Since we’re embracing(?) the Bitcoin, here’s another thought on the subject.
November 28, 2017
By Charles Hugh Smith
http://www.oftwominds.com/blognov17/bitcoin-forecast11-17.html
The basis of this admittedly crazy forecast was simple: capital flows.
I think we can all agree that bitcoin (BTC) is “interesting.” One of the primary reason that bitcoin (and cryptocurrency in general) is interesting is that nobody knows what will happen going forward.
Unknowns and big swings up and down are characteristics of open markets.It’s impossible to forecast bitcoin’s future price because virtually all the future inputs are unknown.
We’ve lived so long with managed markets that only loft higher that we’ve forgotten that unmanaged markets are volatile and full of unknowns. We’ve forgotten that markets are reflections of all sorts of things, from human emotions to herd behavior to changes in the underlying Mode of Production, i.e. how stuff gets done, made, distributed and paid for.
Last May, when bitcoin was around $580, I distributed a back-of-the-envelope forecast of $17,000 per bitcoin to my subscribers and patrons ($5/month or $50 annually). (In June, I presented the case to subscribers of PeakProsperity.com, where I’m a contributing writer.)
The basis of this admittedly crazy forecast was simple: capital flows. There is around $300 trillion in financial “wealth” sloshing around the global economy, and another $200 trillion in real estate. (The sum of financial wealth is now much higher, due to the extraordinary gains in global markets.) I reckoned that if a tiny slice of that financial wealth flowed into bitcoin–1/10th of 1%– the inflow of capital would push bitcoin to around $17,000 per coin.
If 1% of all that wealth sloshing around looking for yield and safety decided to find a home in bitcoin, the forecasted price was an insane $170,000.
Compared to this, $17,000 per BTC looked almost conservative. But since bitcoin was under $600 at the time, $17,000 looked pretty darn crazy. But the math looked compelling to me: $300 trillion in mostly mobile capital sloshing around an inherently unstable system, and little old bitcoin was worth a meager $9 billion. Given that the total number of bitcoin was limited to 21 million, it didn’t seem much of a stretch to imagine a tiny sliver of all that capital flowing into BTC.
I heard many reasons why my scenario didn’t hold water. Fair enough: the future is unknown, I could have been completely wrong, and BTC could have dropped back to $60 or $6.
I repeated my analysis to my subscribers and patrons in December 2016, when BTC had reached $900.
So now we know bitcoin didn’t go to $60, or zero; it has climbed to $9,500 or so, a bit over halfway to my rough and unsophisticated back-of-the-envelope forecast of $17,000. Could BTC suddenly drop to $7,000? Of course it could; given its history, we should expect dizzying declines of up to 30% or more.
The interesting thing to me is that nobody knows what will happen going forward. Not knowing is refreshing. So is the opportunity to be right or wrong. This is what investing is supposed to be about.
There are all sorts of scenarios out there. Some will be right, some will be wrong, some will be half-right, and in all likelihood, stuff will happen that nobody predicted.
Here is a chart prepared by Tuur Demeester way back in 2013. It’s interesting because nobody has a crystal ball, so we’re all guessing based on what we expect to happen and what we see as the primary dynamics in play.
For what it’s worth, here are my notes to subscribers/patrons from last May/June. To me, this was more or less stating what I took to be obvious. As for all the quibbles about centralization and decentralization: yes, yes, yes and yes–I realize fiat currency issued by banks has certain features of decentralization and that bitcoin is vulnerable to the dominance of (or manipulation by) self-serving players. But the question boils down to: what matters most going forward?
Musings Report #21 5-21-16 (emailed to subscribers/major patrons)
Unlike precious metals, crypto-currencies are easy mediums of exchange: you can send or receive bitcoin as easily as you send or receive dollars with PayPal, Dwolla or similar services. The great problem going forward for many people will be transferring their remaining financial wealth out of depreciating currencies in their homeland to some other currency in another more stable country.
When governments clamp down on bank transfers and impose other capital controls, this will become increasingly difficult in conventional channels. Should demand for bitcoin rise, the price will skyrocket. Right now all 17+ million bitcoin in existence are worth about $8 billion–a drop in the bucket of the world economy’s $200+ trillion in financial assets and a tiny sliver of gold’s global $7 trillion valuation. It would take very little to push bitcoin’s valuation to $80 billion, and this would still be a very thin slice of total financial assets.
Musings Report #22 5-28-16 (emailed to subscribers/major patrons)
The primary reason to follow crypto-currencies such as bitcoin and Ethereum’s ether currency is that they are outside the control of the self-serving exploitive elites that control the credit money issued by central banks and states.
Crypto-currencies are revolutionary because they are independent of central banks and an easy medium of exchange. Gold and silver are independent forms of money, but other than silver coins, the precious metals don’t lend themselves to acting as mediums of exchange in an increasingly digital world.
The key point here is the current financial system is highly centralized, while crytpo-currencies are decentralized. Should a government decide to recapitalize bank losses with a bail-in, i.e. expropriating depositors’ money to cover banks’ losses, as was done in Cyprus, the depositors have no recourse: the state sends the order to the banks and the depositors’ accounts are legally robbed.
While some people believe the government will be able to outlaw the use of crypto-currencies, or expropriate bitcoin just like it does with regular bank accounts, the decentralized nature of crypto-currencies makes this more difficult than in a system dominated by five Too Big To Fail banks and a central bank.
Another reason to follow the growth of blockchain applications (the technology underpinning bitcoin) is that these big banks have jumped on the blockchain and “smart contracts” technology of Ethereum. The politically potent banks recognize that they must either adopt these technologies or they will wither on the vine, and they will not look kindly on any government effort to outlaw the technologies that are their future.
The last reason to follow crypto-currencies is their potential to gain value. In a currency-swap, bitcoin acts solely as a medium of exchange between yuan and dollars. But due to the structural limit on the total number of bitcoin that can be created/mined (21 million, of which 17 million are in circulation), bitcoin is a store-of-value currency as well as a medium of exchange.
Global financial assets total $294 trillion.
All the gold in the world is currently worth about $7 trillion.
All the bitcoin in circulation total $8 billion–an order of magnitude smaller than gold. Were bitcoin to represent 1% of total global financial assets, i.e. $2.9 trillion, that would represent a 362-fold increase, suggesting a price per bitcoin of $172,000.
That sounds insane, so let’s say bitcoin becomes a mere 1/10th of 1% of total global financial assets. That equates to a price of $17,000 per bitcoin.
Impossible? let’s check back in 5 years in 2021, and in 10 years, in 2026, before we declare this impossible.
In June 2016, I wrote:
The point is that value is ultimately driven by demand, and demand is driven by utility. As bitcoin’s utility increases in a world of rising financial repression, capital controls and expropriations, devaluations, etc., the demand for bitcoin will likely rise as well.
And as bitcoin’s stability and valuation increase, the potential for a self-reinforcing feedback loop increases: as bitcoin’s value rises, it attracts more capital, which pushes prices higher, and so on.
Perhaps bitcoin will remain a financial novelty; perhaps it will suffer some fatal technological snafu. Maybe some new cryptocurrency will replace bitcoin. All of these are possibilities. But at this point, given the seven-year history of bitcoin and cryptocurrencies, the regulatory acceptance of the technology in the U.S., the Gold Rush mentality of major corporations into these technologies, and the rise of financial repression globally, it seems like a reasonably safe bet that cryptocurrencies may not just be around in seven years–they might play a larger role in global finance.
What tangible items can you buy with bitcoin? Is bitcoin recognized by Courts? If I offer to sell you something and then refuse after you give me your bitcoin what remedy do you have?
Same with gold, silver, pork bellies or anything else other than dollars (actually dollars as well unless it is in payment for an existing debt).
It all depends on what the seller or creditor is willing to accept in payment.
Jeepers, Ken. You can refuse my desire to pay you in yuan, or peso, or gold and that has nothing to do with any law or the need for courts for petesake. Right now paying for anything with Bitcoin directly is possible only where the sign says, “we accept Bitcoin.” BUT, you can sell your Bitcoin and pay for what you want in the local currency easily enough. There are companies right this minute working on making cryptos easy to spend. One is Lightcoin. Shortly you will be able to pay for anything with a phone app loaded with the cryptocurrency of your choice that will be translated on the spot for the local currency. I mean, hey, this is just technology and easy to do. In China now you commonly cannot buy a bell pepper from a vendor or pay for a meal in a restaurant without using WeChat, which is a phone app loaded with yuan. Times are a changin,’ man. Bills and coins are becoming obsolete, just as are the debt notes issued by corrupt governments. What a happy coincidence!
I can take your yuan or peso or gold and trade it for dollars. I can also use it to purchase tangible items. I am sure the Mexican restaurant down the road will except pesos. What restaurant excepts bitcoins?
Gold and silver do hold value because they are an ostentatious display of wealth and some women seem innately drawn to men who wear gaudy jewels so there will always be a market for them.
In a shtf scenario if you show up to my farm I will likely except gold (probably an exorbitant amount) for food. I will also except anything useful and any currency still honored by a government or my neighbors. I will never accept bits of useless data.
ex·cept (ĭk-sĕpt′)
prep.
With the exclusion of; other than; but: everyone except me.
(If not a spell checker induced error, the word you are looking for should be accept)
bigfoot……….happy coincidence my ass; you must be a Millenial.
You seem to have a bad life going for you. Karma, I guess. I’d like to be a Millennial , but I be 76 and don’t have deck problems except mine needs a damn coat of stain every summer.
The idea of ALL wealth being “held” in memory on a chip on a phone is so comforting to those comfortable with gadgets. We have yet to see if that comfort and ease is misplaced, like the French belief that the Maginot line would prevent the German invasion.
exactly
A thought came to me.
Would money held in a cell phone be subject to the same asset forfeiture risk cash on hand is?
Would it be more or less secure from seizure?
Nobody can get at it without your permission and knowledge of your password, nor can anyone but you tell how much is loaded in.
Not the case, Maggie. You keep your wealth in a private wallet where no one can get to it but you and whomever else you want. The phone would be used just for coffee, your bartender, and if any is left for the grocer — or feed in your case! Besides, what “gadget” do you now use to access your bank account, or write down your thoughts right here and now? I mean tech is how we live these days, right? Better than plowing with a horse I imagine.
I’m confused in this post as to whom is saying what because of the mixture of bold faced type, italics, and normal type that I sense are not following da rules of attribution. Good stuff, though. Thanks for posting.
The writer is Charles Hugh Smith. I bold faced the first sentence which I wrote. Sorry for any confusion.
Pesos and yuan are also backed by the respective governments who issued those currencies. I can hold onto them and, barring the government who issued them collapsing, I can use them later.
No one backs bitcoin so the value of bitcoin could drop overnight and you are left with nothing with no forewarning.
I have some Soviet era Rubles.
Same thing happened to that government backed currency as you warn could happen with Bitcoin.
Government backing is almost as tenuous as any other form of non tangible backing.
Not backed by anything? Lord love a duck, Ken! What backs the dollar? Nada. Well, two things: you and me. We agree to place value on something that in time will go to zero. We just hope it won’t be tomorrow. With Bitcoin, we can also agree to place a value on it. It might go to zero, but for different reasons. It’s the network effect working. May the best man live.
not true, dollar is backed by Zillions (I know not a real number) of contracts> the $1.25 on my Starbucks card…is a contract> between me and my local coffee shop. My mortgage is a contract> for me to pay in $$, between me and the bank, and the property tax levy, to not re-po my property as long as I pay …and this contract/mortgage, and (Zillions) others are traded/bought/sold everyday>through fannie mae (that slut) all backed by the biggest segment of contracts (USA Bonds) !!! All driven by the current and future labor of all the American ( and illegals) Debt Slaves!
You also haven’t answered the question of whether a court will recognize bitcoin. Say you transfer bitcoin to me because I say I will accept it as payment in return for goods and I refuse to then deliver the goods what recourse do you have?
Man, you are chock full of “what if’s.” Here’s another: what if you say you will accept dollars and then don’t deliver? I then can send the sheriff because I did not get what was promised me. That is exactly the issue, your promise that you reneged on. It’s a verbal contract or a written one, makes no difference. You perform or you go to debtor’s prison. Wait! That was before the common era. Now we just write shit off and don’t do business with the likes of you ever again because the courts are useless and lawyers are expensive.
One of these days Alice—pow! Straight to the Moon
Giant EMP please!
Anything to put an end to the incessant Bitcoin rantings.
Get used to it before your indigestion kills you before your envy gets a chance.
While he may be right, and bitcoin may well climb to $17000, that does not mean that bitcoin is worth $17000. He appears to make the classic mistake of assuming that cost is the same as value. Those two things are not the same. Value is intrinsic to the commodity, like corn has value because I can eat it. Cost is different. Cost is set by the greater fool. The reason that the author is unable to see what the future holds for bitcoin is because there is no value to bitcoin. Only cost.
Wow, in your world if a car costs $40k only a fool would consider buying it because another fool might pay less. Kinda convoluted. If the car costs $40k and I think it is “worth” that, then I must be the greater fool because I value it? Is that right? Let’s see, if the cost of a machine that I use to manufacture something I sell cannot be of value to me in your world, wouldn’t things kind of stop?
No. Please calm down. That is exactly not what I am saying. Your car has value. You assign that value and we as a population define what the value of the car is relative to the asking cost. If you think the car is worth $40k then you buy it. If I think the car sucks and isn’t worth $40k then I don’t buy it. But no matter how you and I vote with our fiat, the car still has some value. It has a basic cost and a delivery price and all of that can be calculated from fundamentals. Bitcoin has none of that. It doesn’t really exist at all. If it has any value in any way that I can discern, it is as a medium of exchange to remove assets from one jurisdiction to another. This is due to it’s anonymity and the fact that it does not reside in any country. You can get out of China or merika or cuba with a bloody big long password far easier than you can get out of any country with a suitcase full of fiat or gold. That is it’s value as far as I can see.
Does that help?
Thanks for the clarity. Today, a whole lotta folks are valuing Bitcoin more than dollars. Today, Bitcoin is going for a little more than ten grand and the dollar volume of trading in Bitcoin just today so far is a little over $6 billion. The total crypto space is “valued” at over $300 billion, today. That number is going up an up, daily.
There are costs to people owning Bitcoin, however. One of them is opportunity cost. They could be directing their money to bonds, stocks, banks, mattresses, consumer goods, brothels, whiskey, and houses. Well, lots of them are doing that but many are also hedging against the day when our rickety financial system is going to meet its ineluctable and devastating end.
Every day is a miracle that the U.S., being $21 trillion in debt that can never be repaid, can continue to borrow money from other countries and our own citizens. But even that is not the worst. The U.S. faces a hundred or two hundred trillion dollars in unfunded liabilities. Nobody can figure out the true figure, but if you think there is any “money,” for example, in the Social Security Fund, you are dreaming. All that is in there are bonds, I.O.U.’s from the Treasury. All the money that has come in from your paycheck and mine has gone into the current budgets over the years and what is left is a promise to pay made by an ostensibly bankrupt country.
A much better question from you would be, why do you value the dollar? It’s value decreases and will never ever increase. And alongside that declining aspect is the very real danger of it going to zero, sooner than later. What will set it all off? The pols like war. They like to scare you into swelling your chest in patriotic fervor so you can put aside your fear of domestic calamity and tell yourself the danger to your life is “over there.” So, who is the greater fool, the ones hedging, or is it the patriot?
winner winner, chicken dinner> Bond Market DWARFS all others. Why? USA will PAY , they promise! And why not? They have paper, and ink. Comprende? Yes there is a consequence to such a system> Currency devaluation. Perhaps put the bitcoin (number) in the numerator, and the dollar (number) in the denominator, and that gets you what that paper in your wallet is “worth” ?
here, I did the math> 0.010526%
Still a damn scam
Bit coins only have a value to others that trade with others that also accept bit coins.
There is no exchange – you can’t convert Bit Coins to US Dollars – unless a private citizen thinks the Bit Coin has the same or greater value – TO THEM.
They are very different from dollars / pesos / yuan / yen – those are accepted currencies. See if you can buy anything of worth – like a new car / home / groceries – you can’t.
This is a ‘scheme’ / racket.
Ok, so let’s just say that increasingly tyrannical governments and central banks cannot in any way, shape or form control or alter Bitcoin or any Blockchain technology (a dubious assumption IMO, but we’ll make it anyway)….what is to stop them from simply taking over (or shutting down) the internet itself?
Right Drud, or simply requiring that every service provider route every bitcoin transfer through their servers…oh wait, that already happens. so they just block any traffic to the bitcoin exchanges. And while I do admit to some naivety in this regard, I do believe that there are actual exchanges where you can offer your bitcoin for sale.
Imagine how high tulips would have gone in 1637 if there was a global cabal of central bankers printing 22 trillion in fiat.
We all know how low – $0.00.
“Paper (or fiat) money eventually returns to its intrinsic value: zero.”
– Voltaire
bullshit, I can wipe my ass with paper, It gets close, and approaches zero, but it never goes to zero
today is it worth $0.010526%
Bitcoin = about as interesting as watching paint dry.
When the music stops a lot of folks will not have chairs.
An interesting conundrum.
Will Bitcoin Mining Consume All The World’s Current Electricity Production By Feb 2020?
While Bitcoin Mining is only currently consuming 0.13% of the world’s electricity output, it’s growing incredibly quickly.
The Bitcoin Energy Consumption Index estimates consumption has increased by 29.98% over the past month.
If that growth rate were to continue, and countries did not add any new power generating capacity, Bitcoin mining would:
Be greater than UK electricity consumption by October 2018 (309 TWh)
Be greater than US electricity consumption by July 2019 (3,913 TWh)
Consume all the world’s electricity by February 2020. (21,776 TWh)
http://www.zerohedge.com/news/2017-11-24/will-bitcoin-mining-consume-all-worlds-current-electricity-production-feb-2020
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http://Www.amagimetals.com
They accept bitcoin for gold or silver. Just say in..
Which is no doubt promptly converted to fiat.
Bitcoin has value because it’s mined. Just like gold, but in this modern age. If you hate that concept, congrats! We all hate change; it’s human nature.
If, sometime after Bitcoin sells all 21 million mined ‘coins’, they (whomever ‘they’ are) suddenly make more Bitcoin, there’s going to be blood in the streets.
If all goes to plan, though, Bitcoin will replace gold as the fiat backing of choice.
I wonder if this guy accepts Bitcoin?
“Now Accepting Credit Cards: Abe Hagenston, Detroit Homeless Man, Goes High-Tech”
https://www.nbcnews.com/news/us-news/now-accepting-credit-cards-detroit-homeless-man-abe-hagenston-goes-n506946