Poor Old Bitcoin: From Crypto-Rags to Crypto-Riches… And Back Again

I guess it was bound to happen sooner or later.

Too many people are talking about it all around and, in hindsight, I suppose it was only a matter of time before they came to me for advice.

Not to brag or anything, but I know a thing or two about cryptocurrencies, a respected miner said to me once he see it bottoming out at 90k a coin, two years ago!

While a blind man on a galloping horse could tell you bitcoin isn’t the strongest technology of all the cryptocurrencies it has almost become a brand name. So, it is important that you hear me out. You will definitely want to.

Especially if you are thinking about jumping on the crypto-bandwagon, two boots deep.

 

The Bitcoin Revolution

Over the festive period, it was almost impossible to avoid having bitcoin-themed discussions with many people. Some were unassuming and merely interested in information. Others were fairly serious about investing. And then there was the third group. Investors and the downright insane.

One was even enthusiastic enough to show me, black on white, that he was closing in on a million dollars! In all the excitement, he forgot that he had included his initial investment in the calculations. And that he didn’t exclude his taxes. I didn’t want to point it out at the time. It wouldn’t have mattered, after all.

In a way, that’s the way all crazes go. They start when you start ignoring reality. And since the bitcoin revolution is all the rage now, and many people seem to be living in the bitcoin bubble – oops: pun unintended! – I guess it’s time that I pinpoint some cold-hard facts.

 

Can I Get Few Cheers for the Blockchain Pioneers?

Now, why would you believe me?

Well, unlike most, we’re not new in the business. In fact, we’ve had some pretty decent history and experience with bitcoin and cryptocurrencies, dating back to at least 2010.

You don’t believe us? Please, be our guest.

We’ve written articles on bitcoin and blockchain technology ever since 2012, long before our several website redesigns. We asked Ireland to take note before it was fancy to, and we explored how blockchain technology can become part of everyday life, whether by being implemented in supply chains, communications or AI.
It’s safe to say that you can trust us. We know a lot about bitcoin, and, yes, that means we’re not interested in bitcoin merely superficially (read: as money), but much more profoundly (read: cryptography, blockchain, hash, timestamps, ledgers, etc.)

We’re, as they say, au fait with bitcoin, cryptocurrencies and their underlying technologies.

 

Fairy Dust & Futures

There’s a memorable scene in Martin Scorsese’s Wolf of Wall Street which summarizes best my main argument.

Mark Hanna (played brilliantly by Mathew McConaughey) enlightens then-neophyte Jordan Belfort (Leonardo DiCaprio) with the number one rule of Wall Street:

 

Nobody... and I don't care if you're Warren Buffet or if you're Jimmy Buffet. Nobody knows if a stock is gonna go up, down, sideways or in f-ing circles. Least of all, stockbrokers, right? it’s all a Fugazi… It’s fairy dust. It doesn't exist. It's never landed. It's no matter, it's not on the elemental chart. It... it's not f-ing real!

Mark Hanna

And sometimes you just know a thing or two and it’s easier for you to see the fairy dust. What makes it exceptionally hard for others is the bubble in which they’re living. They think they have millions, when in fact they hope they will have at some point in the future, when they do its all the obstacles to turn it into cold, hard, legal cash.

It’s a basic difference, the difference between living in the present and living in the future. Stocks, cryptocurrencies, commodities, and even types of derivative contracts are, by definition, not valued in real-time. They are all a bet on the future, in the largest casino of them all: the markets.

 

Bitcoin Is Not Money… And It Has Fundamental Issues

I have expressed this on numerous occasions, ever since the very beginning. Let me state it as bluntly as I can: bitcoin is not money. And only the “tulip foolish” and the “technically challenged” would ever think anything different.

It’s impossible to compare bitcoin to cash. It has so many fundamental issues that saying it would make, a poor payment system may be an understatement. At the moment, it’s not conceivable that it will evolve to become a viable payment system, and, thus, an alternative to cash money.
At least not in the near future.

In its current format, I can’t see any practical use for bitcoin, outside of the standard criminal, ponzi and avoidance tactics. And this sentence is not based on something you can’t read elsewhere. Its dodgy start, its ropey history, the low total ownership, its volatility, its limited ability to exchange it for anything meaningful – have all been covered over and over again.

The criminal aspects and the tax evasion thing – not so much.

But, it’s coming alright. Tax, tax, tax! And some more tax. Regulation is the basis of society, so have no doubts that, at some point in the future, the G7 – or the G8 or the G20 – will decide to make attaching crypto-ownership to a person mandatory.

Just think about it: how different would human history have looked like if it would have possible for an independent 3rd party to tell all the previous owners and the complete transaction history of that £5 banknote you currently have in your pocket.

Now ask yourself: would those guys from the G7 want that?

Time for a good laugh: ha-ha!

 

Bitcoin Is Addictive – And That Is Never a Good Sign

Bitcoin miners and investors – and not to mention few enthusiastic readers who read every text they can find about bitcoins and bitcoin-related matters – have probably given up by this point. They can jump up and down as much as they like, but that will not change the facts of the case.

Now, don’t get me wrong: there’s no doubt whatsoever that some people will make a lot of money. That’s how bull market bubbles work: someone does profit. The problem, however, is much simpler: it’s all about the shifts of wealth rather than about the making of actual money.

It’s about being rich today and poor tomorrow, or poor today and rich tomorrow. Healthy societies can’t function that way; neither can healthy people. Time to quote Mark Hanna again: you don’t let clients sell a stock at twice the price they bought it:

 

Because that would make it real. You get another brilliant idea. A special idea. Another ‘situation’. Another stock, to reinvest his earnings and then some. And he will, every single time, because they're f-ing addicted!

Mark Hanna

 

The Human Element

Now I can go on and on about how bitcoin is not money and how it would make a poor payment system. However, I think these are fairly obvious and have been well covered. What I would like to discuss is something a bit different and far more down-to-earth.

Ironically, I have not read or heard anyone talking about it. The human element.

First of all, most people will not be swapping real currencies for bitcoins or any other cryptocurrencies anytime soon. History demonstrates this best. Especially in the case of financial affairs. It’s a three-part equation.

People change slowly. Institutions even slower. And governments are all about the status quo.

Take the US, for example. The pinnacle of the global economy. And yet, it is not uncommon for people to still make payments with cheques! I am not talking about insurance claims or large sums of business-related transactions. I’m talking about simple everyday purchases like fuels, food, and bills.

It will require generational changes before cheques stop existing. Decades will pass before bank transfers and debit card type transactions become the only viable norm. And don’t forget the requirement of government’s will to run a balanced economy!

Time for another laugh: ha-ha!

 

When to Buy and When to Sell Bitcoins

Everybody’s talking about the right time to buy bitcoins. And this is clearly not as important as finding the right time to sell them!

Ask any banker or even a trader: most of them will tell you that we’ve just walked out of a global recession. Not my point of view, but let’s work from there. I want to show you how forgetting is probably what we do best as mankind.

A Dublin property developer sold his housing stock before the “financial crisis” of 2008. When asked how he knew that the apocalypse was coming, he tells a story about a discussion he had with his postman one morning. House buying was all the rage in 2007.

The postman told the Dublin property developer he owned a number of houses in Dublin. In him, this triggered the thought that it’s time to get out and it’s time to get out fast.

The moral of this story is spotting the signs. Usually, they’re staring at you, right in your face. Namely, if a mail carrier can fiscally own 3 or 4, or even 5 properties – obviously the system of things is somehow broken.

Now, think about the people you know who have started buying bitcoins. That’s right. It doesn’t look too good for the system.

 

The System Is Built on Consensuses

Please, don’t misunderstand me. I have no doubt whatsoever that some form of cryptocurrency is going to be the future of financials. The sexiness of the idea of the blockchain has the attention of everyone, from the taxmen to the Central bank, from the treasure hunters to the entrepreneurs.

And it’s not the idea I have some dispute with; nor it’s the foundation of the idea or the technical innovations necessary to improve it; and, certainly, it’s not the raw power of modern technology.

All I’m saying is that there are so many variables which will need to be addressed and overcome to get to that point. These are not just technical aspects. In fact, even though many are pointing them out as problematic, I know we’ll rise above them soon. It’s easier to deal with them.

What’s harder is dealing with people. For cryptocurrencies to really work, it will take a lot of will and a lot of outside-of-the-box thinking by millions of people. It’s not merely a question of what is better; it’s a question of consensus.

Just think about how difficult it is to get a group of people to agree on what to eat for dinner!

Can you still blame me for being unable to see a near future in which bitcoin will have any meaningful impact on my life?

 

Why Bitcoin Won’t Work: Some Real-World Examples

If you want to find out something more about the future of the world, just explore the present of Denmark and the Scandinavian countries.

In this case, think about their pursuit to create cashless societies. It’s innovative, it’s supported from the top and, generally, everyone agrees that it’s a step forward. Consequently, it’s well underway to be completed early in the next ten years.

But, do they need Bitcoin, or Ripple, or Ethereum, or Litecoin to achieve this?

Exactly my point. A cashless society is possible without the need of any cryptocurrency. And if, a decade from now, we have a working example of it somewhere in the Scandinavian zone, other countries will be in implementation overdrive. To migrate more criminally tolerant economies across will take decades. All can and will be achieved without the need for cryptocurrencies.

Because, it seems that Bitcoin is not only a poor replacement for cash, but it’s also a poor replacement for digital currencies as well. We’re striving to save the planet. How smart do you think it would be to do it by creating a cashless society in which we earn money by accelerating the melting of the polar caps?

Especially if we can do it in a much easier and orderly way.

 

Conclusion: Few More Words as a Precaution

Please remember: it was never my intention to stop or avert you from your current path. I merely wanted to save myself some time.

Because next time someone asks me for my opinion, I’m going to send them a link to this article instead of repeating myself yet again. But, I don’t have a crystal ball. And just like Mark Hanna said nobody knows what will happen tomorrow. Up, down, sideways – everything’s possible.

I can only tell you that sticking close to common sense has gotten me this far. Nothing more. But nothing less as well.

Money is a very complex and complicated by-product of human society. So much so, in fact, that even Nobel Prize-winning economists haven’t reached a conclusion about some of the basic definitions and guidelines. And they will not in the near future.

The debate will naturally go on. And the next bubble will just as naturally appear. In fact, I can assure you that it’s already in the making.

After all, disruption is the new black. But, then again, that’s a whole other topic for discussion. And a subject matter for our next article: bitcoin a poor disruptor of the world of money. And which lessons can we winkle out of that.

For now, let’s just conclude this article with a Warren Buffet quote. Sooner or later, you’ll certainly figure out why we decided on wrapping things up with it:

 

You only find out who is swimming naked when the tide goes out.

Warren Buffet