could then rely upon countertrade to give the illusion of it being 'moneylike', which in turn could be used to reinforce the narrative, but this is always a delicate balancing act that requires turning a blind-eye to some very obvious factors (i.e. Bitcoin's got no countertradability if it has no dollar price). This is why the Bitcoin community cannot face this stuff - the story relies on a series of circular justifications, and - to keep those going - you need to not look too closely at them.
The whole point of this article is that the job of a fundamental analyst is to ignore articles of faith and stare through the bullshit. Now, a good anthropological fundamental analysis will point out that bullshit can be culturally powerful, and I'd certainly agree that the Bitcoin community - of which I was once part - has been very good at that
Great writing as always. You left out one word though: Gaming.
Many people want to make money and apparently don't want to be burdened by fundamentals or research of traditional markets. Bitcoin behaves like a stock -- buyers and sellers and fluctuating prices -- but bitcoin traders don't need to know anything else about it. It's just gaming.
Don't underestimate the underlying ability of gaming to be monetized.
Bitcoin trading is available twenty-four hours a day -- something stock markets don't offer -- and it's international in scope.
(Not to mention bitcoin is useful for anonymous criminal activity which will never go away.)
And as you mentioned, it is further underpinned and manipulated by whales swimming in money, whether corporations, sovereign entities, or individuals.
I'm a detractor, but I acknowledge these points and how they unfortunately support bitcoin sustainability. The hype surrounding it is disgusting, but that's not much different from the hype we face every day about everything.
If the crypto topic interests you, then I hope you already know about Molly White's newsletter which offers a well-written, comprehensive view of crypto shenanigans and crimes.
Here's a sample: https://www.citationneeded.news/justin-sun-bloomberg-lawsuit/
Brett: You an Molly are the best.
Great job pulling all that together, Brett. I was aware of many of the facts, but the context you provide was the key to understanding. I'd never thought about what the lack of fundamentals would do to a market.
I'll offer one note: there was an opportunity to debunk the very idea that the US needs to invest in crypto in the hope of acquiring more dollars.
This is a great article Brett! I hope the “fundamentals” prevail. I am equating Bitcoin to a beanie baby and the rage behind it - is that a fair comparison?
@brett - the Too Big Too Fail narrative. I also agree believe with this, unless there a massive black-swan event like a some sort of mega-bitcoin hack in which even investors like Michael Saylor get swindled.
My question is: How similiar is this sort of US-government backed manipulation-turned bailout to the financial crisis of 2008? The banks also seem to engage in sketchy behaviors for profit, that became so big - the US governemnt 'Had' to bail them out.
Also, is it just common business/government practice at this point for the government to prop up industries that are 'in demand' either by the populist or national security? I ask because it seems like there are dozens of other industries like this (yes less speculative in nature) that the US-government props up or has been forced to prop up
Thank you! A very good and comprehensive view of the Bitcoin and crypto marketplace, and the inherent 'Emperor's new clothes' aspect of trading something that has no inherent worth, except perhaps for criminal gangs that want to shift money around! A kind of criminal religious faith?
I will add two comments, if I may:
I suspect Trump's crypto play has two purposes; the first has already happened, making him very rich in crypto terms, but as you point out, the moment he tries to sell, he scares everyone and the price plummets. So I think the second part for Trump will be to swap his crypto 'wealth' for gold, by the US government (i.e. Trump) deciding to hold a proportion of its national reserves in crypto instead of gold. So the government buys some chosen crypto assets (including Trump's) with the gold reserves, and leaves Trump with real wealth. Presumably the gold will be on the first flight to Zurich!
The second issue if the technical one of the fundamental security of 'unbreakable' blockchain encryption. The fast development of Quantum computing is likely to be able to unravel blockchain identifiers and so break into crypto accounts in the coming few months or years, and for obvious reasons no one involved wants to say when. At that point, all cryptos fall to their true worth, i.e. zero!
I talk about it here:
https://substack.com/@az12763157/note/c-145607169?r=44ehru&utm_medium=ios&utm_source=notes-share-action
So sooner of later Bitcoin and cryptos will become valueless and the biggest bubble of nothingness will disappear, leaving the vast majority with nothing and a few people massively wealthy.
Isn't it strange how it always seems to end up that way? Almost as if........ 🤔
So much has been written about the "scam" of fiat money and the Federal Reserve. "The Creature from Jekyll Island" and all that. The people who get the newly created fiat money first see their net wealth increase, while those who get it later (the majority) wonder why they keep falling behind.
Bitcoin seems to be especially attractive to younger, entrepreneurial men. To me, it seems to work for them more often than not. But it is volatile. The gaming/gambling aspect of it, I think, gives them a big dopamine hit from time to time when they notch up a spectacular gain. Remembering that rush can stoke fantasies of experiencing that rush again.
The non-level playing field of fiat money and Fed money creation can produce dreams of beating those bastards and their "rigged game" with another "rigged game"?? Am I onto something or just an ignorant old bloke?