Are Bitcoins “Good” Money?
The Money-ness of Bitcoins
Bitcoins have been much in the news lately. Against the background of renewed concerns about the integrity of the euro zone and the imposition of capital controls in Cyprus, the price of a bitcoin has tripled over the last month and reached more than $141 for 1 BTC. Are we witnessing the spontaneous emergence of an alternative virtual medium of exchange, as some would put it? This article offers an answer to this question by considering three aspects of the economy of bitcoins: their production process, their demand factors, and their capacity to compete with physical media of exchange.
Interesting Har, Stacey was saying yesterday to sell imediatly and buy silver.
Max Keiser’s, Stacey? I know Max is starting a Hedge Fund out of London that excepts Bitcoins that would be very surprising.
She was saying it yesterday, it will still be there if you go thru the pages to find it.
MACD just crossed over. That normally means lower price: http://stockcharts.com/h-sc/ui?s=gld
Best free chart I can post but they all look the same.
Yeap, down me go. TA works.
People are getting out of the ETF and going for the real thing.
Oh so since Gold and Mining stocks are tanking…Now Al Korelins Web site is going to talk about BITCOINS…what’s Roger’s Prediction on Bit coins? Can’t be any worse than his Gold and Silver and Mining stocks cheerleading.
Should be seeing a bitcoin banner any moment.
Actually no.
You are definitely jumping to the wrong conclusion, har!
I spent some time discussing this issue yesterday (actually about 45 minutes) and right now I am not sold. As I learn more that could change but as of now I am not sold.
Big Al
Sorry Al that was meant to be a joke.
Thanks har,
I just really don’t want to be misunderstood. All this stuff is getting way too important!
Best,
Big Al
This is key: “Intermediation, though open to free entry, is likely to remain rather monopolistic, given the very low margins associated with transacting in and with bitcoins.”
I think you have to witness multi-level-marketing pyramids or other scams in order to see this thing clearly. There’s no counterparty risk because there’s no accountability! It’s more fiat than fiat.
The present valuation is a bubble. BTC will carve a niche as a fringe payment mechanism, but when your internet service provider is unavailable, you’ll be like the customer at a cashier when the card scanner goes down. Tough luck.
BTW Thanks Jeff for posting this. Mises Institute posts first-class material that deserves much more attention. It is a shame that mainstream broadcasters don’t consult with LVMI on current affairs.
Over on Gold Seek – Bob Hoye was blaming the PM /miner slam he never saw coming on Bitcoin. Boy that was a classic.
Bitcoin the Gold Bug’s weather excuse. Can hear it now: When Bitcoins start coming down we should see the miners start to move.
You should listen to it: http://radio.goldseek.com/nuggets/hoye.04.03.13.mp3
Waltzek was just about in tears. He kept saying the charts are bullish. If you look at my chart above that is what we call a stair step down. That is the most bearish chart you can every see. It is a toxic set up.
I will discuss this on a Daily Editorial today, har.
Big Al
Common reo,
Give me a bit of credit. Notice that I do not focus on just one person. I simply let a group of people express their opinions.
I agree that Roger has not been particularly accurate of late. So what? I personally don’t agree with him. Big deal, just my opinion.
On the other side of the coin, Rick and Doc have been.
Big Al
An interesting thread regarding Bitcoins is playing out on my own site right now. From “Robert,” here is something that may be of interest to KE Report’s audience:
Bitcoin is NOT the brainchild of some random, anonymous genius.
Since Cyprus, Bitcoins have gained in value tremendously- this week they even surpassed the parabolic slope and reached toward a truly vertical (and infinite) trajectory.
Do any of you find it counter-referential that the NSA is building the worlds largest/fastest cypher-cracking facility SPECIFICALLY in order to crack the AES cipher (which coincidentally underpins Bitcoin’s “unbreakable” security algorithm)?
Ummmm….. the NSA actually INVENTED the AES cipher in the first place.
And, is it not hysterical that they are going to spend 100 times more on this project than they spent on the project that originally delivered AES…?
Doctor Frankenstien- frantically trying to find the method to kill the beast that he himself unleashed on the world – comical, if not pathetically sad.
But, back to Bitcoins:
Bitcoins are designed to be “mined” ever more efficiently as processing speeds and machine memory continue accelerating due to Moore’s law (that’s Gordon, not me…)
So, The Bitcoin money supply is a function of how effectively computers do their work, just as the Gold money supply has always been a function of how effectively humans do their (real/honest) work.
Here’s the monetary rub with Bitcoin, and consider this CAREFULLY:
Governments each want their currency to rule all others – therefore, they inflate their own currency supply, and buy the others, creating currency strength that incapacitates the internal economy behind the competing currency.
If I was a Central Banker who understood the destructive nature of currency bubbles, would I not use my powers of infinite currency issuance to buy the living hell out of the competing currency? By doing so, I draw in the suckers who see the path to immediate riches, and then pull the rug out from under them at some random top, and watch the whole thing crash and burn…
Beware the Bitcoin.
Mind your Aristotle, my young (and old) disciples:
ALL real and valid money has inherent and intrinsic value (meaning it can never be regarded as totally “worthless” by society)
Bitcoins are data. Data is inherently worthless, except when used as a constructor to true information.
Money is information- it indicates that the holder produces more than they consume, and that they have generated an excess of production that they wish to trade for other forms of excess production.
How can my smartphone full of Bitcoins demonstrate or prove that I am productive?
Good stuff. Thanks for posting, Rick.
Fascinating. Thanks. This nails it. I wasn’t aware of the critical NSA angle, but once spoke with a programmer in the Canadian military who told me that encryption available to the public is already wide open to the military by the time it gets released. In other words, BTC code is probably already compromised. Let THAT sink in.
I disagree. The gestapo mathematicians are not all-powerful. You can throw all the computing power and maths you want at one-time pad encrypted data, within its obvious, mostly logistical limitations, it’s a safe concept. In the 1990’s, when encryption started to go mainstream, they successfully spreaded rumors about NSSA involvement in RSA to wholesale discredit PGP encryption. See, they don’t need to actually demonstrate their ability to decrypt actual data as long as spreading hearsay via Rick and Lore is enough to discourage potential users.
Your ad hominem is misplaced. It’s not necessary to “spread hearsay.” BitCoin is destined to be cracked just like every credit card, currency, chip and magnetic strip.
Who cares that bitcoin isn’t for eternity? One LvM-clad European Commission operative carefully avoiding to tell us who is paying him, versus at least half a continent soon trying to move their funds around without interference by GS BIS globalist bankster marxists is plenty of reason to keep watching the cryptocurrencies.
quote:
“My Dear Extended Family,
“This is a massive attempt to break gold in order to camouflage the weakening Western banking sector. Paid bashers are flooding in to all pro-gold sites and many other pro-gold sites are under attack in other ways.
“Gold banks are flogging the paper market seeking to depress the price but without selling too much.
“It is so obvious that this is a gold bank organized strategy to keep gold under $1600. Old lows will hold and the reversal will be at a spiritual level.
“My strategy is to simply to do nothing.
Jim”
~ end quote
http://www.jsmineset.com/2013/04/02/todays-massive-attempt-to-break-gold/
Let me guess this letter writer is getting cancellations and needs to blame someone for his bad forecasts? If it was not for those gold bashers…..classic.
har,
You no not of Mr. Gold? He publishes free of charge. He was the one to predict gold 1750.
I’m a little confused by some of the anti gold sentiment on this website. I assume most people wandered onto this site the same way I did, as a gold bull. It’s one thing not to be a bull, especially now, but to be downright hostile and gleeful is another matter. Just seems strange to me that the people here would be so anti gold. Almost like an atheist contributing on a Christian dating site. I could be wrong. Unless of course these people missed the big move in gold, are kicking themselves and hoping for a crash…
A couple of us are traders. I was been short for nearly 2 years and was laughed out of here. I came back to try to catch the dead cat bounce and have been crushed for 25% since Feb.
You kind of stated what I been saying yesterday – Tech Bugs in the 2000s were waiting for the big move and would next exit their positions while taking losses day after day. Same as the Gold Bugs in the 1980s that watched it crash and held on – 30 years later it came back but I can’t wait 30 years.
Besides I like Big A and CFS. Have some interesting back and forths.
And, neither can I har!
Big Al
I too am confused James. I guess what happens when the going gets tough is that it gets to the faint-hearts, and they start to lay into all those honest enough to admit to making misclculations along the way.
None of these guys claim to be alchemists, but they are out and out pragmatists.
When an investment becomes more like a religion than a group of contrarian investors my spidey senses go off because I know what happens next. Remember the Apple Geeks? They are loving it now.
I will go into lurker mode. Sorry if I made anyone angry. I have a weird sense of humour that is hard to reflect when I am making comments. I also speak frankly which gets me in a lot of trouble. Good thing I was able to retire in my mid 20s so I don’t have to deal with work place issues.
Don’t even think about leaving this site!
As a point of interest, I started my own company for the exact same reasons that you retired in your mid 20’s.
Best to you,
Big Al
har….I go along with AL….STAY , thats what makes this site so damn good , different points of view , if ever in the future i come here & everybody is singing from the same sheet….then i am off , no point staying if i cant learn something new, & just like you i like to call a spade a spade, & that has got me into trouble a few times on here…
so to quote AL…Don’t even think about leaving this site.
Har — Nothing on these boards is personal, so feel free to post.
I likewise retired from one career track a few years ago, and found much more interesting work doing things I enjoy. Hope that’s your experience as well.
On that note, it is sad how many people imprison themselves in the most demeaning jobs for fear of missing a paycheque. That is one of the great tragedies of modern monetary policy: it stops people from realizing their potential. END THE FED…
The Greater,
They are definitely in the minority. Don’t you agree.
Remember, we listen to all. Don’t agree with all, but listen to all!
Big Al
I am not a trader, not smart enough. I bought gold, went along for the ride, and accumulate when I can. Lived through all the gut wrenching corrections and so far to date they have all come back. This latest correction remains to be seen, only time will tell. I don’t think we have 30 years…if we did and I had to guess I would bet gold will still be here and the $ will be a footnote in history like every other fiat currency. Gold: 6000 years of human history or $: a few hundred years and not backed since Nixon. I’ll take my chances with gold…
USD is going nowhere until the F35s and aircraft carriers rust out or there are no bullets, missiles or fuel for them. These are the ‘fundamentals’ backing the USD IMHO.
Dan
James…..You are spot on.
Snap to that James!
Bit coins wil be pumped like there is no tomorrow to get the ignorant masses to dump their hard earned money into this new form of fiat currency.
They even gave it a diminutive name and nothing to do with gold.
Dan
I have to disagree at this point, Bentnail.
I just don’t see this new phenomenon as having any legs.
Big Al
I hope that you are right Big Al … My thinking is that they will do everything they can to suppress the gold price and that this would be a perfect opportunity to draw the ignorant masses into another massive trap / scheme before gold flies to the moon.
Bentnail…..D.D. , comes to mind.
I wondered when bitcoin was going to be a topic here.
I looked into it as it peaked my curiousity.
As far as I know money needs to be, durable,divisible,convenient,consitant,fungable and have a use value.
Well, admittedly I am a moron when it comes to computers,but I still cant figure out how even to aquire bitcoins, much less “mine” them
there goes convenient if you ask me, the price seems to jump up and down, consistant? (who is dumb enough to “spend” when there going to be much higher in price?) I guess it is divisible and durable but what use value other than transfer does it have?
A virtual currency is probobly in our future, but I really dont know if its gonna be bitcoin.
Another odd thing, doing my due diligence I phoned and emailed lots of businesses on the lists of businesses useing bitcoin, low and behold, nope, most never heard of it. Even a place called the bitcoin market, said they had lots of things including mens cloths, I asked for pants, and nope, no pants. I did speak to 1 fellow that said he did some programing some years ago for it on a contract basis, he told me he could be set up in 10 minutes but wasnt at that point.
Goldseek, I think accepts it and zerohedge, and Max Keiser loves to advertise big time when any business he knows decides to use it. An option we have is for windows in the uk somewhere, but right now, the options to “spend” it is so limited I just dont see it going anywhere.
Anyone else have a thought?
Altho, I do think it is admiral to try anything that could end the “money changers” hold on us.
I actually wish them the best.
We will be discussing bitcoins on the Weekend Show with some folks, benb.
Best,
Big Al
Looking forward to it Al. One benefit of bitcoins it that they make people think hard about what money is. Also, because they share some characteristics with gold, it also challenges us to think about what gold is.
It should be noted that the lead developer of bitcoins has stated that “I still tell people that Bitcoin is an experiment: only invest time or money you can afford to lose, because Bitcoin is still an experiment. The longer it keeps going in the face of volatility and technical glitches happening, the more we’ll know.” (http://www.newyorker.com/online/blogs/elements/2013/04/the-future-of-bitcoin.html)
I think that people are getting all worked up on something that is still in development. As such it may evolve into something where the imperfections and flaws get fixed. Worth keeping an eye on this work in progress IMO.
The timing of this ‘fad’ seems suspect. It seems to function like an ETF, diverting capital away from real money.
Theres rural property in Alberta for sale and the guy will take bitcoins:
http://arstechnica.com/tech-policy/2013/03/man-offers-to-sell-house-for-bitcoins/
bitcoins good money? Simple answer using basic Keynesian thinking. If Keynesian see Bitcoins as bad then by definition Bitcoins are really good money?
There are 3 types of bitcoins now. Litecoin and Namecoin have joined the mix
bitcoin..bitdo..biteu..bitpo bityu..bitye..bitru..bitsi..bitgo..bitbo..bitsh..& so on.
Chose your poison….I have chosen mine.
Irish< I don't have any bitcoins at all. Unless we count US dollars as bitcoins which by any definition they are. Bitcoins are a fiat type of currency just like the dollar, but unlike dollars, yen, yuan, ruble, peso or any other government issued currency, bitcoins don't have a nation behind it. That could change if all the bitcoin owners decide to form their on country someplace somehow and then have to form the really big issue of a government. Ironically for bitcoins to survive that is what owners of such will have to do, but once they do that they become just like any other fiat currency in the race to "0" intrinsic value.
Clay, maybe I dont know sumtin but I thought fiat was government decree?
If so bitcoin is not fiat.
Doesnt matter tho, anything can be used as currency, it is to facilitate business, but money is gold,and some could argue silver.
The reason, the why, a currency has been or is used, is because a government will accept it for taxes. fiat.
The government accepting as taxes to me is a huge issue, I dont believe we have come up with a way to run a nation without communal contrabutions, or taxes.
Unless we go back in time and live the way our ancestors did, which I dont see as likely.
benb: Perhaps you are correct that bitcoins are not fiat. But to be honest I don’t really know what bitcoins are. Anyway fiat is Latin for “let it be”, whatever that means. If fiat is something referred to by decree of some Emperor, Government or just someone with a loaded gun, then bitcoins are not fiat. It is just that Bitcoins and the US dollar have some things in common, and other things not.
Basically I look at money as something that fits best to satisfy in the best way the basic needs for populations of people to use as money. A while back I read a list of conditions or criteria that would make something a best fit for money. I can’t remember all the criteria but is did include some of the following.
1) Non corrosive, non flammable, non spoiling and so on.
2) fungible and recognizable.
3) Rare but also present in most any country on the Planet.
4) Elemental and divisible, where anyone’s gold is just as good as another.
5) Can not be created from nothing and can only be created by the most difficult and most expensive process.
The list goes on and on, but in view of all these and more Gold fits best even better than Silver. I am a geologist so I tend to look at things in a scientific point of view with bias towards natural processes, like a river that always flows downhill. In this respect I don’t think it is by coincidence that Gold over the many thousands of years has worked itself into the minds of Man as being money, because it fits very well into all Mans quirks, virtues and vices for serving best as money.
So yes I am a goldbug and maybe a bit too old fashioned to be a Bitcoinbug. But should I live another 70 years, who knows maybe then I will be.
Clay, agree with everything you said. Just my thought about fiat was a government accepting it. Even if by force. Bitcoin to me is a currency, but not fiat, yes I understood in latin is “let it be” thats probly literal and I just take fiat as decree, language changing maybe? or maybe I am totaly wrong.
In any case I agree with you and I also think eventually we will be entirley cashless.
Good point, Clay!
Big Al
So your not still mad at me? Just joking as we are both too old to hold grudges, I gave up that vice some time ago.
How about ‘clip’ coin?
And, Mr. Irish, I do believe that you have chosen “silvercoin”!
Big Al
AL…..you got it in one , shame your golf is not that good…………………………….haha
A sci-fi movie made in 1951 called ” The Day The Earth Stood Still ” , is more relevant than ever. An alien lands and tells the people of earth they must live peacefully or be destroyed as a danger to other planets.
In this movie the aliens use real money something that has value and can be easily transported in any world. They carry with them small high quality gem grade diamonds as their currency something which to me is like gold and has tangible value, not monopoly like bitcoins. DT
That, Machine Gun, was a GREAT MOVIE!
Big Al
I cought the USD/JPY long move on news, called a news trade. Made my pips,am happy and buying more PM’s. Life is good.
HGD (gold down plus ETF) down .71 to $16.01
AUN up .02 to $.60
GPR up .09 to &1.19
FR up .56 to $15.03
SVL up .14 to $2.29
I checked my delayed short positions on these companies and all are decreasing over the last two months. FR has the largest short but it is a TSX stock plus the direction of the short position is slightly down. Hmmmmm…….
Dan
People are incredibly……gullible?! Bitcoins? Common, man, who are you kidding? Oh, yeah, enjoy the (paper) profits now……………….cry later!
The author’s background as represented at linkedin:
NIKOLAY GERCHEV
Economist at the European Commission
Brussels Area, Belgium – Financial Services
Yes, Marc, people here are indeed gullible if they simply believe that guy!
bitcoin….a hackers dream come true , nothing on the net is 100% safe.
This guy was in a position to take advantage of the parabolic move much earlier than our resident sour tulips or the Euro Commissaryatshik Gerchev…
http://evoorhees.blogspot.de/2012/04/bitcoin-libertarian-introduction.html
Bitcoin Hacked: Price Stumbles After Buying Frenzy http://www.cnbc.com/id/100615508