Hey, Bitcoin Haters … Better Get Yourself Some!

[The following is by TDV’s Senior Analyst, Ed Bugos]

To all you bitcoin haters out there, please note the truth: It’s here to stay.

So many have predicted bitcoin’s demise, but the recent bitcoin rally surely reversed some of these opinions, as well it should.

Yes, bitcoin is an alternative digital currency, but that doesn’t invalidate its usefulness. It’s not a government currency but a private currency and that makes all the difference in the world.

Sure it’s not gold or silver, but not all private money needs to be gold and silver. The primary characteristic of money is that it is voluntarily “accepted” by enough people to have utility.

And there is already significant utility in bitcoin.

Whereas current money shipment methodologies are expensive or time-consuming, one can ship bitcoin from one place to another almost instantaneously. Additionally, there are a growing number of banking facilities that will allow conversion of bitcoin to dollars, euros or other currencies automatically. One can then take the card to a local ATM for cash (like this Bitcoin ATM card which we just featured to subscribers in the October issue of TDV).

It is true, of course, that  there are numerous questions about bitcoin beginning with its development. The idea that a single brilliant man could simply write a paper, deposit it on the Internet and find that it has sparked a digital currency revolution is at least suspect if not downright unbelievable.  Speculation continues on about who is “Satoshi Nakamoto”.

But no matter the questions,  the “value” of bitcoin has to do with its private nature (it is not controlled by government central banks), its expanding ease of use via conversion facilities and the convenience with which it can be sent and received.

These provide powerful incentives for bitcoin’s use and also offer a reason as to why bitcoin has retained value and recently saw a strong rise from under US$250 to over US$500 (and has currently stabilized near $380).

Bitcoin “haters” were sure that the currency’s decline from US$1,000 to less than US$200 was a sign of its demise. But bitcoin hasn’t gone anywhere. Its user base continues to expand and this recent advance in bitcoin’s value is just one more sign that the currency has rationalized and that it is “trading” not just plummeting. Bitcoin is real. It is here to stay.

The trend of total transaction volumes in the chart below speaks for itself.

bitcoin transactions per day The Dollar Vigilante

If you thought that its rise to $1k was a bubble wait until you see what happens when all those dollar holders try to fit in this small door. Gold bugs are familiar with that phrase; traditionally it applied to the gold share sector. But Bitcoin’s door, in terms of market capitalization, is even smaller. That’s the reason for its volatility. This will change as the door widens… or, as is said by the establishment, due to “integrating the traditional financial establishment with the bitcoin network.” As its circulation and market cap increase its volatility will decrease in time.

You see that with companies that emerge from nothing and grow into something real. The law of large numbers eventually takes care of the volatility. You shouldn’t need to be all that educated to see this. You just have to not be mentally challenged.

The bitcoin bubble was pretty small at its $12 billion high in 2013 by most standards. There are not too many bubble trends historically that peaked out at such a small valuation confined to such a small segment of the general population. It’s just not rational to call it a bubble.

A lot of people, maybe especially traders, tend to automatically ascribe the term “bubble” to anything that goes up, even if it goes up for real… for fundamental reasons. How many times have we seen mining discoveries soar, and then soar, and then soar some more. Granted, not as often as we’ve seen them collapse. But even those that collapse weren’t really “bubbles.”

Regarding Bitcoin, it may just turn out that the market was right at its $1,000 valuation.

We don’t think it is. We think it would be more right much higher.

It is an emerging concept. And like all emerging concepts it destroys old obsolete ones in its wake. TDV Editor-in-Chief Jeff made millions breaking the brokerage monopoly on information (news and quotes) and bringing that to the retail investor when he founded Stockhouse.com.

He wasn’t the only one but he was part of that change. Stockhouse financial is now the largest hub in Canada. In these cases the market just saw far ahead, although it may have done that within a bubble environment and got overzealous in that period. A bubble is a mania and usually involves a broad segment of the population. Its unique characteristic is that it is fundamentally caused by the printing press and the manipulation of interest rates. Economists have various theories about how bubbles are caused. Bitcoin fits none of them so far.

In no theory I have heard does it say that something is a bubble just because it goes up by so much. But then, I don’t define bear markets by the 20% rule either.

The bottom line for bitcoin is a simple one. People are accepting the currency because it isn’t subject to central bank debasement (being private and decentralized) and because of its growing ease of use and currency conversion. And they are doing it voluntarily. Its ascent, like language, is spontaneous, not forced, like those fiat dollars we’re accustomed to using.

That’s as it should be with money.

The biggest growth of bitcoin is yet to come. The modern derivatives market is well over a thousand trillion in nominal transactions. This sort of recklessness dooms central bank monopoly money sooner or later – probably sooner. A handful of men can debase the world’s mainstream currencies and are well on their way to doing so.

When the debasement is complete, nothing will be left standing – not savings, not speculative investments, not retirement funds, nothing.

Government promises regarding health care, pensions, etc., will prove to be the chimeras that they have been historically. Government is the very worst guarantor of value.

The private marketplace on the other hand provides value and utility. When the big crash comes, as it must, there will only be a few repositories of value left standing. Gold and silver will be two of them. Chances are bitcoin may be a third. If so, its value should rise from the current price per coin to hundreds of thousands of dollars or even millions – depending on the severity of the crack-up of the world’s currently accepted currencies.

Jeff Berwick has already stated that if bitcoin ends up replacing the US dollar it will be worth, in today’s dollars, over $1 million per bitcoin.  And recently, Tuur Demeester (a past Anarchast guest of Jeff’s) wrote in an article entitled, “Bitcoin: Why It Now Belongs In Every Portfolio” about what bitcoin’s price could be if it reached certain milestones.

Here are some of them here:

Potential value of one bitcoin

Whether bitcoin achieves those milestones or not, however, the crack-up in fiat currencies and the financial system is coming. There are not many private monetary facilities. To deny the coming worldwide financial crisis and crack-up is to deny history. All government-run money always ends up the same way: worthless. All that is in question is the timeline.

Our take would be that the coming final debasement is going to arrive sooner rather than later. And when it does, there will not be many options. Barter will be one of them. Precious metals a second and, very possibly, bitcoin.

So for all you bitcoin haters out there, there are significant reasons to hold and use bitcoin. They are growing every day even while the world’s larger financial system grows ever more unstable.

You keep buying and holding the “safe haven” of dollars. We’ll take our chances with bitcoin.  

[Editor’s Note: In the last week Ed Bugos and Jeff Berwick put out an alert to TDV subscribers elucidating on where this latest bitcoin rally is headed.  Subscribe to TDV to get access to one of the only financial newsletters that covers bitcoin in any depth.  And, has been covering it since $3 in 2011]

Ed Bugos

Mr. Bugos is the Dollar Vigilante's Senior Analyst and founding partner. He is an Austrian economist and has been a dedicated investment professional since 1989, having started his career as a stock and futures broker on Howe Street at one of Vancouver's leading brokerage firms. Ed retired in 2000 warning clients about the tech bubble, and launched an online digest forecasting gold's revival and bull market when it was just $285. He saw the value in bitcoin as a potentially sounder alternative to the present fiat currency system as early as 2011 before many of his Austrian peers. Ed has built a career record of being early on major economic trends, bullish and bearish.

17 Comments

  1. Tibo on November 9, 2015 at 1:20 pm

    Hello, lately I’ve been haring more and more about BTC not being as anonymous as it should be. Some companies like ‘Chainalysis’ can analyze the blockchain (the public ledger) to try and identify persons or coins. This could lead to white- and blacklisting coins which has implications for fungibility!!!! This is a big problem I think!
    There is however a new protocol (cryptonote) that can be much more anonymous. One can decide how anonymous one wants a transaction to be. Monero is the biggest cryptonote-coin at the moment and has a very active and already quite large community behind them.

    What are your thoughts on the anonimity-issues with bitcoin which have implications for fungibility?
    Thanks in advance,
    best regards,

    • beatljuice on November 9, 2015 at 2:24 pm

      You bring up a VERY important concern, but I think we are better off working on making Bitcoin more fungible than trying to use another cryptocurrency. There are currently somewhat cludgy solutions such as mixing and Dark Wallet, and there are some very good solutions being worked on in the sidechains space, and in Core development.

      This doesn’t mean I think alt-coins are bad and no one should use them. I just think most of our efforts should go to the solution that is actually being adopted by some people. You can’t steer a parked car, so let’s point the “car” that’s moving (Bitcoin) in the right direction.

      • Tibo on November 10, 2015 at 5:45 am

        I also think this is a very important concern, and I also think we should try to fix things in bitcoin, but lately I’m starting to think more and more that bitcoins infrastructure isn’t build for perfect anonimimty and fungibility. Yeah, there are some solutions, but they’re never as good as building a coin from the core with privacy/fungibility in mind.
        And there indeed I think cryptonote can play an important role. The privacy/fungibility is ensured on protocol-level…

    • Dave, Voluntaryist Webmaster on November 9, 2015 at 4:05 pm

      The problem I have with arguments identifying bitcoin’s lack of anonymity leading to fungibility problems is that paper money tends to carry cocaine. The idea that something could blacklist bitcoins is the same as the idea that the government could pas a law against using paper money with cocaine on it. It has a lot of similarities to the 18th amendment too (Prohibition) – unenforceable, and tyrannical.

      The fact is that anyone could buy a kit to detect cocaine and refuse to accept paper money that has “too much” on it. We already do that with blood. Have you ever received a US bill that had blood on it? Would you spend it? Would it be easy to spend? This is how bitcoin should be – how it is. Tainted, and therefore unacceptable to some, but not unacceptable to all. Individual choice wins the day every time.

      • Panto on November 10, 2015 at 5:41 am

        Sorry, but your reasoning is flawed… You can’t compare this to paper money, not every transaction with paper money is registered in a PUBLIC ledger… There wouldn’t need to be detection kits if that was the case, someone could just give some serial numbers and tell ‘the system’ that these bills are now void and can’t be used anymore…

        That’s the danger with bitcoin, they are always and everywhere identifiable. This means that a central authority can indeed black- and whitelist coins… When a company like bitpay starts to blacklist certain coins and rejecting customers…

        money should always be money, whether it’s used for cocaine or not… it should be perfectly fungible and not depend on its history.

        • Zelek Uther on November 10, 2015 at 1:36 pm

          Bitcoin has no black-list or white-list, and we need to keep it that way. We also need to not be too dependent on a central company like Bitpay or Coinbase.

        • Dave, Voluntaryist Webmaster on November 10, 2015 at 9:07 pm

          Detection kit, huh? Tell me whether or not the new refrigerator worth of bitcoin sent to 1A2gFWa5abnynPJjCPnV1R1zR7p28Npxj4 in transaction
          9147fe46bdb54e462e513cf5e761511820930b256aca3aad24f68b58ca61b801 was ever in my possession.

          Bring me a dollar bill and I can guarantee you that detecting cocaine on it will be easier than the job I just gave you. And I don’t need to know the serial number.

          You need to know all the addresses I’ve ever controlled. Good luck!

          Your ideal (“it should be perfectly fungible and not depend on its history.”) can only be met if everyone owns a machine that you can insert a dollar into and get back a brand new fresh dollar whose serial number has no connection to the serial number on the one you inserted. No such machine exists.

          • Tibo on November 21, 2015 at 8:50 am

            I don’t get why you wan’t to compare a stained dollar bill to a public record of a transaction someone made…
            And the thing with dollars is that you can use them without your described machine, but the serial number doesn’t get registered when making a transaction, which is the case though in bitcoin…

            I think you maybe don’t get the point, anyway, here is a nice list for you: http://www.bitcoinisnotanonymous.com/



          • Dave, Voluntaryist Webmaster on November 22, 2015 at 9:53 pm

            I wanted to compare it to fiat currency because as far as I can tell, bitcoin is and shall remain as or more fungible than fiat. After I expressed why I see things that way, Panto wrote “You can’t compare this to paper money,” which he backed up with “not every transaction with paper money is registered in a PUBLIC ledger.” What he meant, of course, is that my comparison is not appropriate because the argument against bitcoin’s fungibility is not about the what the bitcoins carry (as I suggested with my cocaine example), but about its history.

            Fungibility is about discriminating between two examples of the same amount of something. This is possible with fiat currency because it carries serial numbers, and it’s possible with bitcoin because where it came from is in the public record. So neither has fungibility in a strict sense. This is viewed (by some) as a problem because if coercive authorities can distinguish one lot from another, they may demand that a particular lot not be used, and work to hunt down and punish anyone who ignores that demand.

            There is a kind of anonymity that bitcoin allows to those who wish to use it, but the bitcoin addresses of the miners who created it and all the bitcoin addresses of all the people through whose control it has passed is, by definition, a matter of public record. The identities of those people can, in some cases, be discovered, but in other cases it is impossible, or difficult enough to assume that it will not be done. I argue that it is about as difficult or more difficult than determining who has handled a dollar bill using DNA analysis and/or fingerprints on paper money. It is certainly more difficult that tracing bank wires and checks and Paypal and every other way we have to electronically send money to others.

            I’m doing my best to address the concern I think you have, but I’m not sure what it is now. You wrote “the anonimity-issues with bitcoin which have implications for fungibility,” by which you may have meant “the fact that a user might be implicated in crime because he receives bitcoins that can be traced back to a criminal.” If that is not an accurate depiction of your concern, can you provide a better one?



  2. Adam Meister on November 9, 2015 at 3:48 pm

    Solid article and thanks to the link to the Demeester article. Take a second and think about how many people know/knew about the original “2013 $1000 bubble”. In reality very few people had heard of Bitcoin at that point or since then when the media has been silent. My own father really had no clue about it yet until I told him the other day. I talked to him the other day about it because of the recent spike. Once he heard that it had been mentioned in mainstream media these last few days he became interested. This time around more and more people will find out about it and want to get involved and thus one could expect for the exact same things that took place in 2013 to happen again but on a larger scale. Will there be another mainstream media hyped up Mt.Gox incident to bring down the price again? It is possible, but for the long run once needs to have a strong hand because every day more and more very wealthy people are buying into BTC in various ways. One can also expect residual interest in other cryptos, especially Litecoin since it is considered the #2. Many people will feel they got in too late on BTC so they will want 2nd best. When BTC catches fire again expect LTC to also jump. Now would be a good time to go to https://btc-e.com/ and use some BTC to purchase Litecoin and hold on to it for a little while. The Chinese have helped boost the litecoin price in the past. Good look to all. To the moon! Remember if Westerners think this is not for them that there will be plenty of Chinese happy to buy BTC instead of you. Think about it….
    PS- Values of just about all cryptos can be found here: http://coinmarketcap.com/

  3. bonestabone on November 9, 2015 at 4:39 pm

    Another point is that physical gold and silver can be easily subject to capital controls. This relates because a lot of gold and silver bugs are also Bitcoin haters. Doesn’t matter if you bury it in the backyard, ask the Cubans fleeing the communist revolution if it helped them to hide their gold coins before leaving, they never saw it again. With Bitcoin it can be transferred anywhere in the world in seconds, it is not possible to institute capital controls with something like this, so in a true SHTF scenario, Bitcoin would be the winner, not physical gold and silver.

    • Luke Parker on November 9, 2015 at 5:02 pm

      It often surprises me how few people believe this. Especially the goldbugs; they seem to think that gold is the most portable item imaginable, but when you tell them here’s something that WASN’T confiscated and made illegal for half of the last century in the USA, and you can fit it inside your head, making it infinitely portable while still undetectable, they simply think we’re lying or something. I guess they’ll learn the hard way. :

  4. Krishna Yogi on November 9, 2015 at 5:21 pm

    very well said

  5. Samarami on November 9, 2015 at 7:00 pm

    This is a hilarious title. Because it so typifies what is going on in libertarian “circles”.

    It smacks of patriotism, which is a form of religion. I’ve sensed it from the beginning. Couldn’t put my finger on it exactly, but this title was like an epiphany.

    I’m libertarian. Anarchist. I have the truth. Nobody else does. And that is that.

    Just kidding, of course. But “hater” illustrates the patriotic nature of the bitcoin phenomenon. Sort of like the “gay” thing. Of course “gay” (and all its unbelievably complex manifestations, which only came along once they began getting all of us to think of homosexuality as “gay”) is a different pony altogether — social engineering. But the emotional indicators are similar. If I’m not convinced that homosexuality is natural and normal, then that makes me “homophobic”. Of course nowadays the social engineers can in fact have me charged with hate crime — simply because of something I believe (or fail to believe).

    In the same manner (or by the same token) if I can’t jump on the bitcoin bandwagon with all my heart and all my soul and all my fervor, then I must be a “bitcoin hater”.

    Not.

    Whether you believe it or not (your belief is not necessary) I hope bitcoin is “successful” (whatever “success” amounts to in the economic assessment of things above and beyond simply making current investors a lot of “money”). If for no other reason than the fact that bitcoin is private in nature, as Mr. Bugos illustrates. I hope it “wins” over fiat. That would grant validation for my belief in “freedom”.

    I need validation.

    I have not engaged in bitcoin because I do not understand bitcoin. Oh, I probably understand it about as thoroughly as most (even took the Khan course). But at this point I have not been inculcated with enough libertarian patriotism to fully comprehend what it is I’m getting myself into other than to “support-the-troops”.

    And “bitcoin hater” I am not. Sam

  6. Bright Future on November 10, 2015 at 6:07 am

    Cryptocurrency is here to stay for sure. Bitcoin still is the largest in marketcap, Litecoin nr 4, Ripple nr 3 and then there is a very interesting on nr 2 ONECOIN that already in 10 months has a marketcap at 1.4 billion usd and over 650 000 users in 198 countries and already the members/users has made over 400 million coins. If you like cryptocurrency you should absolutely buy Bitcoin and Onecoin because they will explode next year for sure. Not all exchangesites list onecoin but here is one that does. http://www.xcoinx.com

    Brightfuture to all

  7. Randy on November 10, 2015 at 1:37 pm

    Oh man! This article is so far off the mark it’s not even down range, let alone on the paper!
    When BitCONJOB can be stolen from you just as easily as any other electronic fiat currency can (anybody remember Mt. Gox or Silk Road f’rinstance?), then where is all of that safety and security that is being touted as something only BitCONJOB can provide?
    As to any ratio (exchange rate) between one fiat currency and another one, what does that say on the other side of the equation? Meaning, if the cost of a dozen eggs doubles from one day to the next, is that because the value of the eggs has doubled, or has the perceived purchasing power of the medium of exchange gone down by 50%? Or has someone figured out that they could have been charging a higher price for the eggs, and so now the cost has come up to what the market will bear? When you are comparing one crypto-currency to another one, there’s no factual basis for anything, because they’re just made up numbers in a memory bank and nothing more than that.
    And what about the other 614 crypto-currencies that you can get ripped off by? Go to coinmarketcap and see it for yourself, the extent of the bogus electronic currency scam that is now taking place! Last time I had looked, there were 627 crypto-currencies, now there are 12 less! WHERE did they go to? Did anybody lose anything when they went POOF!! all of a sudden?
    The Achillies’ Heel of crypto-currencies all, is the fact that lots of electricity has to be going down the wires for them to exist in your computers. Once that goes away for any number of reasons, weather, man made events or solar activity, you won’t have even two bytes to rub together! In a “true” SHTF scenario, you won’t have any electronic medium of exchange to use anyway, so what’s the point of your wasting your time with it now? You won’t have one electronic device that will work, and neither will most anybody else.
    When the power companies cannot afford to pay their inflated fuel bills or their workers either, the lights will have to go off. Those turbines need lots of energy to keep on spinning, ya know! Where will it come from?
    And, as enough people wake up to the fact that crypto-currencies are a rip off, that alone will kill them. But, there are still enough people imagining that they’re seeing the Emperor’s new clothing to keep the scam going, for now. Soon though, the cloth makers will have gone past the city gates and out into the open country, and no one will be able to do a damn thing about it!

    Randy

Leave a Comment

You must be logged in to post a comment.