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Putting a price on bitcoin

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The True Friend of Liberty

Another danger: according to recent media reports, if growth in Bitcoin mining activity continues at its present rate, by 2020 the amount of energy devoted to mining Bitcoin will be equivalent to the entire amount of energy the world used in 2017.

The True Friend of Liberty

I think what we are going to learn from the failure of Bitcoin (and fail it will) combined with the failure of the Euro (and failing it is) is ultimately two sides of the same lesson: money is a social compact of the fundamental sort which can only be assured by a national government. The history of the Euro shows that trying to have many national governments use the same currency without those governments giving up their sovereignty will tear the currency area apart socially, politically, and economically; the history of Bitcoin will show that having a non-governmental currency makes about as much sense as forming a private economic network which declares cheese to be money.

"But at the core of this are people who have built something that by design removes the ability for people in power to game the value of value."
Put less prejudicially, this means that Bitcoin removes the ability of governments to manage their monetary policy.
The people who want this to happen have resources that include smart phones, Nike sneakers, and Starbucks vanilla ginger lattes.
The governments who don't want this to happen have resources that include police forces, prisons, and armies.
On whom is it more prudent to bet?

greg_not_so in reply to MrR.Fox

that $5M target value of 1 BTC is very appealing as is the fixed supply preventing the token's inflation. the number of cryptocompetitors and/or forks along with scandals surrounding the 'exchanges' ensures that the goal will unfortunately not be achieved.

but, i'm happy to hodl as the price of enjoying this greatest sweepstakes show of modern times.


funny how the banks tell everyone to stay away from bitcoin but are offering derivatives based on its price, bubble or no bubble.

Yeah great idea.....$1 in 1913 buys you about 5 cents today.

The central banking cartel tries to cover up this inexorable trend of devaluation by quoting % yoy and annualized inflation figures. They also tell you how great it is having 3% inflation - their "target"! Well, a 3% inflation rate per year means prices are doubling every 23 years, or your purchasing power is halving every 23 years. Do you think wages are keeping up? They sure aren't.

The problem is, this is compound interest we're talking about. It is no coincidence that both the IRS and Federal Reserve Bank were born in sin, and at the same time in 1913. The debt which accumulates due to fractional reserve banking erodes your hard earned money with this inflation, and on top of that, they tax YOU to pay for the rising debt too. This is why the IRS are so notorious, they know they have a big ponzi scheme to prop up, chasing Americans to all ends of the Earth to squeeze every penny back to service the growing debt load. This is a losing game for everybody except the 1%, who use insider information to buy up all the best assets first, before their prices rise. For it is this deception that enables them to stay ahead of the ballgame and make gross profits.

So before you wish this fraud onto Bitcoin, think again.

The True Friend of Liberty

One thing no one seems to be talking about is the potential threat posed to governments if bitcoin starts to replace (in the US e.g.) the dollar. No government can tolerate losing control of its monetary policy, and the US federal government can destroy bitcoin at will by passing a law cancelling all outstanding bitcoin debts and decreeing that no future such debts will be legally collectible. Then who you gonna call? What good is a currency that can't be used as a denominator of debt?
For this among many other reasons, I predict that two or three years from today bitcoin will be valueless, or almost so.


Well the oldies seem to be a little out of the loop with this, thinking its a fad. The fad theory is baseless, because this has been an ongoing project since 2009. A natural corollary to a broken financial system.

Secondly, traditional paper markets like stocks and bonds aren't in the same league as digital cryptocurrencies where exponential moves are the norm. Thus, analyzing trends is best done not with linear charts, but with logarithmic charts. Linear charts frighten people who are trained to panic at the sight of parabolic movements.

Thirdly, crypto-currencies are becoming more popular as more people realize how rigged the system is and how much central banksters are devaluing paper fiat currencies. Thus the rise of Bitcoin is not so much telling as to how "absurd" it is as a brand new asset class, but rather, it is much more telling of how worthless government fiat currencies are becoming. And why would that be? Endless money printing in a system where currency = debt. Bitcoin is not based on debt. It is finite. It injects free market capitalism back in the markets, and is doing exactly what gold is supposed to be doing in the current environment. The crooks of Wall Street uses futures markets to manipulate assets, as well as leveraging off their cozy relationships with central banks and governments. Bitcoin is out of their control.


"The beauty of bitcoin is that its intrinsic value is impossible to determine and that makes any value plausible to true believers."
It's not impossible - if one assumes that 21-million BitCoins replace all of the $100-trillion of fiat currency in existence, then each coin has a notional end-point value of $5-million. Of course, cryptos will not entirely replace all fiat currency, nor will BitCoin have a 100% share of the crypto-market ... but with each passing day cryptos make further penetration into the fiat monopoly, and BitCoin's share of the cryptos increases - it's now like 75%. So one must ask - Why is this happening at all?
And the answer is - it's happening for the same reason that Google has replaced all other search-engines - it's happening because BitCoin, like Google, is fundamentally functionally superior to its competitors, both fiat and crypto.
It's not unreasonable at all to deduce that BitCoin will level-off in 5 or 10 years and around $1-million. And when it does level-off it can then be used as medium of exchange, the same way fiats are used now. And until it levels-off ... it's the greatest 'buy the dips' trade there has ever been.

Looks into the abyss

I have discussed with the Bitcoin crowd for years. Of course, they think they are proven right by the price movements. But such was human nature always, and always will be.

The answers they give me are often deeply ironic to anyone who understands the dynamics of bubbles. The gains they believe they have made fuel a self-reinforcing cycle of Pavlovian rewards for ignorning warnings and logic. They have become conditioned to be ignorant.

The price movement only shows that you are taken to the slaughterhouse in a more comprehensive way.

It seems that every generation has to learn by itself that wealth cannot possibly, ever, be created by driving the price of an asset higher and higher. It is the illusion of paper gains that distorts minds, the greed that makes humans blind for the yawning abyss ahead.

While a small number of individuals will be rewarded with enormous riches, as a collective, there is no way out for you. Your fate has been sealed from the first day.

Sadly, you have also sold out. When the banks you pretend to hate decided to join the feast to get their piece of the juicy meatpie, you cheered them and drove the prices even higher.

But you, of all, should have known better. The bank always wins.


I don't even know anymore, why do I keep warning people? It is pointless, and even the ethics of it have become unclear to me.

"No question now what has happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again: but already it was impossible to say which was which."


Think about it -
Buttonwood is guy with no skin in this game. He's a skeptic acting in good faith who see the attributes of a bubble in the price-action of BitCoin. That's fine ... but he crosses the line from skepticism into fanaticism when he refuses to acknowledge that the cryptos have something fundamentally positive working in their favor - it's not all just fantasy. Then there's Jamie Dimon, who has a ton of skin on the line ...
The cryptos are a mortal threat to Dimon's industry. If he was genuinely convinced that the cryptos will go the way of the tulips then he wouldn't need to keep shooting off his mouth to denounce them - he'd just watch them die harmlessly (to him). But he does keep trying to talk them down, which suggests to me that he knows they will not die of their own inherent flaws, so he has to do everything he can to try to kill them ... before they kill him. His denunciations should properly be viewed as an unintended de facto endorsement of the long-term potential the cryptos possess.
When there are no more Dimons and no more Buttonwoods lobbing brickbats at BitCoin ... that's when BitCoin holders need to start thinking about cashing-in some of their chips. Until then, enjoy the ride.

tm lutas in reply to Looks into the abyss

Banks benefit from a carry trade where they are an intermediary taking in deposits at little to no interest and loaning it out at higher interest. Bitcoin type cryptocurrencies (though not currently bitcoin itself at current trading volumes) allow for banks to be disintermediated.


If I wanted to play games with fake money, Hasbro's Monopoly is the better bet: it's more fun than Bitcoin, less energy-intensive, and certainly cheaper.


Risks of Investing in Bitcoins

Though Bitcoin was not designed as a normal equity investment (no shares have been issued), some speculative investors were drawn to the digital money after it appreciated rapidly in May 2011 and again in November 2013. Thus, many people purchase bitcoin for its investment value rather than as a medium of exchange. But their lack of guaranteed value and digital nature means the purchase and use of bitcoins carries several inherent risks. Many investor alerts have been issued by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Consumer Financial Protection Bureau (CFPB), and other agencies.

The concept of a virtual currency is still novel and, compared to traditional investments, Bitcoin doesn't have much of a longterm track record or history of credibility to back it. With their increasing use, bitcoins are becoming less experimental every day, of course; still, after eight years, they (like all digital currencies) remain in a development phase, still evolving. "It is pretty much the highest-risk, highest-return investment that you can possibly make,” says Barry Silbert, CEO of Digital Currency Group, which builds and invests in Bitcoin and blockchain companies.

Not for the risk-adverse, in other words. If you are considering investing in bitcoin, understand these unique investment risks:

Regulatory Risk: Bitcoins are a rival to government currency and may be used for black market transactions, money laundering, illegal activities or tax evasion. As a result, governments may seek to regulate, restrict or ban the use and sale of bitcoins, and some already have. Others are coming up with various rules. For example, in 2015, the New York State Department of Financial Services finalized regulations that would require companies dealing with the buy, sell, transfer or storage of bitcoins to record the identity of customers, have a compliance officer and maintain capital reserves. The transactions worth $10,000 or more will have to be recorded and reported.

Although more agencies will follow suit, issuing rules and guidelines, the lack of uniform regulations about bitcoins (and other virtual currency) raises questions over their longevity, liquidity and universality.

Security Risk: Bitcoin exchanges are entirely digital and, as with any virtual system, are at risk from hackers, malware and operational glitches. If a thief gains access to a Bitcoin owner's computer hard drive and steals his private encryption key, he could transfer the stolen Bitcoins to another account. (Users can prevent this only if bitcoins are stored on a computer which is not connected to the internet, or else by choosing to use a paper wallet – printing out the Bitcoin private keys and addresses, and not keeping them on a computer at all.) Hackers can also target Bitcoin exchanges, gaining access to thousands of accounts and digital wallets where bitcoins are stored. One especially notorious hacking incident took place in 2014, when Mt. Gox, a Bitcoin exchange in Japan, was forced to close down after millions of dollars worth of bitcoins were stolen.

This is particularly problematic once you remember that all Bitcoin transactions are permanent and irreversible. It's like dealing with cash: Any transaction carried out with bitcoins can only be reversed if the person who has received them refunds them. There is no third party or a payment processor, as in the case of a debit or credit card – hence, no source of protection or appeal if there is a problem.

Insurance Risk: Some investments are insured through the Securities Investor Protection Corporation. Normal bank accounts are insured through the  Federal Deposit Insurance Corporation (FDIC) up to a certain amount depending on the jurisdiction. Bitcoin exchanges and Bitcoin accounts are not insured by any type of federal or government program.

Fraud Risk: While Bitcoin uses private key encryption to verify owners and register transactions, fraudsters and scammers may attempt to sell false bitcoins. For instance, in July 2013, the SEC brought legal action against an operator of a Bitcoin-related Ponzi scheme.

Market Risk: Like with any investment, Bitcoin values can fluctuate. Indeed, the value of the currency has seen wild swings in price over its short existence. Subject to high volume buying and selling on exchanges, it has a high sensitivity to “news." According to the CFPB, the price of bitcoins fell by 61% in a single day in 2013, while the one-day price drop in 2014 has been as big as 80%.

guest-aaioinne in reply to MrR.Fox

The problem with this reasoning is that all crypto, so far, has replaced approximately 0 of fiat currency. Even in the black-market economy, where crypto has the strongest use case, most of the transaction volume still goes through in fiat (USD and EUR mostly.) The amount of bitcoin used in transactions that would otherwise occur in fiat is a rounding error.

maybe bitcoin or some other crypto will eventually replace a significant amount of fiat currency transactions, but maybe it will never replace any significant amount. You can claim pretty much any number as the value it should achieve at some point in the future, but realistically there is a large probability mass around 0 and a long tail in the higher values ... pretty much the definition of what a speculative asset looks like (i.e. a lottery ticket.)