Thursday, April 11, 2013

The Quick Bitcoin Bubble

Bitcoin is an interesting idea. I do think it can be considered money. I prefer a gold standard, but admire its representation of idealism into reality through the Internet. Bitcoin seems like the late night, idealistic anarchist ideas I would laugh but consider very interesting the next morning when in college. Moldbug has written well on this one (here, here and here), but Bitcoin was always going to be killed if it ever posed a true threat. The other problem would be the low barrier to entry, inspiring other entrants. Killing an idealistic and rebel idea is a bit risky in the age of faux rebellion, so why kill what you can reduce to ridicule and smear before strangulating.

Bitcoin has a '90s Internet feel to it. Back in the '90s, us nubes didn't know the porno theater-shopping mall-forced family reunion that the Internet would become. The Internet was sold to us as anything we wanted it to be. A virtual currency sounds straight out of Internet 1.0. "Dude, my money is totally in cyberspace". With widespread attention and enough information for early adopters and Etsy styled microbusinesses, I could see Bitcoin catching on, then add in the black and grey markets and you have a base. In an era of competitive currency devaluations, Bitcoin would be a small problem and challenge to the US leadership. Snuffing out Bitcoin would appear heavy handed. Before icing Bitcoin, it would be best to smear it and spread propaganda of its danger and weakness to manipulation. It is not just about Bitcoin, but any type of virtual Internet currency.

That is most likely behind the Bitcoin mini-bubble. Zero Hedge has reported on its spike and crash (1, 2). Hinted in ZH's Winklevoss Twin post is how the central banks might be holders of Bitcoin, waiting to sell it off again. The feds have been warning of potential money laundering issues with Bitcoin. This is an anthill compared the HSBC drug money laundering, but HSBC is part of the ruling bank cartel. The feds might fear the attention Bitcoin received after the Cyprus money grab pushed some people into holding Bitcoin. The feds then could sick Kevin Henry, FED trader extraordinaire, on Bitcoin's incredibly thin market. If the FED can keep the long end of the UST bond curve in line for years, then manipulating Bitcoin's tiny market would be easy. Bitcoin : UST market = flea : 'roided up elephant. Bubble up, media attention, crash, more media attention, and then "look at the dangers of virtual currencies, they must be regulated".

The feds could use a sledgehammer to Bitcoin's face or they can do what they do to many entities, act like a velvet gloved Gestapo. It is true they have no intrinsic value, and that while the US $ is fiat, it is the lube for the USA Godfather protection racket. Another reason why we need to move back to a gold standard. Bitcoin now can be discussed by low information news consumers, mocked on Saturday Night Live, and smeared from use by middle adopters. The Bitcoin bubble and crash can be used as an example by our powers that be to regulate virtual currencies or dare I say, outlaw all virtual currencies. The folks at home can rest soundly, unaware that the men and women at the Federal Reserve and other central banks are the only ones allowed to create money at a computer terminal.


Anomaly UK said...

It's not necessary for the bubble/crash to be hostile action. There isn't quite enough liquidity and capacity in the market for it to trade smoothly.

The price if I recall more or less doubled over 2012 at a fairly steady rate. When some big money (meaning a few million dollars, probably not much more, not central bank levels) moved in over the last few weeks, that overwhelmed existing liquidity, and when the publicity pulled in more interest, that overwhelmed MtGox's capacity to handle the trading volume.

If btc is to become significant (which I doubt, but don't rule out), that is still at least two years off. Right now, activity consists of practising, building the infrastructure, and speculating on what the value of the btc will be if it does seriously catch on. This volatility is primarily the result of the lack of infrastructure.

Portlander said...

I too am somewhat doubtful the Bitcoin fiasco this week was an orchestrated take-down by TPTB.

If it was, they must be really, REALLY spooked, because it was incredibly ham-handed and waaaay too early. I don't believe Bitcoin hasn't had enough time to establish itself as a threat in their minds. PM's they watch and keep a thumb on, no doubt, but Bitcoin? It doesn't pass the magazine cover or housewife test. For them to pre-emptively kill it now, would suggest panic.

Also, despite still-fresh memories of Cyprus and threats from Japan to go Zimbabwe, they are shooting gold & silver in the head and ramping the S&P to all-time highs. To me that's a full plate already. How they've kept a lid on PM's when macro factors are screaming cash, whether in the mattress or in the bank isn't safe, is an object to behold. Deciding to take out Bitcoin, which three months ago was still an esoteric curiosity, while they're at it? That, would be a level of speed and coordination I don't associate with TPTB.

Back-up two weeks, if you're a 48 y.o. Spaniard or Italian and still have access to the Euros in your bank account, are you going to buy $20k in gold or Bitcoins? If you're a 28 y.o. Spaniard or Italian and have been following the news are you going to buy $400 in gold or Bitcoins? I think the latter choosing Bitcoins is far more typical and far more likely to swamp the market than anything TPTB would need to bother themselves with.

Cheers. Great blog, BTW!

Son of Brock Landers said...

Thanks for both comments. I view any FED action on Bitcoin as part of larger propaganda and government move to curtail or destroy it. I really like the idea, and hope to see Bitcoin or something similar emerge in a safe fashion during our current currency crisis.