Displaying items by tag: Currencies

 The article and accompanying video "Bitcoin for Big Dummies: Why The Digital Currency Is Spiking & Why It's Not A Bubble" proved to be rather controversial, and has spawned many different viewpoints and comments. I'd like to take this time to address a few of them in detail.

+Gary Tooze "Hi Reggie - I know you fancy yourself as a realist, but in all the videos and articles I have followed from you - you have never mentioned 'Gold'. Why do you suppose the Central Banks hold Gold? REALISTICALLY they OWN the government - which could crush BTC in a flash. The CBs know exactly what is going on and won't be the losers in these shifting sands....

Reggie Middleton

+Gary Tooze Who would accept Bitcoin with all of its volatility? Possibly everyone who accepts the USD, who's predecessor had even more violent swings which ended up in a redemption value of less than 1% - http://boombustblog.com/blog/item/9178-the-anti-economist-calls-bitcoin-the-anti-social-network. You see, new currencies with thin markets are prone to risk and volatility. Many act as if Bitcoin invented the term volatility.

chocomalk

False correlation.

Bitcoin is not the internet, it's not a road either and we had an internet bubble anyway lol. You assume it's present unregulated state will continue.
And obviously you have not looked into the "fuel cost" of Bitcoin, it is actually quite high. Your analogy of a road can be used with the present regulated transfer system.
There is nothing Bitcoin can do that another more efficient(cheaper) CURRENCY can do and that is the point, at these price levels, bitcoin is an investment vehicle not a currency.
Is it a ponzi? I don't know but it could be.
It's a great idea with horrible implementation. 

Reggie Middleton  "Bitcoin is not the internet, it's not a road either and we had an internet bubble anyway lol."
No, we did not have an Internet bubble. We had a stock market bubble wherein underwriters preyed on the naive and greedy in convincing them to buy Internet stocks.

 

" You assume it's present unregulated state will continue."
How do you regulate a P2P network?

 

"And obviously you have not looked into the "fuel cost" of Bitcoin, it is actually quite high."
The "fuel cost" of Bitcoin? You mean like the paper, ink, printing presses and metallurgical coin stamps made to produce fiat which has to cyclically be replaced every few years with the same expensive process save some additional R&D to attempt to outrun counterfeiters who always seem to win in the end anyway?

 

" Your analogy of a road can be used with the present regulated transfer system."
So the present regulated transfer system can circumvent the Fed, ECB and all money center banks? Please....

"There is nothing Bitcoin can do that another more efficient(cheaper) CURRENCY can do and that is the point, at these price levels, bitcoin is an investment vehicle not a currency."
Nothing as in being programmable to act towards the wishes of the sender and/or reciever after being sent or recieved?
Nothing as in being able to totally circumvent banks - all of them?
Nothing as being able to settle a 9 digit international monetary transfer from Sri Lanka in 30 minutes on a Sunday afternoon in NYC?
That's a whole lot of nothing, my friend.

 

 

 

 

chocomalk  +Reggie Middleton
 Yes it was an investment bubble, call it what you want the similarity is investment and inflated value. The net itself is not analogous to bitcoin nor were the businesses that sprung up around it outside the servers/IP providers themselves.
You regulate with the law. You might be able to get away with underground transactions but they can limit a lot of commerce. They can also regulate the pay window, meaning you could not buy or sell into other currencies legally. Or accept payment as a business legally.
I am not saying present currency doesn't have a cost, just that the energy requirements for Bitcoin are quite large.
Circumvent is what Bitcoin is doing at present, I already stated that it could end or be regulated the same way meaning there would be no effective difference.
And I should have stated "crypto currency" that was my mistake. A cheaper, more secure crypto currency can and will be produced meaning any value that bitcoin has above its "manufacture" is based on investor and market opinion.
Like I said, It's a great idea with bad implementation and it is overpriced.  

 

The Internet is a interlocking network (hence the name, "internet") of standalone servers that serve data to and from each other in such fashion as to make a seamless network of information available to all who access it. Bitcoin is a peer to peer network of computers who collectively transmit, recieve and maintain the bitcoin system as a whole. Think of bees working in a hive without a central queen bee, but a queen bee that exists a little at a time in each and every worker, drone, soldier and scout bee. In order to destroy the hive or to coopt it, you will have take down the entire hive or the vast majority (as in >95%) of the bees to do so. If you live in the hive as well, like the government and the rest of the world living on the WWW, then option one is out of the question. So, yes, Bitcoin is analagous to the Internet and WWW.

Stephen Pettyjohn +chocomalk Crypto currencies cost is irrelevant. At the end of the day it's the amount of goods that can be bought. Since that measure is relatively the same and tracks with the dollar, the only thing that makes bitcoin feel expensive is the whole unit bias. After all it is infinitely divisible (in theory, currently a satoshi is only a ten-millionth)
As for cheaper crytocurrencies, certain currencies have design advantages, but price is never one of them. A cheaper currency means that the network supporting it's proof of work system is smaller. The 51% scale attack cost against bitcoin is close to 1.5 billion right now (and thats assuming that you can magically convert bitcoin into specialized ASICs) whereas, a single large bitcoin miner could easily perform a 51% attack on any of the SHA256 alt currencies. Bitcoin's massive electricity and hardware costs are what give the currency it's security against network attacks. In addition, the higher price and corresponding market cap encourages development in the area which makes bitcoin more fluid and props up companies like CoinBase, ItBit, Bitpay, and Circle.

 

2014 is set to be a banner year for BoomBustBlog. As you may have noticed, positings have slowed down to almost nothing. This due to another battle with hackers on the server. As we bounce back, we will take the global macro world by storm. This includes the digital currencies and how they will affect the world as we know it.

I have recorded a brief simple video to explain my perspective on digital currencies. Let it be known to all who don't normally follow me: I'm not a gold bug, I'm not crypto-currency bug, I'm a risk-adjusted return bug! I attempt to see things as they truly are and will call it as I see it. Those of you who instanteously dismiss Bitoin as a bubble or Ponzi scheme are likely doing so without taking the time to fully understand it (it is quite different, I must admit), or read the disruptive change that it's capable of bringing into play - a disruptive change at the level of the Internet and World Wide Web during the the early to late 90's. For an example of this broad based, yet widely followed misunderstanding, reference The "Anti-Economist" Calls Bitcoin the A…

Now, there's no doubt that Bitcoin has been on a tear as of late, after all...

The vast majority of that 6 digit (that's right, "Six" digit) return has occurred within the last year.

The most likely reason stems from media exposure. Please note that I don't think it's due to media exposure, it stems from it. You see, as explained in the short video below, Bitcoin's primary value stems from its inherent ability to truly and absolutely circumvent the gate keepers of monetary value today - the Central and Money Center Banks of the world.

Basically, the gatekeepers of money can now have the locks on their gates picked. The tertiary value is that this new money is "programmable," but more on that later. The more people who realize the value of this new, finite, cryptographic money, the higher the demand pushes the value of the money. 

Do I have a point? Well, look at it from obscurity in 2010 to media darling in 2013 - Yes! All 391,288% worth of appreciation!  

Stay tuned for more on my take on smart money in the very near future.

Paul Krugman wrote an anti-cryptocurrency Op-Ed piece in the NY Times titled the "Anti-social Network". Now, I know the Times needs to sell ad space and subscriptions, hence technical accuracy may not be exactly what they are going for, but Mr. Krugman (the classical Keynesian economist type - I don't particularly subscribe to such schools of thought, I guess I'm not educated enough) has spewed so many inaccurate statements, false facts and just plain old indications of his total misunderstanding of the subject matter one would think it would behoove the Times to either have him issue corrections (or, since it is Op-Ed after all) have someone such as my self (you know, maybe a little less academically involved) come after him and clean up a little. 

Now, where shall I start? To quote Mr. Krugman:

So how is bitcoin different? Unlike credit card transactions, which leave a digital trail, bitcoin transactions are designed to be anonymous and untraceable. When you transfer bitcoins to someone else, it’s as if you handed over a paper bag filled with $100 bills in a dark alley.

I don't think that's true Mr.Krugman. Let's refer to Wikipedia's write-up on the Cryptocurrency...

 Once validated, every individual transaction is permanently recorded in a public ledger known as the blockchain.^[8] 

I believe Mr. Krugman made this error due to the accuracy of a statement made earlier in the Wikipedia description of Bitcoin, to wit:

Bitcoin (sign: ; code: BTC or XBT^[7]) is a peer-to-peer digital currency that functions without the intermediation of a central authority.^[8] 

You see, the old school way of applied economics may very well have a big problem wrapping their collective heads around the concept of the absence of a "central authority" (read central bank) to act as the Grand Pubah, or ultimate financial intermediary. I'm just saying..

And to go on with the oh so witty comments from Mr. Krugman...

And sure enough, as best as anyone can tell the main use of bitcoin so far, other than as a target for speculation, has been for online versions of those dark-alley exchanges, with bitcoins traded for narcotics and other illegal items.

Bitcoin is a currency that's no older than 4 or 5 years. Has any other currency experienced a genesis any different than Bitcoin? The US dollar, when freshly minted was used for the spurious trade of human lives, the lives of my very own relatives several generations back, actually. It was the tool for rampant speculation as well, prone to extreme volatility and purposeful devaluations. Was it really so different from Bitcoin before it went mainstream (that is except for the purposeful devaluations part since there is no Grand Pubah to unilaterally call the market shots)? Methinks this economist may be picking and choosing his facts. For instance, look at how he started the Op-Ed missive in the first place...

Bitcoin’s wild ride may not have been the biggest business story of the past few weeks, but it was surely the most entertaining. Over the course of less than two weeks the price of the “digital currency” more than tripled. Then it fell more than 50 percent in a few hours. Suddenly, it felt as if we were back in the dot-com era.

The economic significance of this roller coaster was basically nil. But the furor over bitcoin was a useful lesson in the ways people misunderstand money — and in particular how they are misled by the desire to divorce the value of money from the society it serves.

Volatility is the name of the game with new currencies that have limited penetration and distribution, no? Why pick on bitcoin? Let's recall how the US dollar got started via the continental note, as per Wikipedia:

By the end of 1778, Continental Currency retained between only 1/5 to 1/7 of their original face value. By 1780, Continental bills - or Continentals - were worth just 1/40th of their face value. Despite efforts by Congress to reform the currency by removing the old bills from circulation and issuing new ones, the attempt met with little or no success. By May 1781, Continentals had become so worthless they ceased to circulate as money. Benjamin Franklin noted that the depreciation of the currency had, in effect, acted as a tax to pay for the war.^[1] In the 1790s, after the ratification of the United States Constitution, Continentals could be exchanged for treasury bonds at 1% of face value.^[2]..

Hey, it doesn't end there...

 On August 8, 1785, the Continental Congress of the United States authorized the issuance of a new currency the US dollar.

However runaway inflation and the collapse of the Continental currency prompted delegates at theConstitutional Convention in Philadelphia in 1787 to include the gold and silver clause into the United States Constitution preventing individual States from issuing their own bills of credit. Article One states they were prohibited to "make any Thing but gold and silver Coin a Tender in Payment of Debts."^[4] 

 Paul then goes on to compare Bitcoin enthusiasts to Goldbugs - which was inevitable. I'm far from a Goldbug, and those that follow me can attest. Apparently Mr. Krugman isn't either, but he appears to make a specious argument, to wit:

The similarity to goldbug rhetoric isn’t a coincidence, since goldbugs and bitcoin enthusiasts — bitbugs? — tend to share both libertarian politics and the belief that governments are vastly abusing their power to print money. At the same time, it’s very peculiar, since bitcoins are in a sense the ultimate fiat currency, with a value conjured out of thin air. Gold’s value comes in part because it has nonmonetary uses, such as filling teeth and making jewelry; paper currencies have value because they’re backed by the power of the state, which defines them as legal tender and accepts them as payment for taxes. Bitcoins, however, derive their value, if any, purely from self-fulfilling prophecy, the belief that other people will accept them as payment.

I really need somebody from the academic ivory towers to explain to me the difference between paper currencies being backed by the power of the state and Bitcoins alleged self fulfilling fulfilling prophecy of the belief that other people will accept them as payment. Both of these concepts share one common theme that seems to have escaped Mr. Krugman - Belief!!! Being backed by the full faith and power of the government means nothing unless you believe that government backing has a real value. That real value, if you do believe in it, is solely a function of your level of belief in the government and the governments willingness to back the currency  and to what extent. After all, Greek bonds written under Greek law are backed by their government as well, as are Somalian bonds. So, pray tell, what's the difference between the value of those bonds and US treasuries? Belief, that's the difference! Again, a refresher from Wikipedia:  

Today, like the currency of most nations, the dollar is fiat money, unbacked by any physical asset. A holder of a federal reserve note has no right to demand an asset such as gold or silver from the government in exchange for a note.^[28] Consequently, some proponents of theintrinsic theory of value believe that the near-zero marginal cost of production of the current fiat dollar detracts from its attractiveness as a medium of exchange and store of value because a fiat currency without a marginal cost of production is easier to debase via overproduction and the subsequent inflation of the money supply.

In 2009, Max Keiser warned interviewed the Bundesbank and uncovered the fact that much of (if not most) Germany's gold resided in NYC. Well, now as this information has become mainstream, the Bundesbank has announced that it is repatriating much of their gold to national lands, under a stated "storage plan", aka potential currency war.

CNBC reports: Conflict at Europe Central Bank Over Stimulus Rattles Markets

ECB Executive Board Member Juergen Stark resigned on Friday, apparently because of opposition over the central bank's bond-buying program. "That makes ECB policymaking more difficult," said one analyst.

The euro extended losses against the dollar [EUR=X  1.3732    -0.0149  (-1.07%)] following the news.

"It's a sign that ECB policymaking is controversial even within the board. Clearly the German representatives have a position that differs from other central bankers. That makes ECB policymaking more difficult," Lothar Hessler, analyst at HSBC Trinkaus told Reuters.

A former finance ministry official and Bundesbank vice-president, Stark, known for his tough, no-frills style, has been a member of the ECB executive board since June 2006. His eight year term was due to run until May 31, 2014.

Manfred Neumann, economics professor at the Bonn University said: "This is remarkable. Stark held the same view of the bond-buying as Axel Weber and the current Bundesbank president. It is a position that all the Germans have. This is a sign of huge problems within the central bank. The Germans clearly have a problem with the direction of the ECB."

From Eurocalypse, one of the resident BoomBustBlog traders:

In the trading tips on the 6th [ Eurocalypse Trading Update 9-6-2011 (Global Macro, Trades & Strategy)], I wrote this may be the long awaited drop in EUR following the weekly reversal and worsening technicals.

The ECB is expected to make a UTURN and cut rates, that will add fuel to the fire. At the time of writing EURUSD was 1.41 and oversold, we sold even more to 1.40 then sawbriefly 1.42 on the EURCHF unwinding. That bounce proved the opportunity to sell as the oversold condition was removed... and now were down to 1.38. This move can go much further, EURUSD is headed for 1.20 rather quickly I think.

Only the technicals (which one should always respect) kept it bid, the fundamental story is horrible.

It's a total mess in Europe...beware though of massive govt intervention at some stage which could/will squeeze this markets fiercely...even if in the long (or not so long) run Euro is doomed.

For those of you who have not had the opportunity, register for and download the BoomBustBlog Currency Trend Model, along with the accompanying instructional video.

I have made an FX trend model available for all to download. Its 10 mb, containing a lot of data, but you'll definitely get your money's worth. The model is available here: BoomBustBlog Complimentary FX Index model

And on that note, the French banks who're so at risk due to Italian contagion are dropping like flies - 4% to 7% in a matter of minutes after NY opening. The US banks on the hook for all of that French exposure look set to follow suit as well, with puts starting to fatten on higher IV. For those who just don't know...

• The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
• What Happens When That Juggler Gets Clumsy?
• Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
• The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
• The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
• Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run 
• France, As Most Susceptble To Contagion, Will See Its Banks Suffer
• Observations Of French Markets From A Trader's Perspective
• On Your Mark, Get Set, (Bank) Run! The D…
• ECB As European Lender Of Last Resort = Institutional Purveryor Of A Pan-European Ponzi Scheme